Germany's Solar Valley could shine again as Europe strives to close energy gap

© Reuters. FILE PHOTO: General view of photovoltaic (solar) panels near Munich, Germany August 24, 2016. REUTERS/Michaela Rehle/File Photo

By Riham Alkousaa

BERLIN (Reuters) - Germany has enlisted help from Brussels to revive its solar panel industry and improve the bloc's energy security as Berlin, reeling from the consequences of over-reliance on Russian fuel, strives to cut its dependency on Chinese technology.

It is also reacting to a new U.S. law that has raised concern the remains of Germany's formerly-dominant solar industry could relocate to the United States.

Once the world's leader in installed solar power capacity, Germany's solar manufacturing collapsed after a government decision a decade ago to cut subsidies to the industry faster than expected drove many solar firms to leave Germany or into insolvency.

Near the eastern city of Chemnitz in what is known as Saxony's Solar Valley, Heckert Solar is one of half a dozen survivors surrounded by abandoned factories that the company's regional sales manager Andreas Rauner described as "investment ruins".

He said, the company, now Germany's largest solar module, or panel-maker, managed to weather the impact of state-subsidised Chinese competition and the loss of German government backing through private investment and a diversified customer base.

In 2012, Germany's then conservative government cut solar subsidies in response to demands from traditional industry whose preference for fossil fuel, especially cheap imports of Russian gas, has been exposed by supply disruption following the Ukraine war.

"We are seeing how fatal it is when the energy supply is completely dependent on other actors. It's a question of national security," Wolfram Guenther, Saxony's state minister for energy, told Reuters.

As Germany and the rest of Europe seek alternative sources of energy, partly to compensate for missing Russian supplies and partly to meet climate goals, interest has surged in rebuilding an industry that in 2007 produced every fourth solar cell worldwide.

In 2021, Europe contributed only 3% to global PV module production while Asia accounted for 93%, of which China made 70%, a report by Germany's Fraunhofer institute found in September.

China's production is also around 10%-20% cheaper that in Europe, separate data from European Solar Manufacturing Council ESMC shows.

UNITED STATES ALSO AN ENERGY RIVAL

New competition from the United States has increased calls in Europe for help from the European Commission, the EU executive.

The European Union in March pledged to do "whatever it takes" to rebuild European capacity to manufacture parts for solar installations, following Russia's invasion of Ukraine and the energy crisis it provoked.

The challenge increased after the U.S. Inflation Reduction Act was signed into law in August, providing a tax credit of 30% of the cost of new or upgraded factories that build renewable energy components.

In addition, it gives tax credit for each eligible component produced in a U.S. factory and then sold.

The concern in Europe is that that will draw away potential investment from its domestic renewable industry.

Dries Acke, the Policy Director at industry body SolarPower Europe, said the body had written to the European Commission urging action.

In response, the Commission has endorsed an EU Solar Industry Alliance, set to be launched in December, with the aim of achieving over 320 gigawatts (GW) of newly installed photovoltaic (PV) capacity in the bloc by 2025. That compares with a total installed of 165 GW by 2021.

"The Alliance will map the availability of financial support, attract private investment and facilitate the dialogue and match-making between producers and offtakers," the Commission told Reuters in an email.

It did not specify any funding amounts.

Berlin is also pushing to create a framework for PV manufacturing in Europe similar to the EU Battery Alliance, Economy Ministry State Secretary Michael Kellner told Reuters.

The battery alliance is considered to have had a major part in developing a supply chain for Europe's electric vehicle industry. The Commission said it would ensure Europe can meet up to 90% of demand from domestically-produced batteries by 2030.

Solar demand meanwhile is expected to keep growing.

Germany's new registered residential photovoltaic systems rose by 42% in the first seven months of the year, data from the country's solar power association (BSW) showed.

The association's head Carsten Koernig said he expected demand to keep strengthening over the rest of the year.

Regardless of geopolitics, relying on China is problematic as supply bottlenecks, exacerbated by Beijing's zero-COVID policy, have doubled waiting times for solar components delivery compared to last year.

Berlin-based residential solar energy supplier Zolar said orders have risen by 500% year-on-year since the Ukraine war began in February, but clients might have to wait for six-to-nine months to get a solar system installed.

"We're basically limiting the number of customers that we accept," Alex Melzer, Zolar chief executive said.

European players from beyond Germany relish the opportunity to help cover demand by reviving Saxony's Solar Valley.

Switzerland's Meyer Burger last year opened solar module and cell plants in Saxony.

Its Chief Executive Gunter Erfurt says the industry still needs a specific stimulus or other policy incentive if it is to help Europe cut its reliance on imports.

He is, however, positive, especially since the arrival last year of Germany's new government, in which Green politicians hold the crucial economic and environment ministries.

"The signs for the solar industry in Germany are much, much better now," he said.

($1 = 1.0006 euros)