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The solar sector can only gain market share against fossil fuels without subsidies if it is cost-competitive.


From the FT's Lex blog

As any sunbather can tell you, too much of a good thing can be painful. For example, politicians seeking "green jobs" welcome lower prices for renewable energy.

The sector can only gain market share against fossil fuels without subsidies if it is cost-competitive. But the price of photovoltaic solar panels has fallen too fast for comfort: down by around a fifth this year and nearly two-thirds since 2008.

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Low cost Chinese producers are responsible for the decline; it has been too much for some western competitors. In the past few days, U.S.-based Evergreen Solar filed for bankruptcy protection and Germany's Solon said it would dismiss 15 per cent of its domestic work force and shut a US facility.

The industry is not on its back, but it is hardly thriving, particularly not outside China: the MAC Solar Energy Index has shed over a third of its value in six months.

Evergreen's demise touched off a spasm of schadenfreude among opponents of green subsidies. They note that the firm shut down a plant in high-cost Massachusetts and moved 800 jobs to China only months after receiving $58m in state aid for opening it. But even with lower panel costs, insufficient subsidies for end-users are still more threatening to the sector than ruinous cost competition among producers. The fiscal squeeze hurts; feed-in tariffs and similar credits have been trimmed in Germany and slashed in Spain, both key markets.

The reduction in subsidies is expected to slow the growth rate of solar panel sales - in volume - from 65 per cent annually over the past five years to about 15 per cent through 2016 according to Lux Research. Price pressure means that dollar revenue will be flat over that period; it may actually decline in 2012.

The good news is that, by 2016, Lux sees price declines and rising conventional power costs making photovoltaic power commercially competitive in some locales. Investors must hope that their capital won't have shrivelled in the sun by the time that day arrives.

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