Sunday

24th Jul 2016

Focus

The growing pains of the solar industry

  • In some areas, solar energy is already competitive (Photo: pixor)

On Monday 27 August, German electronics company Bosch announced it was closing a factory for solar panel materials in the central town of Erfurt.

The day before, German solar panel manufacturer Q.Cells, a market leader before filing for insolvency in April, confirmed it had been taken over by South-Korea’s Hanwha.

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Earlier in September, China’s GCL-Poly, a leading maker of sillicon for solar cells, presented a more-than-100 percent plunge in profits - despite an increase in sales volume.

The solar industry is in disarray. Tales fill the trade magazines of mergers and acquisitions, closures and insolvencies.

But, experts say, that is nothing out of the ordinary. It is going through painful-but-necessary puberty.

Childhood

Many would mark 1 April 2000 as the day the gold rush started. On that date in Germany a new law came into force setting a premium price on renewable energy and a long-term purchase guarantee. This way, investors were certain of a decent return.

At the time, according to European industry association Epia, global solar power capacity was less than 1.5 gigawatts - not enough to power half a million households. In Europe, it was a little over a tenth of that.

Four years later, Europe had become the world’s biggest producer of photovoltaic electricity. Its capacity had grown by more than a factor eight. Global capacity had almost tripled.

The system of feed-in-tariffs, as it is called, proved highly successful. Lured by a sure buck as other countries in Europe followed suit, investors began to pour money into large-scale renewable energy projects.

Demand for solar panels shot through the roof. Every year, the market grew by exponentially. Sometimes, it more than doubled. And then, China happened.

True to its role as the world’s assembly line, China began to invest heavily in the manufacture of solar panels. Its domestic market was close to zero. But there was gold to be found in Europe.

Technology advanced, competition grew, and solar panel prices began to tumble. At the same time, crisis-stricken governments in Europe began to slash the feed-in-tariff, reducing demand.

“A perfect storm,” says Paolo Frankl, head of the renewable energy division at the International Energy Agency.

Not all doom and gloom

Today, global production capacity is estimated to be some 50 gigawatts per year, the bulk of which in China. That is double the expected demand for 2012, most of which will again come from Europe.

As a result, prices have fallen by more than half over the course of a year. Solar panel makers around the world are struggling. A group of 17 big manufacturers, according to a Bloomberg index, have lost two thirds of their collective value since September last year.

“Some companies are selling below cost price, just to keep the cash flow going,” says David Owen, chief executive of Solar Media, a publishing company.

But it is not all doom and gloom. Oversupply and falling demand are not unusual for a new, promising industry. It is called a bubble - or rather, it is what happens when it bursts.

“It is nothing new compared to other industries,” says Frankl, from the IEA.

He added that while the industry is undoubtedly in trouble, “we should not overstate the trouble. It is transitionary trouble.”

Economists call it consolidation, a process of natural selection that weeds out the uncompetitive. In the end, a more healthy and less crowded sector should emerge.

“The industry is now weathering a period of uncertainty in the short-term,” it says in Epia’s global market outlook, published in May this year.

“But over the medium- and long-terms the prospects for continued robust growth are good.”

Frankl agrees. “Our estimate is that by 2017, global capacity will be some 230 gigawatts, which is three times as much as today,” he says.

“And that is our conservative estimate.”

Standing alone

Much will depend on the uptake outside of Europe. Markets there - namely in the US, China and the Asia-Pacific - have only recently started to grow and are still fairly small. Last year, Europe’s share of the global market was close to 75 percent.

But most will depend on the ability of the solar industry to stand on its own two feet and compete with other energy sources, renewable or not, without the help from governments.

“Now, [photovoltaics] needs to demonstrate that it is a mature industry, ready for the next stage of its development,” says Epia.

Experts say that in some areas, it already is. Like in Sicily, for example, where the cost of energy is relatively high and sunshine abundant.

But in most areas, it will need a bit more time, research and development, says Craig Winneker, head of political communications at Epia.

“It will happen before the end of the decade,” he says.

Investigation

ECB in ‘bail-out’ of scandal-tainted VW

The ECB has started to “bail out” Germany’s Volkswagen Group by buying its corporate bonds, but other EU-linked banks continue to shun the scandal-tainted firm.

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