Solar-Power Incentives in Germany Draw Fire

Industry Executive Urges Cutting Government Subsidies in Campaign Against Asian Rivals
By VANESSA FUHRMANS
As cheaper Chinese rivals threaten to outshine Germany's pioneering solar-power industry, the head of a leading German solar company is proposing a radical counteroffense: cut the generous government subsidies that let German solar firms flourish in the first place.
SolarWorld AG Chief Executive Frank Asbeck has been pitching the proposal at a European solar-energy conference in Hamburg this week, and it is the latest salvo in the growing trade tensions between European and Asian solar companies.
It is also likely to reignite debate over how much government support is necessary to maintain Germany's prime advantage in a critical new energy industry. Some German policy makers and economists say the industry has to be weaned off the incentives faster to protect consumers from high electricity bills and to spur domestic companies to become more cost-efficient. But Mr. Asbeck is among the first within the solar industry to support the idea.
Chinese solar-cell and solar-module makers are starting to profit from Germany's generous solar incentives more than domestic ones. With as much as 30% lower production costs, China has overtaken Germany as the largest producer of solar cells. But half of the world's photovoltaic systems that convert sunlight into energy are sold in Germany, making it a key market for Chinese and domestic companies alike.
The booming German demand stems from the above-market prices the government guarantees homeowners, farmers and other entrepreneurs who have rushed to buy solar installations over the past decade. Power companies are required to buy any alternative energy they produce at the higher fixed prices, providing them a guaranteed return on their investment.
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SolarWorld AG CEO Frank Asbeck has been pitching a plan to reduce the generous government subsidies to German solar firms.
Until now, German solar-equipment makers have warned that cutting subsidies too quickly would kill their industry. But Mr. Asbeck suggests cutting them slightly more to show the German industry is serious about lowering the cost of solar power, and in exchange for implementing new quality and environmental standards that apply to both domestic and foreign companies.
"We're saying the [incentives] can be reduced, but then we have to have a chance as serious producers to compete" on an even playing field, he said.
In recent months German solar companies have accused Chinese rivals of price dumping, and Mr. Asbeck a month ago led a charge for a "Buy European" policy there.
Jenny Chase, an analyst at research firm New Energy Finance in London, said it is unclear how new environmental criteria to sell in Germany would affect Chinese rivals. Major ones already produce solar cells and modules of the same quality as German companies.
Steve Chadima, vice president of external affairs for Suntech Power Holdings, China's biggest solar-panel maker, said Mr. Asbeck's proposal falsely assumed companies such as his weren't manufacturing at the same standards. "I think he believes the reason we're able to produce at such lower costs is that we're somehow cutting corners," he said. "That's not true."
No German lawmaker has yet lent public support to Mr. Asbeck's plan, but it could get more reception among Christian Democrats who have pushed for steeper price-subsidy cuts in recent years. Some have argued that the volume of solar-powered energy is rising so fast that consumers will end up paying billions of euros in extra energy costs over the next five years and that the subsidies will eventually benefit less expensive foreign producers.
"That's exactly what's happening," said a spokesman for Joachim Pfeiffer, a member of Parliament who led a legislative effort last year to cut price subsidies by as much as 30% this year. Lawmakers eventually compromised on an 8% to 10% annual decrease over the next three years.
Mr. Asbeck supports cutting them as much as 15%.
Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com