The German photovoltaic product maker is fighting for its life. The company has shunned radical restructuring and is instead campaigning for anti-dumping duties against Chinese competitors. Protectionism, however, would do it more harm than good.
Sunny days are over for SolarWorld. Only five years ago, the photovoltaic product manufacturer was one of Germany’s most-celebrated startups, valued at some 5 billion euros. Now worth less than 3 percent of that amount, it is fighting for survival. It has entered talks with creditors on restructuring its 1 billion euros of long-term debt.
The collapse of solar panel prices has hit the company hard. Even though sales volumes increased by 13 percent in the first nine months of 2012, revenue fell 38 percent. Net losses, at 230 million, amounted to almost half the company’s revenue.
SolarWorld blames cut-throat competition from China, and has been lobbying hard for anti-dumping duties. This may seem rather cheeky in an industry that is lavishly subsidised in Europe – which allows it to price its products below their true costs.
According to calculation of RWI Essen, an economic think-tank, German energy users are already locked in to pay 108 billion euros of solar subsidies over the next 20 years. Then there are direct investment subsidies for the industry. According to the Berlin-based Centre for Solar Research, that can go up to 35 percent of the investment costs in some German regions. The centre estimates that SolarWorld has received 137.3 million euros of direct subsidies since 2003.
Given this background, begging for a third type of subsidy is stretching it. Chinese manufacturers doubtlessly receive generous help by the state as well, but they also enjoy real competitive advantages. Both labour and power – an important point in an energy-intensive industry – are cheaper in China. Furthermore, Chinese factories are larger and benefit from economies of scale.
Import duties on Chinese solar panels cannot save the industry and would just prolong the suffering at taxpayers’ expense. Only radical steps, like closing down production in Germany, could keep the company afloat. SolarWorld must face the fact that Europe just isn’t the right place to produce solar panels competitively.
Obviously Frank Asbeck, SolarWorld’s eccentric founder, CEO and majority shareholder, needs a reality check. This is not surprising for the man who, three days before he asked for debt relief, told reporters that SolarWorld was “adequately financed and not in pressing need of financing.”
This article was initially published as a Reuters Breakingviews comment on 30 January 2013.