Solar Cells Info

By Jeremy van Loon, June 2, 2008
Source: Bloomberg.com
http://www.bloomberg.com/apps/news?pid=20601085&sid=aNkjxKkZ0aUM&refer=europe

Germany is slashing the subsidies that built its solar industry up to $8.8 billion in sales and made the country the world’s biggest market for panels that capture the sun’s energy.  Homes and businesses earn a government-guaranteed price of as much as 47 euro cents ($0.74) for each kilowatt-hour of solar power they generate, enough to run a vacuum cleaner for 60 minutes and double the market rate. Spain and France are copying Germany’s model as a way to nurture clean-energy industries that can reduce reliance on fossil fuels and cut gas emissions blamed for global warming.

Almost nine years of subsidized prices have made Germany the largest market for photovoltaic panels with 17 publicly traded solar companies, and about 40,000 employees, 13 times more than in 2000. While the government says it wants to keep the industry from growing too fast, manufacturers Q-Cells AG and Solarworld AG say that reducing the guaranteed prices will hurt profits and stall the technology’s emergence.

“Pressure on margins would be very high,” said Anton Milner, chief executive officer of Q-Cells, the world’s largest maker of solar cells, in a May 14 interview. “Many smaller German companies would be squeezed out of the market. It’s definitely too early for the proposed cuts.”

Germany has installed about 1.5 million solar systems, including 500,000 photovoltaic modules, according to the Berlin- based Bundesverband Solarwirtschaft, a solar energy association. Solar offers the potential of generating about a quarter of the northern European country’s electricity, even with the relatively scant amount of sunshine, said Carsten Koernig, president of the association, in a May 13 interview.

Deepening Cuts
Shares of Q-Cells rose 1.89 euros, or 2.4 percent, to 80.04 euros in Frankfurt. Solarworld gained 93 euro cents, or 2.8 percent, to 34.11 euros.

The country has trimmed subsidized prices by 5 percent a year from about 1 euro per kilowatt-hour nine years ago to spur the industry to control expenses and improve efficiency. The environment ministry proposes deepening that reduction to 9.1 percent next year, and some lawmakers are demanding a 30 percent cut. A decision may come as early as this week, according to renewable-energy lobby groups.

“Consumers in Germany are paying 5 billion euros additionally per year to subsidize renewable energy,” said Claudia Kemfert, the Berlin-based DIW Research Institute’s chief energy economist. “It makes sense to lower these subsidies to exercise more pressure to cut costs.”

Subsidy Pioneer
Germany pioneered feed-in tariffs, as the subsidies are known. The tariffs guarantee the level of payments for solar power over 20 years, obliging utility companies to buy renewable energy from producers, households with panels and entrepreneurs who built solar farms as a result of the price guarantees.

Government policy is the “fundamental driver” of profit and valuations of companies specializing in renewable energy, including solar, said New York-based JPMorgan Chase & Co. analysts Thomas Lee and Marc Levinson in a note to advise investors on opportunities and challenges for the industry on May 15.

Q-Cells and Renewable Energy Corp. ASA rallied May 30 after Hermann Scheer, an SPD member of parliament, said Germany’s ruling coalition government agreed to implement smaller-than- expected subsidy cuts of about 10 percent annually. The German environment ministry said May 30 that no official decision on the size of the cut had been made.

Stocks
Thalheim-based Q-Cells surged 9.8 percent to close at 78.15 euros on the Frankfurt exchange, while Solarworld jumped 11 percent to 33.18 euros. Hovik, Norway-based Renewable Energy, the largest maker of polysilicon used in solar panels, rose 6.1 percent to 151.5 kroner in Oslo.

On May 29, Merrill Lynch & Co. analyst Matthew Yates wrote in a note to clients that the reductions could be as much as 25 percent. Bonn-based Solarworld fell 5.6 percent that day, and Q- Cells declined 5.3 percent.

Germany last year purchased 40 percent of the photovoltaic modules made worldwide, a demand that exceeds domestic production, according to the Merrill analysts in London.

The German system has become a model for 40 countries, mostly in the European Union, according to Deutschland-Hat- Unendlich-Viel-Energie, a Berlin-based renewable-energy group funded by the German government, Q-Cells and other companies. Spain, the second-largest market in Europe for solar cells, is following Germany in lowering tariffs to steer more money to plant-derived fuels and other alternative energy projects.

40,000 Jobs
Without slashing the guaranteed price for solar power, consumers will be forced to spend an extra 120 billion euros ($187 billion) on electricity in the next two decades and Germany will end up buying most of the world’s solar modules, said Joachim Pfeiffer, a lawmaker and energy spokesman for Chancellor Angela Merkel’s Christian Democrats. That would benefit overseas producers, and the subsidies are meant to help only German companies, he said.

“The costs are threatening to explode,” he said in a May 8 interview. “In the next three years, all this global solar panel production will be sucked up like a vacuum cleaner by Germany. This can’t be in the interest of Germany or the industry.”

“Mr. Pfeiffer has to ask himself whether he wants to threaten 40,000 jobs,” Environment Minister Sigmar Gabriel, a Social Democrat, said in a May 14 interview, when asked whether he will have to compromise with the Christian Democrats and slash the subsidies more than planned. “The subsidies have been a success, clearly.”

German Rooftops
Electricity generated from solar panels on German rooftops will be cheaper than power produced by coal and nuclear plants after 2016, Koernig said, citing his group’s own research. Until then, some customers may stop using solar if the subsidies decline too far, too fast, he said.

“Only the top two or three companies will be alright, and even that assumes they have made meaningful improvements in costs,” said Catharina Saponar, an analyst at Nomura International in London, adding that the subsidies have been critical in creating the industry. “The rest may not survive.”