If German solar manufacturers are to avoid the fate Maubach forecasts, they'll have to beat the competition on either price or quality. But with the former growing ever more difficult and the latter something of a wash, given the commoditization of solar cells, it's an uphill climb.
"If the European manufacturers can't be cheaper, then they have to be better," says Michael Kauch, a member of parliament and the environmental policy spokesman for the Free Democratic Party, which has been critical of subsidies for solar energy. "And at the moment, they don't appear to be."
This was supposed to be renewable energy's golden moment. Last year, in the wake of Japan's Fukushima nuclear disaster, Germany shut down half its nuclear reactors overnight and committed to phasing out the other half within a decade. The move was cheered by renewable energy advocates as a bold step to clear the path for wind and solar power.
Those dreams, however, were quickly dashed. Instead, the country's solar industry is experiencing its most tumultuous period since it first got off the ground. David Wedepohl of the German solar industry group BSW-Solar estimates that 10,000 full-time-equivalent jobs have been lost in Germany in solar installation, trade, and production this year, as of May. The collapse of the German solar firms has led to much finger-pointing. One obvious target is Beijing: The Chinese government, industry sources say, has flooded its domestic solar manufacturers with capital and propped them up even as they lose money, in a transparent ploy to corner the market.
The U.S. Commerce Department ruled in March that the Chinese government was illegally subsidizing the country's solar manufacturers and slapped modest tariffs on Chinese solar cells and panels entering the United States. Then, in May, the Commerce Department found that Chinese manufacturers were "dumping" solar products on the U.S. market by selling them at prices below the cost of production, and it imposed steeper tariffs of more than 30 percent on Chinese solar imports.
Some German solar manufacturers have called for similar measures in their country, or at least bonuses for consumers who purchase German-made panels. Norbert Röttgen, who served as Germany's environment minister until May, has accused China of "a pricing policy aimed at displacing German companies."
It doesn't help matters that Germany has directly subsidized Chinese solar manufacturing. According to a report in the German magazine Der Spiegel, the German government has sent over $100 million in renewable energy subsidies to China as part of its climate program.
But at the root of the crisis in German solar manufacturing is a seemingly inevitable chain of events that began with the conversation between Daniels and Engelsberger in 1990. The feed-in tariff law, which propelled Germany to the top of the world in solar energy, was ultimately a victim of its own success. As more and more Germans installed solar panels on their rooftops, consistently beating the government's expectations, subsidizing solar energy became increasingly expensive.
The tariff had a built-in mechanism to reduce the payout to renewable electricity producers gradually over time, as the increased volume caused a reduction in price. But the price of solar installations was dropping much faster than the tariff was being reduced, making solar power an even more attractive investment. As the price of solar modules plummeted, solar manufacturers became ever more reliant on subsidy-fueled market growth, leaving them vulnerable should the pace of new installations slow.
With subsidy costs skyrocketing, nearly everyone agreed that the government had to step in and cut the feed-in tariff more drastically. But the government's announcement in this February that it would make a near-immediate cut of up to 30 percent -- the cuts were reduced slightly in June after protests from state governments -- simply turned out the light on some solar manufacturers. Trapped between the Scylla of falling prices and the Charybdis of ruthless competition from China, they began to file for bankruptcy in droves.
"They can't just suddenly cut the funding by 30 percent," says Stefan Säuberlich, CEO of Solon before its bankruptcy in December 2011 and now managing director of the Solon Energy unit under the umbrella of the United Arab Emirates-based company Microsol, with which it subsequently merged. "No company in the world can bring down its costs proportionately in such a short time."
Some German politicians, meanwhile, suggest solar firms simply became too content to live on the government dole. "Why are they bankrupt?" asks Michael Fuchs, a member of parliament in Chancellor Angela Merkel's Christian Democratic Union and a prominent critic of the solar subsidies. "They've received high subsidies for decades, but they haven't pursued any innovations. This is always the problem when subsidies give companies a kind of inertia. They don't ask themselves, 'What will we do when the subsidies are gone?'"
Fuchs thinks it was a mistake for Germany to subsidize solar power in the first place. "Germany isn't exactly the sunniest country in Europe," he says, noting that it receives about as much sunshine as Alaska. "And Alaska wouldn't start planting pineapples."
But others blame the influence of the country's four big energy companies -- three German firms and the Swedish giant Vattenfall -- for the damage done to solar companies. Because solar energy tends to be small-scale and localized, it doesn't fit well into these companies' business plans, so they mobilize their substantial political clout against it, lobbying for lower subsidies for renewable power and painting the effects of a switch to renewables in dire economic terms. (Industry groups representing utilities in the United States have likewise resisted attempts to pass a renewable energy standard.)
But there may be hope yet for Germany's solar power industry, or at least the segments of it that anticipated the bumpy road ahead for solar manufacturers.
Amid the wreckage of Q-Cells' business model, Michael Merz has emerged the winner. He is the managing director of Saferay, Germany's biggest operator of solar farms, including the one in Dallgow-Döberitz.
Merz and most of his Saferay colleagues worked at Q-Cells, which three years ago was Germany's leader in ground-mounted solar installations. But strategic differences and a desire to separate the balance sheets led the company's ground-mounted division to split off in late 2009. The drop in price of Q-Cells' solar panels was a boon for operators like Saferay: As module prices tanked, it became even cheaper to expand its solar parks.
"To most people, or at least to us, it was clear that in the long run, the value would not lie in production of solar modules and solar cells anymore, but in the systems business," says Merz, referring to the installation and operation of solar panel arrays, as we sit in Saferay's headquarters on the 25th floor of the iconic Allianz building, which would have offered sweeping views over East Berlin if not for the thick gray fog.
Q-Cells' management declined to be interviewed for this article, citing the stress of the insolvency. But Merz spoke openly about how the collapse in solar cell prices, which sank Q-Cells, has been Saferay's gain.
"At the moment, you have massive overcapacity leading to smaller demand, which is perfect for us," Merz says. "So since the beginning of or mid-2011, the market has had a very favorable turn toward us." The company's earnings, he says, more than doubled from 2010 to 2011.
To qualify for feed-in tariffs, ground-mounted installations must be on reclaimed land, so they tend to be in the former East Germany, which is full of former Soviet military spaces and other abandoned developments. Saferay's largest solar farm, in the town of Senftenberg, is located on a former open-pit coal mine; Dallgow-Döberitz occupies a former airfield.
Germany's solar equipment manufacturing is concentrated in three states of the former East that have been collectively dubbed the "Solar Valley," which is a bit like calling southern India "Frigid Plains" because some air-conditioners are produced there. Here, after German reunification, the manufacturing industry lay in shambles and unemployment was rampant. The large numbers of experienced technology workers in search of jobs -- and the generous subsidies for manufacturing investments -- led solar producers to flock to the area.
Hubert Aulich, the 68-year-old executive director of PV Crystalox Solar in Germany, was one of the eager arrivals on the scene. He remains a hopeful voice in a region that has been hard-hit by Q-Cells' bankruptcy and the industry's struggles.
Aulich came to the city of Erfurt in 1997 to start a company that produces the silicon wafers used to make solar panels. (The company, PV Silicon, merged with the British firm Crystalox in 2002.) In his plant, located in a city sector dominated by solar firms, Aulich expresses confidence that the German solar industry isn't doomed to be one big Solyndra.
"I know the company; I've looked at their product," Aulich says of Solyndra. "There should have been people who told Obama, 'High risk. Don't do this.'" Solyndra, like Q-Cells, was on the wrong side of history. It staked its fortune on solar panels that didn't use silicon, just before the price of silicon plummeted and rendered its business uncompetitive.
But Aulich thinks his own firm can disprove the notion that solar equipment can't be produced in wealthy countries like the United States and Germany.
"Where are the advantages of manufacturing in China?" Aulich asks. "It is not management skills, I would say. It is not that the people are particularly skillful.… But there are low labor costs. So if you have a product which consumes a lot of labor, then you have to ask yourself, either you go where the low[-cost] labor is or you do automation."
Aulich is banking on the latter. Inside his plant, silicon wafers glide through quality-control machines before being separated into good and bad piles -- all without the assistance of humans.