The solar paradox: boom, bust or both?
* Demand for solar panels to grow to more than 35 GW in 2013
* Number of equipment makers has dropped to less than 150
* House owners, farmers emerge as winners in current turmoil
By Christoph Steitz
FRANKFURT, May 10 (Reuters) - Planned European levies on Chinese solar panels will only go some way to halt a rout among equipment makers who face the paradox of a booming market but falling revenues - and could suffer even more if a trade war erupts.
Huge European subsidies for solar power helped create hundreds of start-ups building solar equipment. Those subsidies are being phased out faster than expected, while greater competition within Europe and the United States as well as from China have pushed down prices and forced panel manufacturers to the wall.
"It's a storm that's even worse than feared, hitting everyone unable to lower costs fast enough," said Bjoern Glueck, fund manager at wealth management firm Lupus Alpha, adding any firms that could not withstand the pressure were next in line.
Since its all-time high in December 2007, the FTSE 50 cleantech index of the world's largest renewable energy groups is down 56 percent.
The rout has been broad. Data from research firm IHS shows the number of companies making solar hardware - such as the silicon used in solar cells, the individual energy-producing cells themselves or the arrays of connected cells that form a solar panel - has plunged to 150 from 750 three years ago.
Global revenue is expected to fall this year to $75 billion, down from $94 billion euros in 2011.
But paradoxically, the fall in prices for panels which has hurt manufacturers has helped sustain demand despite the withdrawal of subsidies, meaning companies such as those that install household solar equipment have continued to thrive.
Companies that assemble panels have been hit particularly badly, as their products are much easier to replicate than those of other firms involved in the industry, such as firms that produce the polysilicon material used to make cells, or manufacturers of inverters, devices that are used to hook panels to the grid.
China's top panel maker Suntech put its main manufacturing unit Wuxi Suntech into insolvency proceedings in March, following Germany's Q-Cells, which filed for insolvency last year and was then bought by South Korea's Hanwha .
Even large and wealthy conglomerates like Germany's Siemens and Bosch, have pulled out of solar, pointing to the severe crisis that has gripped the industry for years.
SolarWorld, once Germany's largest solar panel maker and long immune to the global industry woes, is also struggling to strike a debt restructuring deal with creditors. Sources say such a deal could hand ownership of the firm to hedge funds and Qatar.
MORE DAMAGE AHEAD
The new proposed tariffs on Chinese solar imports could backfire on Europe. China, the world's No.2 solar market behind Germany in 2012, is expected to become the biggest market this year, according to industry association EPIA, and Asia as a whole could also overtake Europe.
Western solar panel maker have long been at odds with their Chinese counterparts, accusing them of receiving credit lines to offer modules cheaply in Europe while protecting their own market, where European companies have made little headway.
European panel makers can little afford to be frozen out of the growing Chinese market.
China has already threatened in the past to put punitive tariffs on EU exports of solar-grade polysilicon, a move that would hit companies such as Germany's Wacker Chemie, the world's No.2 maker of the material.
"This situation is weighing on the market," the group's Chief Executive Rudolf Staudigl said earlier this week.
Yet despite the bloodbath among companies in the manufacturing sector, solar capacity is being sold and installed at record rates. There are still good reasons to invest in panels themselves, if not in the companies which make them.
Europe is still aiming to make 20 percent of its energy from renewables by 2020, from about 13 percent in 2011.
This year, the volume of installed panels around the world is expected to rise at least 12.5 percent to more than 35 gigawatts, according to data from electronics consultancy IMS Research. That is still only equivalent to about 0.2 percent of global electricity production.
"The conflicting trend of growing PV (photovoltaic) installation volumes accompanied on the other hand by falling revenues will challenge solar companies to continue to reduce their cost structures," said Ash Sharma, director of solar research at IMS parent firm IHS.
According to GTM Research, a green tech analysis firm, solar panel production costs are expected to fall to $0.42 per watt by 2015, from $1.29 per watt in 2009.
Cost cuts are putting solar power further along the road to "grid parity" - the ultimate goal of making it cheaper to install solar power than to buy conventional electricity from the grid.
Solar companies have launched cost cutting programmes, ranging from job cuts and factory closures to reducing of investment into research and development.
The remaining production costs include polysilicon, the main raw material for the industry, which is produced by groups including Wacker Chemie and Hemlock Semiconductor, a joint venture between Dow Corning, Shin-Etsu Handotai and Mitsubishi Materials.
The solar panel glut and consolidation is reminiscent of the computer chip industry, which suffered massive price drops as Asian manufacturers took on U.S. and European incumbents.
The problems for solar equipment manufacturers have been exacerbated by feasting on subsidies, only to see them taken away as the market has taken off.
With costs still higher than coal or natural gas, demand for solar power has been spurred by rules that subsidise payments to those who generate power and feed it into the grid - so called feed-in tariffs. But those subsidies have been withdrawn faster than expected. In Germany, the biggest market, subsidies have been cut by more than half in the last four years.
While companies that manufacture solar panels have been losing out, the price of equipment has fallen fast enough to keep demand strong despite the lower subsidies. Those who installed solar equipment in Germany in a few years ago are still earning returns on investment of about 15 percent.
More than a fifth of new European solar capacity last year was in private households, good news for hundreds of small and mid-sized companies that install it.
"That part of the market has done well in the past and continues to do so," said Thorsten Preugschas, CEO of German firm Soventix which helps home owners choose solar systems.