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Western Solar Efforts Go Red

A few years ago, the promise of global renewable energy turned many of us, myself included, into Green advocates.

Companies and governments made strong arguments for outfitting urban rooftops and rural fields with solar panels and plopping down wind turbines along hilltops. It was easy to see, too, the environmental evils in coal burning and atom splitting, the latter brought into sharper focus after last year's earthquake and tsunami triggered a nuclear power plant meltdown in Japan.

But, how quickly things change in the face of economic crisis, pullbacks in government subsidies, and stepped up competition from manufacturers in lower-cost regions. In the end, it's all business, and now the greenest promises are running red with losses.

Last week, bad news from Germany sparked a lot of Internet chatter about the health and future of Europe's green energy industry. Particularly, the insolvency filing of Q-Cells SE, once the world’s largest producer of solar panel photovoltaic cells, showed the fragility of the market — Q-Cells is the fourth major solar-power company bankruptcy in a handful of months to collapse. As a report in Germany's Der Spiegel indicates, Q-Cells' demise “underscores the degree to which German solar firms are being outpaced by competition from Asia — despite billions in German government subsidies granted each year to the industry,” and its inability to effectively wean itself away from government reliance.

It's not just an isolated incident hitting only a few companies in one country. A Global Post story gives a pretty good rundown of all sorts of problems needling the industry, including these:

    France’s market leader, Evasol, was reported close to bankruptcy last week, barely a month since the state power company stepped in to rescue Photowatt, another prominent manufacturer of the photovoltaic cells… Denmark’s Vestas, the world’s largest manufacturer of wind turbines, made a loss last year for the first time since 2005. Its market share has dropped from 28 percent in 2007 to just 12.9 percent last year. Four of the top 10 turbine producers are now Chinese, including second place Goldwind.

So was the greenwashing we came to love, and wave emotional (if not political) flags for, all for naught? I don't think so.

Renewable energy is still a good option. It's the economics behind it — or at least the business models — that appear not to work well, at least at this point in time. Converting existing utility infrastructure to modern, sustainable systems costs a lot of money. Since governments and countries have to pitch in to offset the cost of massive capex projects, it's no surprise that innovation and projects of this scale get postponed or axed when local authorities are slashing budgets and trying to get spending under control. The companies themselves should also be faulted; the times of honey and manna in the form of government subsidies were never going to be sustainable forever, and many of them seemed to lose sight of international competitors gaining ground in a maturing market.

The question, now, is whether the industry is resilient enough to withstand the market dip and create lean and efficiently operating and supply chain practices to make it worthwhile for everyone down the road?

28 comments on “Western Solar Efforts Go Red

  1. Barbara Jorgensen
    April 11, 2012

    Jenn–I hadn't had a chance to delve into this too deeply but I had heard that some of the EU's ventures were failing. Add that to Solyndra–which got a ton of money from the US government–and Evergreen, which just filed Chapter 11, I think, it looks pretty grim. I know that manufacturers continue to come up with ways to make the technology less expensive, so I am wondering if it the installation of solar that keeps the costs high? And the fact that governments are bankrupt doesn't help the prospects for subsidies.Bad news all around.

  2. FLYINGSCOT
    April 12, 2012

    I read an interesting article recently about the difference between manufacturing and production.  The former is simply building the kit and the latter is the whole business of using that kit to service customers and make money.  The West needs to become expert at production and leave the manufacturing bit to the lower cost areas.  There will always be a low cost manufacturing darling so we need to embrace and prosper.

  3. jbond
    April 12, 2012

    The question, now, is whether the industry is resilient enough to withstand the market dip and create lean and efficiently operating and supply chain practices to make it worthwhile for everyone down the road?

    I think the industry is resilient enough to survive. A current problem right now is there is a large supplies out there and not enough buyers. In the next few years the weaker players will disappear and the strong will survive. This will boost the industry and the growth will continue.

  4. Clairvoyant
    April 12, 2012

    It is sad to see this happening, when really the whole world should concentrate on becoming more 'green'. The world is the environment in which we live afterall, and the global population needs to help lower the damage we are doing. In 50 years from now, we will probably be wishing there was more concentration done on 'green' energy at the present time and that governments supported it more, etc.

  5. Kevin Jackson
    April 12, 2012

    Currently China is investing massive amounts into photovoltaic manufacturing. Their plan is probably to destroy competitors worldwide and create a monopoly on the commodity; much like the Japanese did with steel years ago. But at the same time we are able to buy solar cells for a buck a watt and panels for two, prices previously unheard of. The correct response for the rest of the world, of course, is to cover the world with their cheap cells until they can no longer afford the subsidy. Regardless of their intentions, those prices have made solar power economically feasible for the first time in history. Yes, they are doing their part to save the world; we just need to do our part.

    For the most part solar cell manufacturing is automated so any country should be able to make cells for comparable costs. Perhaps the requirement to make shareholders rich and pay corporate executive salaries most of us only dream of might be holding us back from being able to make a go of solar power. I'd love to see a nonprofit take a stab at it.

    Government subsidies, at least in the US, seem to me to be foolishly distributed. Solyndra is a perfect example, not because they failed but because their product was a really, really poor design that never would have moved forward without money taken from the US people. And because, once the executive salaries were covered there was little left to build a company with. Regardless how much money is thrown at an idea, eventually reality will take over. The US's recent housing industry debacle is a great example of how reality will eventually win out regardless of the money invested and peoples desires.

    I love renewables and have invested in them but, I invest in things the market selects as winners not in things people, because of their belief system, want to be winners.

     

     

     

  6. Ariella
    April 12, 2012

    I love renewables and have invested in them but, I invest in things the market selects as winners not in things people, because of their belief system, want to be winner

    @Kevin The way you put that reminds me of the conversation I heard on the sports radio station yesterday. One was saying that, of course, he is rooting for the Knicks. The other one stressed that though he is a Knicks fan, he recognizes that they are not doing so well. So, realistically, he would have to say that he does not believe they will win. He took the position that such a perspective does not diminish from his general support of the team. Would investments in energy that seems to be failing from an economic perspective be comparable? 


  7. Kevin Jackson
    April 12, 2012

    Perhaps.

    As an engineer and hobbyist I am rooting for photovoltaic energy but, as I am not a wealthy person, I cannot justify investing my money into the industry. If I had money to burn, I probably would. I do pay twice the normal local electric rate for 100% renewable power, and I drive an automobile with a high MPG rating and I burn renewable bio-diesel in it with only a small increase in fuel cost. So, I am trying to help the environment. But, with a 40 year breakeven point for photovoltaic energy, I cannot personally justify that expenditure.

    It's not that I wouldn't invest in photovoltaics but that it wouldn't make sense to do so. And that decision was made decades before the current “failing” situation. I should have said governments instead of people because what I really disagree with is my government taking money from me with the threat of imprisonment or violence and spending it on things that don't make economic sense. If individuals want to spend their own money on photovoltaics without any need or desire for a return on that investment, that's fantastic and I fully support them. When a government throws away money on a historically losing proposition, that is a waste of valuable resources and, I believe, wrong.

    The good news is photovoltaics, at the current Chinese prices probably does make great economic sense now (I haven't had a chance to run the numbers). And the industry we're fretting over now is really being improved because the poor players are being removed.

    So, yes I'm like your sports commentator with the exception that the team I like (photovoltaics) is winning!  

     

  8. _hm
    April 12, 2012

    PErhaps something is missing in this technology. We engineers need to work hard to get novel ideas and make it more efficient. It may be successful after few years.

     

  9. stochastic excursion
    April 12, 2012

    I haven't seen any studies on the viability of a green tech power grid.  The start-ups that are pioneering this field promote it as an “if we build it, they will come” proposition.

    The fact is that large-scale renewables are usually located in remote areas, which make transmission loss a serious concern.  Energy-producers are focused on the low-hanging fruit of existing fossil fuel sources, which are simply not keeping pace with growing demand.  This takes needed investment away from the fledgling greentech sector. 

  10. bolaji ojo
    April 13, 2012

    Kevin, Some years back an old head told me the best advertising for a product is the product itself. I have since found out he was right 100 percent. If renewable energy is so good and so much needed, then it should win on its own merit and not by the amount of money being thrown at it by governments.

  11. Daniel
    April 13, 2012

    Jennifer, most of the companies wants to go for greener environmental friendly and to make use of renewable energy sources. But the initial investment costs are burning company's accounts. So government has to come up with suitable financial and subsidiary schemes for companies, inorder to make the initial investment hassle free.

  12. prabhakar_deosthali
    April 13, 2012

    I support the view that

    If a product is good it will be a winner on its own.

    When there are government subsidised projects the entrepreneurship spirit is less and hence the projects don't deliver saleable products.

     

    Now that by and large people have understood the importance of alternate energy generation, they will support the products using such technologies if they see an attractive ROI.

    So the challenge is to create alternate energy generation products that homeowners would buy , like they buy a fridge or a washing machine  and treat that as a standard and required home accessory.

     

  13. Taimoor Zubar
    April 13, 2012

    Interesting post, Jennifer. What do you think are some of the reasons for solar-power companies are going into bankruptcy? Is it because their products have a low demand and limited sales? If it's low demand, is it closely linked with the high price of solar power generation?

  14. Cryptoman
    April 13, 2012

     

    Without govenments' support the green energy will never take off. It is not an easy change given that we have been so dependent on fossil fuels and nuclear energy for so long. Switching to green energy will be costly and will take time. Therefore, government support for R&D as well as deployment is a must have.

    Governments spend billions of dollars on defence and military each year and that money comes from the taxpayer. This expense is justified and the system works and is very well funded. This is mainly because the people and the government truly believe in how important national security and defence really is. Do we all believe in the necessity of green energy as much as we believe in national security? If the answer is “yes” then that means there is a will. Where there is a will there is a way.

    Given the current trends around the world, I think governments believe in nuclear energy much more than they believe in green energy and that's a problem.  For most people green energy seems like utopia and nuclear energy is the easy and the cheaper way out it seems.

     

  15. Eldredge
    April 13, 2012

    @Bolaji,

      I agree. I don't think that green energy at the exclusion of fossil fuels, or fossil fuels at the exclusion of green energy, determined solely by regulatory measures. merits good policy on any level. Certainly, the push for green energy solutions has placed market pressure on fossil fuel alternatives for more environentally friendly ways to use fossil fuels, and likewise, fossil fuel economics places pressure on green energy options to find economically viable green energy solutions. Let both compete in the open market. I think that will be the fastest way to produce real, economically and ecologically viable solutions.

  16. Taimoor Zubar
    April 14, 2012

    I think governments believe in nuclear energy much more than they believe in green energy and that's a problem”

    @Cryptoman: Nuclear energy is much more efficient than solar or any other green energy and has great economic benefits. The problem here is that the governments are looking only at the short-term economic benefits and not the long term in order to look good in financial terms. Green energy may not be as efficient in the short-term but it will have significant results in the long run.

  17. Jennifer Baljko
    April 14, 2012

    _hm, Kevin – maybe that's the question: why does it take 40 years to get a payback, and what engineering/technology fixes can be made to make this more economically feasible?

  18. Jennifer Baljko
    April 14, 2012

    Prabhakar, Bolaji – I generally agree with this theory for low-cost, commercial tech products, but in this case, we're talking big-time costs and long-term change involving utility companies. In this case, governments had to offer some sort of incentives to get things moving. I think part of the problem is that manufacturers didn't innovate fast enough to develop more efficient products that could be sold cheaper to a broader base of customers; relying on government subsidies was never going to be sustainable.

  19. Jennifer Baljko
    April 14, 2012

    TaimoorZ – Not sure exactly what's caused these companies to go under. But the high cost certainly is a factor. But I would venture a guess that it has to be tough to sell beyond governments and utilties that would be the only ones who could afford to invest in any large-scale cap-ex projects. If you can't scale down the cost enough to reach smaller businesses and individuals, it's hard to keep finding new customers.

  20. Jennifer Baljko
    April 14, 2012

    Cryptoman  – I agree on some of your points. Governments – especially the US – fund all sort of things many taxpayers either don't support or don't care enough to voice an opinion about. Also besides that, let's not underestimate the power of special interest lobby groups, particularly those backed by fossil fuel and oil suppliers.

  21. Taimoor Zubar
    April 15, 2012

    “If you can't scale down the cost enough to reach smaller businesses and individuals, it's hard to keep finding new customers.”

    @Jennifer: I agree. I think without a government subsidy to solar power companies to help them in reducing the costs, they may not be able to compete with mainstream power companies and would not be able to grow and sustain.

  22. Ariella
    April 15, 2012

    @Bolaji Your friend is right, but I wouldn't say 100%. You still need an effective marketing campaign. There are good ideas that just never make it because people don't get to know about them. 

  23. William K.
    April 15, 2012

    Don't praise the Chinese wind turbime makers to loudly just yet, because there may be a few quality issues in the future. This assertion is based on the observation of the quality of products from China in the past few years. We don't see commercial aircraft engines manufactured in China, and for a good reason, despite the fact that they would probably be much cheaper.

    The problems with being in the renewable power business is that when governmental monitory support dries up the cost to buyers climbs up. That assertion has been made many times by people far closer to the business than I am. Once a product becomes less competitive due to price (cost) increases the sales will usually drop, and many companies have been so very committed to a high production rate that they are unable to adjust and handle the very abrupt drop in sales.

    That is sort of understandable because what CEO would be willing to tell the board of directors that they saw a drop in sales or market share, and needed to take steps to prepare for it. They would be out the door. All that the board wants is “sunshine” that they can wave at investors. That is how large business works. It really is not able to work any other way in the present business climate.

  24. Jennifer Baljko
    April 17, 2012

    William K – Good points, but even still  all companies–and all their shareholders–knew that government subsidies wouldn't be available indefinitely. There must have been operational practices that could hav been evaluated and implemented that could have helped keep some of these companies afloat for a longer period of time. Or maybe, we have just reached the point of attrition in a mature market…

  25. William K.
    April 17, 2012

    Jennifer, you are probably correct, but those who get used to being helped often forget that the assistance will end some day. At least that is the way it works among most, both people and animals. Of course they should have set up a somewhat different business arrangement, but that would have reduced the short term profits, which are usually all that investors can see. So while good and prudent judgement would have dictated doing as you suggest, the current problems indicate that things were done in a different manner. Which is unfortunate.

  26. Barbara Jorgensen
    April 17, 2012

    I think in terms of public acceptance, people have short memories. If gas were approaching $5/gallon in the US again, there would be a push toward solar, both for subsidies and tax breaks. Although gas keeps inching up, it's nowhere near the levels that prompted outrage about a year ago.

    And I found out the hard way that energy-related tax breaks aren't all they are cracked up to be. We replaced our windows last year and the “up to $1,500 tax credit” turned out to be closer to $200. We'd have to have a lot more windows to come close to qualifying for the credit. as it was, replacement windows gave us a bad case of sticker shock.

  27. itguyphil
    April 17, 2012

    Yes. The issue is that there are many ways to get things done in this world. If the powers that be truly wish to put a lid on the solar innovations, they will. In that case, it will take more pressure and puchback by the masses to get it done. So if WE want things done, WE have to motivate ourselves to get on the path to making small actionable steps towards that goal.

  28. Ariella
    April 17, 2012

    @Barbara, yes, those rebates are not as great as they sound. We got even less of a credit for a the energy efficient windows we put in our living room a few years back. When I was getting estimates for replacing our central air conditioning, I was told that the systems that qualify for the rebate cost more than $1500 more. Also the energy savings I was told I would see wouldn't recoup the extra cost for a couple of decades. We opted for units instead and saw our energy bills go down substantially in the summer. 

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