By Gerard Wynn
LONDON Feb 23 The decision by the world's
leading solar power Germany to slash subsidy support will
probably lead to similar moves across Europe and hasten a
manufacturing shakeout through bankruptcies while sharpening the
technology's competitive edge.
The announcement on Thursday of a 20-30 percent support cut
will cast a further pall over module (solar panel) makers, which
will brace for further pressure on profit margins as they try to
adjust selling prices in line with the new support
That will inevitably lead to more bankruptcies in a sector
already labouring under 100 percent or more over-capacity and
where leading names have filed for insolvency, including
U.S.-based Evergreen Solar and Solyndra, and debt
restructurings such as the one at Germany's Q-Cells.
But further cost cuts across the supply chain - and in
particular the upstream manufacturers of raw solar-grade silicon
- will sharpen the technology's competitiveness and see it mount
a serious attack on offshore wind, shaking up the relative
outlook for emerging technologies.
Larger solar installations in Germany over 1 megawatt will
now get 13.5 euro cents per kilowatt hour support (from 17.9
cents), while projects over 10 MW will get nothing.
That is now less than offshore wind, which continues to get
15 euro cents, although over a shorter period.
That close competition is borne out by consultancy and
industry estimates of the unsubsidised cost of electricity for
each, with the two competing neck and neck at about 15-20 euro
cents per kilowatt hour.
If solar economics can leapfrog those of offshore wind, this
poses the question: why invest in such a complex, moving piece
of machinery as an offshore turbine, stationed in an
unpredictable weather environment with massive servicing costs,
rather than a simpler, static and more proven solar panel array?
One answer is that there may be more limited space for solar
panels in the best, south-facing spots compared with the
available coastlines suited for offshore turbines.
Any benefit from whittling solar costs will come in the
medium term: a more immediate impact will be a withering among
manufacturers as these brace either for price cuts or an equally
damaging, more prolonged mothballing of capacity.
Sharp falls on Thursday of 6 percent or more in the share
prices of manufacturers worldwide illustrated the risk.
Germany's latest tariff cut is intended to slow a stampede
to develop projects, which hit a fresh record last year.
Installations of solar panels have boomed due to feed-in
tariffs, generous subsidies which have mounted into a growing
burden passed on to energy consumers.
Berlin's move may be copied by other countries.
Britain on Tuesday signalled its determination to carry
through a halving of solar support, from one of the most world's
most generous levels, taking its case to the Supreme Court after
set-backs at lower courts and opposition from solar developers.
London has often referenced the German model for continuing
support cuts over time and will only be encouraged by the new
German tariff for smaller installations, which is a little more
than a third of the equivalent, present UK level.
Germany's move confirms a trend in all renewable energy
towards lower subsidies, a shift recognised by leading companies
such as U.S.-based First Solar which says it is now
targeting low-cost, utility-scale projects.
In a self-propelling, downward spiral, falling prices for
solar panels have fed subsidy cuts, which in turn have forced
manufacturers to cut prices, and so on.
That trend is likely to continue, with price stabilisation
now looking more likely in 2014.
Analysts have recently downgraded the global outlook for the
sector which has seen a meteoric compound annual growth rate of
42 percent from 2000 to 2011, according to figures published by
the industry group, the European Photovoltaic Industry
The wild card is China, with wide-ranging estimates for how
far growth there could make up projected falling demand in