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Germany's budget crisis leaves struggling solar industry in limbo

By Riham Alkousaa

BERLIN, Dec 7 (Reuters) - Germany's budget crisis is threatening planned government support for its domestic solar manufacturers, in what could prove to be the death knell for an industry that was once world-leading but got undercut by cheaper Chinese imports.

Europe's biggest economy aims to produce 80% of electricity from renewable sources but has become increasingly dependent on imported components such as solar cells from China.

As part of efforts to reduce reliance on China and boost economic growth, Berlin announced in June plans to support companies that want to establish or expand solar production capacity in Germany.

Some 2.5 billion euros ($2.7 billion) were envisaged for the programme, half of which was to be provided by the federal government through its climate transformation fund, Carsten Koernig, head of the German solar industry federation (BSW), told Reuters.

But last month's constitutional court ruling, banning the transfer of some 60 billion euros of unused debt to the climate fund puts those plans in jeopardy.

"The judgment from the court basically has put every commitment on hold ... It couldn't have come at a worst time," an industry source of a solar company that applied for the aid told Reuters.

With the aim of building an annual production capacity of 10 gigawatts (GW) in Germany, the economy ministry launched a so-called expression of interest process to scout for possible flagship projects and more than two dozen solar hardware firms applied for the programme, Koernig added.

Up to five projects should be selected for capital expenditure subsides but the results, expected to be published late last month, have not been out yet, three firms that applied for the programme told Reuters.

Asked about the court ruling's impact on solar industry government support plans, an economy ministry spokesperson said they could not make any precise statements about individual programmes as the government was still examining the court ruling.

The BSW said the budget ruling had also put on hold a decision on a subsidy it had proposed to parliament to offer incentives to people installing European-made solar systems.

"I remain confident that there will be a solution here and hopefully it can be very soon," Koernig said.

RISING PRICE PRESSURES

Before the court ruling, Germany's solar companies were facing growing price pressure from their Chinese rivals, forcing them to sell below production costs, with potential subsidies seen as their only lifeline.

"The companies that are now being considered (for subsidies) will no longer exist in six months if you don't solve the problem before then - this market is being structurally destroyed," said Christian Kern, a supervisory board member of German solar glass manufacturer Interfloat.

On Sunday, Sweden's Clean Industry Solutions Holding Europe AB said its German subsidiary Industrial Solar GmbH would file for insolvency proceedings, citing a "precarious" situation for European photovoltaic manufacturers due to a record drop in module prices.

"The problem: under the current conditions, there is no chance of producing photovoltaic panels, cells and technology in Germany and making a profit," Kern added.

Edurne Zoco, Executive Director, Clean Energy Technology at S&P Global, said Europe as a whole has to promote a market for domestic manufacturers in order to support and grow local production.

"You need to be 100% sure that the products are going to be able to be sold within the region because you will not be able to export those products due to international competition."

Brussels and European governments have been mulling tougher action on clean tech imports as they seek to expand manufacturing in Europe and reduce the reliance on China for products needed for the green transition.

But German companies say that many of them don't have the time to wait for protracted policymaking.

"We're not talking about new investments, we're talking about the fact that the companies will all stop operations. So I can tell you, it's really a matter of weeks now and no longer of years," said Interfloat board member Kern.

($1 = 0.9277 euros)

(Reporting by Riham Alkousaa; editing by David Evans)

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