Revolt of the Sun Kings: Solar Industry Fights to Save Subsidies

By , Nils Klawitter and Wolfgang Reuter

Government subsidies for solar energy in Germany have reached absurd proportions, as ordinary consumers pay out billions to support solar power. Now plans to reduce the subsidies are encountering massive resistance from the industry and a number of German states, which benefit from the current arrangement.

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Stuart Brannigan believes that the subsidization of solar power practiced in Germany is extremely exaggerated. Brannigan, a British citizen, says that it's "absolutely necessary" that it be drastically reduced in size.

It's a surprising remark, considering that Brannigan is the European managing director of Yingli Green Energy, a Chinese solar energy company which largely has German government subsidies to thank for the fact that it has been able to grow from a small business into a major player in just six years. Brannigan hasn't exactly made any friends in the photovoltaic sector, especially not in Germany, with comments like this.

Yingli opened up shop in 2004 as a small photovoltaic business, producing solar cells, in Baoding south of Beijing. At the time, the company was manufacturing 6 megawatts worth of solar panels a year -- enough for the roofs of houses in a few villages.

The company now boasts annual sales of more than $1 billion (€740 million). Yingli is a sponsor of the upcoming football World Cup in South Africa. It is referred to in the media as a "solar giant." And Germany is the reason why it is a giant.

Guaranteed Prices

Almost half of Yingli's production is shipped to Germany, which is an attractive market for solar producers, largely because of the Renewable Energy Sources Act (EEG) enacted in 2000. The law guaranteed a price of up to €0.57 ($0.76) per kilowatt-hour for electricity derived from solar power that was fed into the grid. The so-called feed-in tariff has since been reduced to a maximum of €0.39, which is still six times the normal producer price. But Brannigan can live with the new reductions. The cuts may actually benefit Yingli in particular, because other producers can't compete with China's low wage costs.

Nevertheless, says Brannigan, "Germans can be proud of this law." Without the help of lawmakers, he says, Germany would hardly have seen such dynamic development of renewable energy sources. What was once a niche industry has turned into a sector with global importance. The solar industry is responsible for almost 80,000 jobs in Germany alone.

But lawmakers have overshot the mark by far, at least when it comes to subsidies for solar energy. Anyone who installs solar panels benefits from guaranteed feed-in tariffs for the next 20 years. That means that, over a 20-year period, Germany's electricity customers will pay a total of around €14 billion in subsidies -- just for the solar panels that were installed in 2009. And that cost is likely to rise in the future, because Germans are mounting more and more solar collectors on their roofs. Economists estimate that all the solar panels installed by 2013 will cost German consumers more than €70 billion. Thanks to the generous subsidy program, crops on some fields have been replaced with arrays of shimmering, bluish modules mounted on automated stands and tilted toward the sun. And all of this is being done for an amount of electricity that meets only 1.1 percent of German demand.

The German government has also recognized that the system cannot continue in its current form. In addition to an annual reduction of about 10 percent in feed-in tariffs, in place since 2009, the subsidy program will be drastically reduced by another 16 percent on July 1.

'Wave of Bankruptcies'

The industry is horrified. Solar manufacturers have taken out full-page ads in newspapers, addressed directly to "Dear Chancellor Merkel," begging her not to touch the EEG.

Frank Asbeck, CEO of the German photovoltaic giant Solarworld and an unofficial solar industry spokesman, fears a solar eclipse and sees a "wave of bankruptcies" headed for the industry. In the wake of the 2009 crisis, he says, the solar sector is still on shaky ground, with most companies remaining in the red -- except, of course, Solarworld.

In fact, Asbeck has created the only fully integrated solar company in Germany. Solarworld handles everything from silicon processing to manufacturing modules to recycling old products. In Freiberg, a town in the eastern German state of Saxony where Solarworld has its production plant, Asbeck is known as the "Sun King."

He has developed a highly automated production system in this former silver mining center, where 1,200 employees produce as much as 6,000 workers do at Yingli. Asbeck estimates that the Germans have about an 18-month technological head start over the Chinese. But whether that advantage still exists is debatable. "We too use European equipment," says Brannigan, noting that he spent about $350 million on such equipment in 2009.

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