The mayor of the eastern German town of Bitterfeld-Wolfen, Petra Wust, is all too familiar with booms and busts. The region was a center for the chemical industry in communist East Germany. Wust experienced at first hand how the industry was wound down after the fall of the Berlin Wall, putting about 50,000 people out of work.
Wust was also there when the region experienced rapid growth, earning it the nickname "Solar Valley." In 1999, as the town's then-treasurer, she helped persuade Q-Cells, a manufacturer of photovoltaic cells, to locate its headquarters in Bitterfeld-Wolfen.
The town bent over backwards to smooth the way for the company, says Wust, and the effort paid off. The solar panel business flourished, and the company, which began its operations with 19 employees, soon had more than 1,000 people on its payroll. When Q-Cells went public, one member of its works council even became a millionaire.
A dream seemed to have come true for many people and for the region, which had once been notorious for the pollution caused by lignite-fuelled power plants and the chemical industry. One photovoltaic manufacturer after another located in the area. The clean, future-oriented industry generated jobs and income, employing as many as 10,000 people in its heyday.
But now Q-Cells is struggling to survive. The company made a heavy loss in the second quarter of 2011. It doesn't take a business degree to recognize the desperate situation in which the company, once the world's largest solar cell manufacturer, now finds itself.
Solar Valley threatens to turn into a vale of tears. Mayor Wust fears that her town is heading toward another historic watershed. This time the fates of 3,000 workers are at stake.
The outlook has turned bleak for the entire solar industry. Companies that were the darlings of the stock market and the political world until recently are now experiencing a sharp downturn. Their share prices have plunged, as they downsize and write off millions in losses.
At Phoenix Solar, a systems supplier based in the Bavarian town of Sulzemoos, sales in the period from March to July were down more than 60 percent over the same period last year. The management of Berlin-based Solon is worried about the company's ability to survive. Its future hinges on the banks extending a loan that expires at the end of the year.
In the United States, a few well-known solar companies have already run out of money. Last week Solyndra, a Silicon Valley maker of solar power arrays, filed for bankruptcy and laid off 1,100 workers.
A number of German companies are also facing legal problems. The former supervisory board chairman of Conergy, Dieter Ammer, faces charges of accounting fraud and insider trading in a Hamburg court, although he disputes the allegations. The public prosecutor's office in the Bavarian twin cities of Nuremberg-Fürth is looking into allegations of wrongdoing by Utz Claassen, a former top executive at Solar Millennium.
Faced with their own problems, it comes as little consolation to the erstwhile sun kings that their counterparts in wind energy are dealing with their own woes. Nordex, a pioneer in the industry, plunged into the red in the first half of the year, forcing it to eliminate more than 100 jobs and reduce costs by 50 million ($70 million). In 2010, German wind turbine manufacturers as a whole saw revenues and jobs decline for the first time.
The gloomy news from the solar and wind power industries comes as something of a surprise. After the catastrophe in Fukushima and the German government's decision to phase out nuclear energy, it seemed obvious that makers of renewable energy systems would be among the winners of the so-called energy revolution.
"Germany is the global market leader in the renewable energy sector," German Environment Minister Norbert Röttgen recently crowed. "If we expand this position, it will enhance the competitiveness of our industry and our country." Meanwhile, Chancellor Angela Merkel said she anticipated "opportunities for exports, development, technology and jobs."
Now, of all times, the green industries of the future are faltering. The goal of developing a new leading industry with global aspirations has become a distant hope. German players play only a secondary role in global markets and are steadily losing market share -- despite being heavily subsidized. Or maybe the industry is ailing precisely because of the billions in government aid.
Hardly any other industrial sector has received such generous political support as the producers of green electricity, especially the solar industry. Germany's Renewable Energy Sources Act (EEG), introduced 11 years ago, gave the industry a phenomenal boost. Nevertheless, the boom comes at a high price.
The EEG guarantees each provider a fixed price for the electricity it feeds into the grid (the so-called feed-in tariff) -- paid for by consumers. The Rhenish-Westphalian Institute for Economic Research (RWI) calculates that, up until the end of 2010, electricity consumers paid roughly 81.5 billion for the expansion of photovoltaic technology alone. This "tsunami of costs" will only continue to grow, says the RWI.
Resting on Their Laurels
The bonanza helped small green energy producers transform themselves into sizable corporations within the space of just a few years. Hundreds of thousands of homeowners had solar panels installed on their roofs. As recently as last year, about half of the 16 gigawatts of solar modules installed worldwide were mounted in Germany.
The module producers could depend on a constant flow of orders. The problem is that they became lethargic as a result. Today German manufacturers are not nearly as innovative as their dynamic image would suggest. The industry invests only 2 to 3 percent of its revenues in research and development, a much lower percentage than in Germany's famous machine-building sector, for example.
Not surprisingly, German companies are no longer as successful in selling their products, and their warehouses are full of inventory. "Eight gigawatts of solar cells are sitting in stockpiles worldwide," estimates Frank Asbeck, CEO of Solarworld. Meanwhile, prices have hit rock bottom.
Only about six months ago, it cost about 28,000 to cover a 100-square meter (1,076-square-foot) roof with brand-name solar modules, says Asbeck. Today the price is down to about 22,000.
Many German manufacturers can hardly keep up, now that Chinese suppliers are flooding the world market with solar panels. The Chinese have set their sights on Germany, in particular, which has become the most important market for companies like Suntech and Yingli.
Suntech sponsors the team TSV 1899 Hoffenheim in the German national soccer league, while Yingli is an official sponsor of Bayern Munich. The marketing offensive has already had an impact, as the number of Chinese-made solar panels on German rooftops continues to grow. Even the competition admits that the Chinese products are just as good as German-made cells -- and cost about a third less, on average.