Future of solar cells industry too bright for its own good

GLOBAL MONITOR
THIS sad stretch of eastern Germany, with its deserted coal mines and corroded factories, epitomises post-industrial gloom. It is a place where even the clouds rarely seem to part.

Yet the sun was shining here the other day – and nowhere more brightly than at Q-Cells, a German company that surpassed Sharp last year to become the world's largest maker of photovoltaic solar cells. Q-Cells is the main tenant among a flowering cluster of solar start-ups here in an area known as Solar Valley.

Thanks to its aggressive push into renewable energies, cloud-wreathed Germany has become an unlikely leader in the race to harness the sun's energy. It has by far the largest market for photovoltaic systems, which convert sunlight into electricity, with roughly half of the world's total installations. And it is the third-largest producer of solar cells and modules after China and Japan.

Now, though, Conservative lawmakers want to pare back generous government incentives that support solar development. They say solar generation is growing so fast that it threatens to overburden consumers with high electricity bills.

Solar-energy entrepreneurs warn that reducing incentives will deprive Germany of its pole position in an industry of the future. As proof, they point to the United States and Japan, which were once solar stars but have faded as their government subsidies became less enticing.

Joachim Pfeiffer, a member of parliament who is drafting the plan to cut incentives, said: "We don't want to slaughter the solar industry; we think photovoltaic technology will have a great future. But to have that future, we can't have overkill now."

At the heart of the debate is the Renewable Energy Sources Act. It requires power companies to buy all the alternative energy produced by these systems, at a fixed above-market price, for 20 years.

This mechanism, known as a feed-in tariff, gives entrepreneurs a powerful incentive to install solar panels. With a locked-in customer base for their electricity, they can earn a reliable return on their investment. It has worked: homeowners rushed to clamp solar panels on their roofs, and farmers planted them in fields where sheep once grazed.

The amount of electricity generated by these installations rose 60% in 2007 compared with 2006, faster than any other renewable energy. This is in a country that gets an average of only 1,528 hours of sunshine a year, less than a third of the total daylight hours. That figure is comparable to London's but it is one-third fewer sunshine hours than in Florence, Italy, and only half San Diego's, making German solar installations less efficient, and their growth all the more remarkable.

With wind, biomass and other alternative energy also growing, Germany derives 14.2% of its electricity from renewable sources. That puts it ahead of a European Union target for countries to generate 12.5% of electricity from alternative sources by 2010.

Christian Democrats, however, say the law has been too successful for its own good. Utilities, they note, are allowed to pass along the extra cost of buying renewable energy to customers, and there is no cap on the capacity that can be installed.

At the moment, solar energy adds ?1.01 a month to a typical home electricity bill, a modest surcharge that Germans are willing to pay. That will increase to ?2.14 a month by 2014, according to the German Solar Energy Association.

But the volume of solar-generated energy is rising much faster than originally predicted, and critics contend that the costs will soar. Pfeiffer, the legislator, said solar power could end up adding ?8 to a monthly electricity bill, which would alienate even the most green-minded. With no change in the law, he says, the solar industry will soak up ?120bn in public support by 2015.