It has been a rough year for Germany's solar panel manufacturers. Hailed not long ago as a promising new sector ripe with job opportunities, the industry is now seeing its biggest players succumb to over-production and stiff competition from Asian firms.
“It is fair to say that the industry is in a crisis,” says Gerhard Stryi-Hipp, director of energy policy research at the Fraunhofer Institute for Solar Energy Systems.
The latest casualty of the downturn is Q-Cells SE, once one of the world's leading producers of photovoltaic cells. Faced with mounting losses amid record-low prices for solar cells, the company from Bitterfeld-Wolfen filed for bankruptcy protection last week.
Leaders in both Germany and the US have touted green jobs as a growing source of high-paying, difficult-to-outsource jobs of the 21st century. But while the majority of new jobs in Germany are tied to renewable energy now, the solar industry slowdown indicates that green job gains might be short-lived and subject to the same pressures from Asia as other industries.
A March study for the Federal Environment Ministry estimates that solar installations created 110,000 new jobs last year – almost the same number as in 2010, putting the growth trend near zero for the first time in the young industry's history.
Once built, solar power plants require little maintenance and don't provide much long-term employment. “As long as the market is growing, solar installations will create new jobs,” says Mr. Stryi-Hipp. But “the solar manufacturing sector has already passed its zenith and will be adding fewer and fewer jobs” in years to come.
Until recently, German solar firms expected growing exports to sustain the job growth of years past. But as their profit margins grew thin, they started to send jobs abroad. “We see now that exports have only a limited effect on domestic employment,” says Stryi-Hipp, “as companies set up international production sites in an effort to become more efficient.”
The troubled solar sector notwithstanding, green industries remain the biggest job creator as Germany works towards its goal of getting 35 percent of its energy from renewable sources by 2020 and a whopping 80 percent by 2050. The March study estimates that all renewable energy sectors combined created 370,000 jobs last year – more than half of the almost 550,000 new jobs the German economy added as a whole that year, according to official statistics.
In the future, jobs are likely to shift from the narrow field of photovoltaic energy to the myriad industries involved in the overall transformation of Germany's energy economy.
“We're going to see a lot of jobs in the markets for wind and biomass,” Stryi-Hipp predicts, “as well as industries that are indirectly related to renewable energy, things like electrical grids, battery storage, heating, or building maintenance.”
The solar bubble
For now, the assembly lines at Q-Cells will keep running until June, and paychecks will keep coming for 1,300 employees in Germany as well as 900 more at the company's branch in Malaysia. After that, it is anyone's guess how many people will lose their jobs in the company's restructuring.
It is the fourth insolvency in less than a year to come out of the heartland of Germany's solar industry, a region aptly dubbed "Solar Valley.” Q-Cells joins the ranks of former industry heavyweights SolarHybrid AG, Solar Millenium AG, and Solon SE, failed companies that employ another 1,200 people – engineers, administrators, and factory workers whose jobs now hang in the balance.
The downfall of Q-Cells has rekindled speculation about a bubble in the market for solar panels and modules. The production capacity of Germany's solar manufacturers is almost double the current market demand, an overcapacity Ulrich Blum, professor of economics at Martin-Luther University in Halle describes as “dramatic.”
“The production boom has been fueled by unrealistic expectations concerning global subsidies for renewable energy,” Mr. Blum says.
Citing the low cost of solar installations and a resulting spike in profits for energy suppliers, the German government has cut its own subsidies for solar energy by almost 40 percent over the past three years. However, German manufacturers of solar panels were not turning the same profits, and the loss of the subsidies was fatal for several of them.
German energy laws give suppliers of renewable energy a long-term guarantee on the price and amount of energy sold. This “feed-in tariff” is higher than the free-market price, and consumers pay the difference through their monthly energy bills.
Hans-Josef Fell, a member of the Green Party in the German parliament, is calling for a revision of what he terms “drastic cuts” to Germany's solar feed-in tariffs. With the solar industry still largely dependent on subsidies, the German government effectively controls demand at home.
“Instead of throttling the domestic market for solar panels, the German government should take a more active role in strengthening it,” Mr. Fell says. He wants to increase the targets for solar-energy production and provide bridge loans to ailing companies.
'A clear miscalculation'
German solar manufacturers are struggling to compete against heavily-subsidized competitors in Asia. Five of the world's top ten solar manufacturers are now based in China, including the world's largest producer of solar panels.
These new global players focused first on exports; demand for solar energy in China is only now beginning to flourish. This strategy effectively pulled the rug out from under the feet of German manufacturers, who depend on the same markets and have been unable to offset their losses with new business in China.
“Solar energy has become very cheap thanks to Chinese manufacturers, and while we welcome this positive development for the environment, what we need now is equal access to the emerging Chinese markets," Fell says.
Asian firms took Germany by surprise with the speed of their development. “Nobody here expected the foreign competition to grow as fast as it did,” says Blum, referring to renewable energy industries in China, India, and South America. “That was a clear miscalculation.”
Blum says it is now time for German manufacturers to abandon the mass market for solar panels, where Germany cannot compete against the much cheaper Asian manufacturers, and move into more specialized fields. He sees good opportunities in component manufacturing and mechanical engineering – building the parts and machines that make up solar panels.
“The more a product becomes standardized, the more it is going to be assembled in countries with lower labor costs than in Germany,” Blum says. Instead of competing with Asian manufacturers directly, “German companies should focus on providing sophisticated, custom-made solutions.”
Others are not willing to give up on the mass market for photovoltaics just yet. Stryi-Hipp argues that the cost of labor is not a major factor in the overall production value of solar panels, unlike other mass-market industries where cheap labor makes all the difference.
“There are still opportunities for German manufacturers,” says Stryi-Hipp, “and it's too soon to give up on the mass market.” He believes that a period of consolidation will lead to one or two big German companies that can compete with Asian firms through economies of scale.
“The solar economy will not disappear from Germany,” says Fell, “and the mass market continues to have a future here.”