Germany and China and the economics of solar power

The news of major gains in production capacity in the manufacture of solar cells should be very good news for everyone who wants to see renewables become the dominant form of electrical generation.  Unfortunately in this era of economic neoliberalism, the inability of the world's consumers to buy all the solar cells that can now be produced cheaply is leading to a nasty trade conflicts and the destruction in the ability to make something the world obviously needs.  So once again we see the greed-induced global debt crises doing serious damage the real economy—this time to an industry of the future.

Chasing the Sun

German and Chinese Solar Firms Battle for Survival

By Wiebke Hollersen   05/29/2012

Germany was proud of its supposedly future-proof solar industry and subsidized it to the hilt. But then the Chinese got in on the act and started making much cheaper solar cells. Now, following a glut in production, companies in both countries are fighting for survival.

Michael Zhu gazes at the watch he's placed in front of him on the glass table in his office. He'll have to get a move on. He has to walk over to the factory and continue to work on forcing the Germans out of the very market they've created.

Zhu is the vice president of Suntech Power, which has an annual output of 10 million solar panels. No company in the world makes more than his, and no country in the world buys more than Germany.

"We really have to thank Germany," says Zhu, whose office is in Wuxi, a city on China's eastern coast. He raves about Germany -- about the clean air, about the politicians who decided early on to subsidize the production of green energy, and about the country's eco-conscious customers.

Nearly one-third of the modules from his factory are sold to Germany.

Reiner Beutel stands in his solar technology plant 8,500 kilometers (5,300 miles) away, in Bitterfeld-Wolfen, and says he's not prepared to simply admit defeat.

"We intend to undercut the Chinese on price," says Beutel, who is CEO of German solar cell maker Sovello. Although he originally comes from near the southwestern city of Stuttgart, Beutel's job brought him to this industrial park, known as Solar Valley, on the outskirts of town. In a conference room, he steps up to an exhibit that is 1.5 meters long and 90 centimeters wide (about 5 feet by 3 feet). It's a solar module from Sovello's "T Series" which is particularly well-suited for roof installations and is manufactured in the nearby production halls.

He raps on the aluminum frame and says, in English: "Made in Germany." Beutel wants to save the German solar panel. Though he's fighting an uphill battle, he still believes he has a chance. Nevertheless, he was hit by yet another setback when his company filed for bankruptcy two weeks ago. Now he's hoping to find new investors who, under the more favorable terms of the insolvency proceedings, are prepared to put money into this future-oriented industry.

Beutel is engaged in a fight being waged between two continents and two economic systems. In China, the communist government controls the economy, meaning that it steers and supports large, private companies, including manufacturers of solar panels, like Suntech. Its competitors, German manufacturers of solar technology, suspect that companies like Suntech have only grown so powerful thanks to government assistance and that China is providing its solar companies with cheap loans.

In a sense, it's a battle of state capitalism versus market capitalism. But there's not a genuine market for solar modules in Germany, either. Instead, there's a market that politicians created in 2000 with the Renewable Energy Sources Act (EEG), which promised tens of thousands of green jobs and now steers half of its €14 billion ($17.6 billion) in annual funding toward the solar industry.

People in Germany aren't buying all these solar modules because the sun shines particularly often in their country. They're buying them because they will receive subsidies known as feed-in tariffs for the electricity for 20 years. The state has guaranteed every producer of solar power a price that was initially 50 euro cents per kilowatt hour higher than the market price.

Under these circumstances, politicians have generated the demand for solar modules, including the one Beutel is standing next to in Bitterfeld, which is made up of 108 polycrystalline-silicon cells and weighs 17.4 kilos (38.3 pounds). Although size and weight vary from manufacturer to manufacturer, the basic principle remains the same: A solar module consists of solar cells, which are silicon wafers on which ribbons of silver and aluminum are printed. They are then soldered together, sandwiched between films and under glass in a frame, and provided with a plug.

Since making solar modules is no longer difficult, more and more companies have entered the sector in recent years, not only in Germany and China, but also in Japan and Korea. However, the subsidies available in Germany have not been limited to electricity produced by German-made solar panels, as politicians did not specify where the modules should come from. In Italy, by contrast, power customers receive a bonus for installing solar panels made in Europe. As a result, the German subsidy program has had an effect across the world, and primarily in Asia.

This led to a bubble in the solar-technology market. Manufacturers worldwide were soon making far more modules than customers wanted to purchase, and they started to undercut each other's prices, which fell by 50 percent last year.

Since then, one manufacturer after the other has filed for bankruptcy, more than half a dozen in Germany alone since December. Many solar-panel production facilities are in eastern Germany, in Brandenburg, Thuringia, Saxony and Saxony-Anhalt, where Bitterfeld is located. In April, the town lost Q-Cells, the city's first and best-known solar company. Its production halls are located across from Beutel's factory in Solar Valley. In Bitterfeld, they were hoping that Sovello, at least, would survive the crisis. The firm has a workforce of 1,250, or more than the other solar-technology production plants here.

By contrast, there are 12,000 people working in the production halls underneath Zhu's office in Wuxi. Every morning and every evening, when their long shifts begin, the company picks them up with 55 shuttle buses that circulate through the various districts of this city of over 6 million. more