The Sun Is Setting on Solar Energy

Solar energy was once considered the great environmental savior. Despite heavy investment around the world, the global financial crisis and stiff competition from China has led to oversupply and decreased value across the industry.

Lior Kwintner
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Lior Kwintner

The global solar energy industry is dying a slow death. The industry which held such high hopes, and in which so many countries invested in recent years, is finding itself in a process of decline.

In the last decade Western governments invested hundreds of billions of dollars in subsidies and grants to develop the solar industry. Their basic assumption was that while this investment would demand great resources, returns would soon eclipse initial costs and the result would be economically viable for both country and consumer.

Following these steps, a frothy market was created and tremendous subsidies received, creating greenhouse conditions that led manufacturers to produce large quantities of solar panels with outdated technology that hadn’t changed in 20 years. In 2008, on the eve of the global economic crisis, solar companies' stocks peaked on the strength of continued federal support. 

At the same time, strong players from the Far East entered the field. Large Chinese companies like Suntech Power Holdings and Yingli Green Energy Holding made competition impossible.

Spain was the first indication that the bubble was about to burst. A substantial portion of the world’s solar energy products were built in Spain in 2008, thanks to government subsidies promoting clean energy. But the worsening economic crisis that year led the Spanish government to significantly reduce subsidies and limit the number of planned solar devices.

Later, the subsidies offered by the German and Italian governments, two other leading producers in the region, were rolled back to force the local industry to become more efficient in the face of China’s aggressive entry into the market, which had introduced solar panels of German quality but with substantially lower prices. As a consequence of the increased competition, German companies were left with a huge stock of solar panels, leading to oversupply and a sharp decrease in prices.

Over the last year manufacturers around the word began to aggressively sell their excess stock in an attempt to generate cash and reduce supplies, leading to a slash in prices by dozens of percents and a subsequent domino effect.

Leading manufacturing firms, like the German Q-Cells company (formerly the world's largest manufacturer), Solyndra, Evergreen Solar, and others, collapsed in recent months. Stock prices of all the other companies, including Chinese ones, fell by dozens of percentage points.  

Today there is serious concern over the future of solar companies in Germany. In light of everything that happened last year, it’s hard to predict the future of the entire industry. But the decline of the industry in its current form is a unique opportunity for innovative companies with new technology who previously did not benefit from government subsidies and are now in prime position to enter the playing field.

The solar field is waiting for Israel

Recently the Israel government decided to prioritize investment in advanced electricity-generation technology. The Energy and Water Resources Ministry is allocating a measly quota of 50 MW for generation by pioneering facilities using renewable sources.

In accordance with instructions from the government, prioritizing unique technological advances in the solar field aims to strengthen the country's standing as an advanced power in the solar field.

The Israeli government must place renewable energy at the top of its national agenda. The quota of 50MW pales into insignificance compared with the vast allocation of subsidies in support of outdated technologies. But it does show a change in priorities.  

The writer is a partner at the law firm Arad & Co, and represents technology companies and manufacturers in the solar energy field.

It’s hard to predict the future of the entire solar panel industry. But the decline is also a unique opportunity for innovative companies with new technology.Credit: AP
Employees process components at a solar power plant in China. China's aggressive entry into the market with significantly lower prices than European companies recently upended the industry.Credit: AP
Solyndra is one of the many leading solar panel manufacturers whose shares have dropped in recent months.Credit: AP