Solar: the sun also sets Premium

The industry is not on its back, but it is hardly thriving

As any sunbather will attest, too much of a good thing can be bad. For example, politicians advocating “green jobs” welcome lower prices for renewable energy, since the sector can gain market share against fossil fuels without subsidies only if it is cost-competitive. But the price of photovoltaic solar panels has fallen too fast for comfort: down by around a fifth this year, and nearly two-thirds since 2008. Overcapacity in polysilicon and finished panels, and low-cost Chinese production, are responsible for the decline. In the past few days, US-based Evergreen Solar filed for bankruptcy protection and Germany’s Solon said it would dismiss 15 per cent of its domestic workforce and shut a US facility.

The industry is not on its back, but it is hardly thriving, either, particularly outside China: the MAC Solar Energy Index has shed over a third of its value in six months.

Evergreen’s demise touched off a spasm of schadenfreude among opponents of green subsidies. They note that the firm shut down a plant in high-cost Massachusetts and moved 800 jobs to China only a few months after receiving $58m in state aid for opening the plant. But even with lower panel costs, lower subsidies for end-users remain a threat. Look at a map of leading solar markets and they show little relation to sunny climates and a tight one to the climate for subsidies. Feed-in tariffs and similar credits have been trimmed in Germany and slashed in Spain, both key markets.

The reduction in subsidies is expected to slow the volume growth rate of solar panel sales from 65 per cent annually over the past five years to about 15 per cent through 2016, according to Lux Research. Price pressure means that dollar revenue will be flat over that period and may actually decline in 2012.

The good news is that, by 2016, Lux sees price declines and rising conventional power costs making photovoltaic power commercially competitive in some areas. Investors must hope that their capital will not have shrivelled in the sun by the time that day arrives.

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