Solar Eclipsed?

by: energytribune Posted date: October 24, 2012 In: China, Europe

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By Peter C Glover

The global solar power industry is in crisis. The industry blames widespread national subsidy cuts and over productivity; China, in particular, being widely vilified on the second count. However, the real cause of the solar industry’s malaise runs deeper, rooted, as it is, in the inescapable fact that, in terms of current technology, commercial scale solar energy remains a non-viable proposition.

Wherever you look the solar power industry is mired in financial problems, all of which lead back to the (life support) of public subsidy, the impact of market-skewing regulations (creating the appearance of commercial viability) and, ultimately, protectionist trade wars (US and Europe v China). In economic good-times, three natural consequences of government-sponsored global industries that can be obfuscated by a network of feed-in tariffs, levies and other ‘green’ taxes to pay for them. But in leaner economic climes, the real cost of ‘free’ energy becomes all too clear.

Germany’s solar industry has led the way in Europe. Until recently the country was the world leader in manufacturing solar cells. Half of the world’s total solar power generating capacity is installed in Germany. But, according to Klaus Dieter Maubach, Technology Chairman at the country’s power major EON, Germany’s solar industry is in a death spiral. Speaking to Focus magazine, Maubach states that “not a single company is in the black” and that the entire German solar industry “will disappear within five years”. His bleak prediction merely echoed the view of investment consultants Citigroup who warned in March that Germany’s subsidy cuts would “nearly kill Germany’s solar industry”. Widespread complaints of Chinese solar companies dumping cut price solar panels on the European market have merely added to the malaise. In early September, the European Commission announced a formal inquiry into this allegation that could well trigger a cut-throat solar trade war with China.

But as Eon’s Maubach points out with regard to the international solar market, China itself is suffering from precisely the same market problems as all its competitors. While Beijing will attempt to stave off decline through government stimulus, it is only a question of time before the loss of European and US markets for cheap Chinese goods, including solar panels, causes an economic downturn there, too.

In fact, the threat of a Europe v China solar ‘war’ is little more than a replay of last year’s dust up between the United States and China. In the wake of the infamous Solyndra scandal (which Solyndra execs blamed on cheap Chinese imports), the U.S. imposed savage protectionist anti-dumping tariffs. These ranged from 31 percent to as high as 250 percent on imported Chinese-made panels. No surprise then that the Chinese companies should turn their attention to key European markets to offload a product they are unable to sell domestically. The problems for U.S. solar cannot be laid at the door of Chinese competition alone. Once the massive infusion of government stimulus cash ran out and subsidies slowed in early 2011, U.S. solar companies had already begun filing for bankruptcy. And Solyndra wasn’t the only company desperate for more cash. One heavily-subsidized firm, First Solar, was even caught using the U.S. taxpayer loan guarantee to sell solar panels to itself.

So are the Chinese really the chief villains of the global solar piece? Depends how you look at it.

China’s over production only came about because Beijing’s economic stimulus for its solar industry led to explosive growth and, ultimately, unfettered over production. Given enormous government subsidies there was literally no incentive to slow production down. In the game of who could sustain massive public subsidy longest, cash-rich China clearly won. But the fact is that the sun looks to be setting on China’s solar industry, too. Beijing has also become aware it cannot go on subsidizing its solar and renewable industries. China is dumping its solar panels in a bid to at least redeem some of its costs. Meanwhile the dark clouds have gathered over China’s economy too with the solar sector there also now facing bankruptcy. Since 2005, Chinese solar companies saw heady growth receiving significant government support as a “strategic emerging industry”. But since 2010, the price of the key polysilicon wafers crucial to production has fallen by around 75 percent. In recent times, China’s big five firms have all reported disastrous trading losses. Worse still, according to the investment boys at Energy and Capital and others, China’s much-vaunted booming economy, already over-heating, is about to implode.

Taken as a whole, government incentive schemes around the world have created a glut of suppliers that the capitalist free market would never have sanctioned. The eclipse of Europe’s solar industry is in truth down to simple economic realities hitting home as commercial scale solar power is simply too expensive a proposition to attract serious private sector investment and end massive public subsidies.

In January, Spain’s economic crisis forced it to cut its renewable subsidy regime entirely. In April, a near-bankrupt Italian government estimated that its subsidy regime left it facing a $60 billion bill to photovoltaic generators over the next 20 years. In The Great British Solar Scam I wrote about how the UK’s bid to cuts its ludicrously generous solar subsidy regime saw it prevented from making subsidy cuts by a European court after the UK solar industry inevitably claimed widespread bankruptcies would result.[1]

What marks out both the entire renewable energy sector for economic decline above all else is the fact that it is effectively an expensive government-sponsored enterprise, not a child of the free and democratic marketplace. Consider again the elements colluding to produce the current crisis: the lifeline of public subsidy, energy levies and taxes and market-skewing regulation dove-tailing with incentivized over-capacity, protectionism and, ultimately, trade wars. All marks of an industry kept afloat by ideological fiat and not free market capitalism geared to meeting actual market need.

To gain a final key perspective, a report by United Nations Environment Programme in June announced that global renewable energy investment generally reached $257 billion in 2011 rivalling the $302 billion invested in hydrocarbon power. Germany alone has committed over €100 billion in solar subsidies over the next 20 years – for a power that will produce a very small energy return. In total, renewable energy, of which solar is just a tiny fraction, makes up just 3 percent of our electricity.

As the green utopian clouds obscuring the real cost of ‘free’ solar power clear, it’s easy to see why the industry is in eclipse.

[1]At the micro-level, I often have to explain to those taken in by the ‘free’ solar power myth: “It might be a good deal for you, given massive government subsidy, but it’s a decidedly bad deal for the country as a whole and for taxpayers in general. In particular, it’s a rotten deal for those forced into fuel poverty as their energy bills rise to help pay for solar installations for better off households.” The sleight-of-hand being achieved first, through feed-in tariffs, then again, via the government’s Renewables Obligation Certificate that obliges power companies to buy renewably-sourced electricity at inflated market prices, a cost that will always be passed on to the end user.

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