Solar-Energy Loses Some Shine

By BERND RADOWITZ and JUAN MONTES
MADRID -- Solar-energy companies are feeling the pinch of the global downturn, leading investors to dump what had become popular growth stocks.
Particularly damaging to the global market for photovoltaic solar panels, which transform sunlight into electricity, has been the collapse of demand in Spain, after the government cut what had been generous aid for the sector.
Spain accounted for more than 40% of all new solar panel installation globally last year, installing 2.7 gigawatts -- five times the 2007 figure -- out of a global total of 5.6 gigawatts. According to Spain's photovoltaic industry association, Asif, the country's market was worth €16.38 billion ($23.24 billion). This year, with cuts to aid and a more complicated application process, there has been no new installation in Spain.
Other countries are introducing aid to the solar sector, particularly the U.S. But the new U.S. measures aren't expected to arrive in time to shore up demand this year. And while China has pledged support for the solar industry via economic-stimulus packages, support is likely to primarily benefit its own low-cost producers that have easy access to credit from state-owned Chinese banks.
Second quarter results painted a bleak picture of the problems faced by Europe's solar-power companies.
Q-Cells SE, a German maker of solar cells -- the key electricity-converting component of a solar panel -- announced a second-quarter net loss on Thursday of €305 million, compared with a net profit of €27.6 million a year earlier, while Norwegian integrated solar company Renewable Energy Corp. ASA reported a second-quarter net loss on Tuesday of 684 million Norwegian kroner ($112 million), compared with a profit of 496 million kroner.
Q-Cells became the latest major European solar firm to announce production and investment cuts as manufacturers struggle to remain afloat amid a glut of solar panels.
The company said it will shut down four production lines at its Thalheim plant in Germany, slashing 500 jobs and 25% of output costs. It also plans to cut €100 million of investments and save €200 million via cash management.
"The financing situation for [solar] projects remains difficult," Q-Cells' Chief Executive Anton Milner said in a conference call Thursday. "Over-capacities have become a big problem."
While European firms idle production and reduce costs and jobs, Chinese firms such as Suntech Power Holdings Co. and Yingli Green Energy Holding Co. continue to increase solar-cell production in a global contest for market share, Henning Wicht, senior director of the iSuppli consultancy in California, said in a news release last week.
As a result, global production of solar panels is set to rise 15% this year to 7.5 gigawatts, from 6.5 gigawatts in 2008, and will add to oversupply, Mr. Wicht said.
But Mr. Wicht expects new solar installations to dwindle to only 3.9 gigawatts globally this year. That would be 30% less than the 5.6 gigawatts installed last year according to data by the European Photovoltaic Industry Association. "This inventory glut will have a long-term impact on the solar business, with panels set to remain in a state of oversupply until 2012," he said.
As a result, Suntech will push Q-Cells aside and become the world's biggest producer of crystalline cells in 2009, iSuppli says.
Mr. Milner said overcapacity and price pressure were likely to continue for the rest of this year and next, despite rising sales volumes.
Solar companies have already cut prices to around half of last year's level, with a well-known German or Japanese manufacturer now selling crystalline silicon at around $2.40 a watt, and a well-known Chinese manufacturer selling at around $2 per watt, Jenny Chase, head of the solar team at London-based consultancy New Energy Finance, said.
Early last week, China's QS Solar was selling thin-film silicon modules for $1 a watt, she said.
Smaller European solar-energy companies are the hardest hit by oversupply and price pressures. Spain's panel maker Solaria Energia y Medioambiente SA said it is temporarily reducing the working hours of 403 workers by 85% at its main panel factory in Puertollano, Spain. BP PLC's solar subsidiary, in a recent shake-up, closed manufacturing units in several countries, among them Spain.
Manufacturers in Spain have been especially hard hit as the home market has been at the epicenter of the recent meltdown in demand. The collapse in Spain's photovoltaic sector has been so drastic that jobs plunged from a peak of 41,700 early last year to 13,900 in the spring of 2009, Asif said.
Spain's market is liable to be only a shadow its former self. "We'll add at most between 200 and 250 new megawatts this year," Javier Anta, president of Asif, said in June.
China is vigorously backing its own domestic producers. Part of the Chinese expansion drive came ahead of an announcement in July by the Chinese government that it will subsidize half of the construction costs of on-grid solar power plants. The government targets a solar power capacity in China of between 10 and 20 gigawatts by 2020.
While Chinese expansion plans are likely to mostly benefit cheaper-producing Chinese manufacturers, moves to increase aid for renewable power elsewhere, in particular in the United States, may eventually bring about a global recovery in the sector.
But that may not come fast enough to compensate for the standstill in Spanish installations, Mr. Chase said.
"Although there's growth in the U.S., the stimulus packages are taking a lot of time to come through and probably won't impact 2009 demand," Mr. Chase said. "So while the U.S. might easily double in market size, it won't pick up the slack of Spain."—Selina Williams and Elizabeth Adams in London, and Jonathan Shieber in Shanghai contributed to this article.
Write to Bernd Radowitz at bernd.radowitz@dowjones.com