While the the rest of the economy plunges into recession, Germany's solar power industry is full of optimism, fat order books and factories humming at full capacity — in stark contrast to the surrounding economic gloom.
Throughout eastern Germany's "Solar Valley," manufacturers are racing to keep up with global demand for solar panels and the state-of-the-art machinery that makes them, even though share prices have fallen sharply this week.
"There's no recession here," said Frank Asbeck, the founder of SolarWorld AG (SWVG.DE: Quote, Profile, Research, Stock Buzz), the world's third-largest photovoltaic company, which makes everything from solar-grade silicon to solar cells and solar panels.
"We're always recruiting staff and are happy to hire workers laid off elsewhere," he said during a tour of a 480-million euro ($600 million) manufacturing plant in Freiberg south of Dresden.
SolarWorld's share price took a beating along with others on Tuesday after Germany's Q-Cells (QCEG.DE: Quote, Profile, Research, Stock Buzz), the world's leading solar cell maker, issued a profit warning, saying 2008 sales growth would slow to 43 percent and to 10 to 20 percent in the first half of 2009.
The economic downturn has been squeezing lending but there has been little sign of a downturn in investment in solar power, said Bernd Rau, co-founder of Roth & Rau, which has 40 percent of the world market for machines that make solar panels.
"The sun doesn't send any bills," Rau said, adding banks have become fully aware of the sun's ability to produce recession-proof cash flow. "The financial crisis isn't going to change anything about the fundamental vision of solar power."
Q-Cells' chairman Anton Milner, who stunned markets with his warning on Tuesday only a week after saying the crisis was not having an impact, told Reuters he thought the downturn would now cause problems for the smaller, weaker players in the sector.
Yet Milner said he expected very strong U.S. growth even though the steep drop in oil prices in recent months is a key factor clouding the horizon for growth.
Theo Kitz, analyst at Merck Finck in Frankfurt, said the growth in photovoltaic was still strong despite market volatality.
"The solar sector is in one of the fastest growing markets despite the recession and that won't be changing," he said. "It's not going to matter if annual growth rates fall a few percentage points below the 60 percent rates we've been seeing."
Despite its heavy cloud cover most of the year, Germany produces half of the world's solar power, twice as much as its nearest rival, Japan, and four times third-placed United States.
It produced 3.78 gigawatts in 2007 and in 2008 will add 1.5 gigawatts. Renewables account for 14 percent of its electricity.
This success was set in motion a decade ago, when a new coalition of Germany's Social Democrats and Greens set up a framework to promote solar, wind and other renewables by requiring utilities to buy clean energy at above-market rates.
It worked, as the scores of companies in "Solar Valley," in the eastern state of Saxony, amply show. The law has since been copied in more than 40 countries.
Germany's renewables sector has been recording growth of 30 percent per year since 1998 and now employs some 250,000 people — turning entrepreneurs like Asbeck and Rau into millionaires.
It is expected to hit 450,000 jobs in the decade ahead and before long bypass the car industry's 600,000 workers — as rising energy prices and falling production costs make sustainables even more attractive.
German equipment and know-how is now exported around the world and Germany is the world's third-biggest producer of solar panels after China and Japan.
Despite the optimism in Germany, there has been much turbulence in the solar industry this year. On Tuesday when Q-Cells dropped 18 percent while SolarWorld lost 5 percent. The stock prices of other solar power companies around the world have also fallen on fears of oversupplied markets.
In Spain, Europe's second-biggest market after Germany, the government slashed subsidies for solar providers in September because demand was so high. In Germany, utilities will be paying out less to solar providers from 2010, reflecting the sector's strong gains in recent years.
OBAMA WANTS TO SEIZE RENEWABLES
For the entrepreneurs of Solar Valley, the big question is what will U.S. President-elect Barack Obama do. Based on his comments during the election, many expect him to go down the same path Germany took in 1998.
The United States is solar power's "sleeping giant", said SolarWorld's Asbeck, and has the potential to quickly reach grid parity — the point where rising market prices for convential electricity cross falling prices for solar power.
"Many parts of the United States get up to twice as much energy from the sun as Germany. They could reach grid parity years before us. And when that happens, the demand will soar. There will be no limit to the growth."
Q-Cells' chairman Milner said: "We are expecting very strong business in the United States in the second half of 2009."
In a speech in August, Obama pointed to Germany's succcess and pledged to invest $150 billion over 10 years in renewable energy in the United States, where solar power accounts for less than one tenth of one percent of the U.S. supply.
"Will America watch as the clean energy jobs and industries of the future flourish in countries like Spain, Japan or Germany or will we create them here?" Obama said. "It isn't just a challenge to meet, it's an opportunity to seize."
Obama renewed his committed to renewable energy last week.
Although controversial at first, Germany's Renewable Energy Act (EEG) made it possible for homeowners to install solar panels on their roofs and recoup the investment costs within about a decade, thanks to generous feed-in tariffs.
A system producing enough power for a four-person household can cost 30,000 euros in Germany.
There are now about 500,000 roofs in Germany with solar panels and 60,000 work in solar power, twice the 2004 number.
Asbeck, who donated 2,394 solar modules for the roof of the Papal audience hall at the Vatican last month, welcomed Obama's plans and said SolarWorld's U.S. orders were doubling. It has has a staff 500 in the United States.
"It would be a bit immodest of us to start giving Barack Obama advice," said Social Democrat Thomas Jurk, the Economy Minister in Saxony and a leading advocate of the photovoltaic industry. "But I think if you don't have the courage to take the first step, you'll never reach the goal."
