Solar industry faces subsidy cuts in Europe
By Michael Birnbaum and Anthony Faiola,
Hanover, Germany — Shiny black solar panels are as common a sight as baroque church spires in this industrial hub, thanks to government subsidies that have helped make Germany a world leader in solar technology.
Now, sudden subsidy cuts here and elsewhere in Europe have thrown the industry into crisis just short of its ultimate goal: a price to generate solar energy that is no higher than fossil-fuel counterparts.
Across Europe, governments are slashing public spending to cut their deficits, and green-energy subsidies are a target, too, even as solar power accelerates in the United States, helped by sympathetic federal policies and an increase in subsidies that came as part of the federal stimulus program.
German policymakers indicated last week that they planned to cut once-generous subsidies as much as 29 percent by the end of the month, on top of a 15 percent cut in January, although some details were still being negotiated after protests from the solar industry. Britain and Italy have made similar moves, and in January, Spain abandoned its subsidies altogether, prompting outrage from the solar industry.
Just months ago, a solar firm planting a field of solar panels atop one of Hanover’s many sprawling warehouses would have been sure to turn a profit. Now, one solar developer who plans to do that says he’ll be lucky to break even now that the subsidies are drying up.
Advocates say that in sunny regions, solar energy is within several years of becoming cost-competitive with fossil-fuel power — if solar companies can stay in business in the meantime. Several companies have already declared bankruptcy. Others say they’ll give up on Europe and focus on developing countries, where poor infrastructure makes solar panels that work off the grid a cost-effective competitor to diesel generators.
While many concede that the subsidies have become overly generous at a time when solar panels have dropped dramatically in price, they insist that governments are reneging on their pledges to go green and argue that the rollbacks are happening too abruptly. Some question whether countries will still be able to boost renewable energy’s share of the power supply in 2020 to their goals of 20 percent in Britain and 35 percent in Germany.
“This whole development has been made possible by Germany and a few other European countries,” said Richard Schlicht, the head of Geosol Germany, the company that is building the project on top of the warehouse in Hanover. Solar power “is becoming cheap only through mass production. And this has happened only through creating the demand. To stop it now makes no sense.”
The warehouse in Hanover — just across a river from a massive coal-fired power plant — will hold parts for the Volkswagen utility vans that are manufactured in a nearby factory. The solar panels won’t put a dent in the factory’s electricity needs, but on a sunny day they will generate enough for most of the 120-house development where Volkswagen workers live next door.
‘A very easy business model’
In December alone, Germany installed nearly as much solar capacity as the United States has in total, fueled by the subsidies that solar companies admit sometimes made it possible not to worry whether there was sufficient demand in a given area for the power they would produce. Germany’s hardscrabble East turned old Communist-era military bases into power plants. Some solar companies became experts at digging up unexploded munitions to make way for fields of photovoltaic panels.
Before the cuts, “it was a very easy business model. You only had to secure a piece of land, and you had to find an investor,” said Richard von Hehn, the head of business development at Gehrlicher Solar, a company based in central Germany.
Yet alternative-energy experts suggest that with the solar panels’ declining prices, subsidy cuts are not only acceptable, but to be expected. Though they criticize governments for offering woefully short notice, they suggest the cuts are inevitable as the solar industry becomes more competitive with fossil-fuel energy production.
“Everybody knows we can’t go the way we’ve been going,” said Miranda Schreurs, the director of the Environmental Policy Research Center at the Free University of Berlin and a government adviser. “It’ll break the bank.”
The subsidies for renewable energy cost German consumers about $14 a month for a family of four. Companies that generate renewable energy get a guaranteed above-market rate for 20 years. In Schlicht’s case, the owner of the building will get a cut of the proceeds in exchange for giving over part of the roof to Geosol.
Though solar energy supplied 3.1 percent of Germany’s electricity needs in 2011 — hampered in part by the country’s famously dreary weather — the industry consumed closer to half of the overall renewable subsidies, which also support other energy sources such as wind and biomass.
The mass production of solar panels in China — driven in large part by Europeans clamoring to buy them — means that some forms of solar installation cost half what they did three years ago. Germany nearly doubled its capacity in 2010, and last year, installations grew even faster, as the industry workforce swelled to 130,000.
Rethinking the support
Booms and busts have also hit other countries. In Britain, where the Conservative-led government once pledged to be the “greenest” in the country’s history, officials have set about dramatically rolling back public support for the solar industry. Generous subsidies introduced in 2009 — late by European standards — are being cut in half this month, with another sharp reduction set for the summer.
Those reductions — taking place as the government slashes public spending across the board in a bid to cut the deficit — prompted a lawsuit from the solar industry in Britain, which employs roughly 35,000 people.
Daniel Green, chief executive of HomeSun, a London-based solar firm, said the British solar industry is shedding “thousands of jobs.” His company, which employs 350, is poised to be particularly hit. The company had entered a lucrative niche in which it installed solar panels on British homes free, and simply collected the government subsidies in return. Since starting up 18 months ago, the company had installed its panels on 10,000 homes, and received applications from 300,000 more. “We were on our way to making major progress with solar energy in Britain through free solar, but now all of that has stopped,” he said.
The subsidy cuts have forced the company to upend its business model, and it now plans to sell panels. Green said he expects his company to undergo layoffs as a result.
“Ultimately, you have to grow your way out of recessions, and in Britain, green jobs was one major way we were going to achieve that goal,” he said. “But this shortsighted decision by the government is costing us that. They are concreting over the seeds of opportunity we had for new jobs and renewable energy growth together.”
Some advocates say that European countries need to band together to support technologies in places where they make the most sense — solar in sun-drenched Spain, wind in gusty Germany — rather than pursue policies that sometimes result in widely differing incentives across borders. And many argue that infrastructure investments, like better electrical storage to stockpile wind and solar powers’ fluctuating output, as well as smart power grids that can better route electricity to where it is needed, are the next technologies to concentrate on. They might benefit from support as the market develops.
“It’s not necessarily easy to get support to the right level,” said David Baldock, executive director for the London-based Institute for European Environmental Policy. “Governments aren’t always good at knowing how to profile their subsidies against market conditions.”
For European solar companies, that may have tough consequences.
“Germany has done something really positive for the world,” Schlicht said, looking over the warehouse roof in Hanover. “Now it’s lacking vision.”
Faiola reported from London.
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