The Future Is Bright

By Sally McGrane / Hamburg

At Conergy AG's Hamburg headquarters, on the top floors of a futuristic building with a striking, curved glass roof, Hans-Martin Rueter, founder and CEO of one of Germany's most successful solar-energy companies, muses over last year's acquisition of New Mexico-- based Dankoff Solar Products Inc. Outside, it's another gray day in a country that, according to the Solar Energy Industries Association, gets as much sunlight every year as Anchorage, Alaska. "It's a question of timing," explains Rueter, with a shrug and a smile, of the company he founded 10 years ago in his living room. "If the U.S. market had started in 1996, maybe a U.S. company would have bought us."

Germany isn't the sunniest place on earth, but its solar-energy industry is bright. It's a textbook case of government creating an industry through regulation and subsidies. Thanks to a law passed in 2000 and amended in 2003, solar-energy producers command a high price for the electricity they generate, a rate good for 20 years. Can solar become competitive without the government crutch? The case is still open.

The German market has exploded since 2004. Today, because of their speed and flexibility, German solar outfits are outpacing their larger, more established Japanese rivals. But the mavericks leading the pack-- Conergy AG, Q-Cells AG and SolarWorld AG--have come up with three business models as different as they are successful.

Conergy, which Rueter founded in 1998, is the world's largest solar-system-integration company, providing more renewable-energy systems than anyone else. They include solar panels for single-family homes in Germany; a rooftop solar system, the biggest of its kind, for the tiremaker Michelin; and solar electricity for off-grid villages in India. Conergy produces 30% of the components it sells. It also builds wind, biomass and solar-thermal systems.

Rueter says his company's multigreen model is best suited for the market. "With the kind of strong growth that the renewable market is in, we have to think in cycles," he says. "It's important not to be dependent on only one country, one customer or one product." With revenues of about $1 billion expected in 2006 vs. $672 million last year, the company is looking beyond Germany for growth.

Q-Cells AG, based in Thalheim, has taken a different tack. "We thought it was better to concentrate on one step," says Stefan Lissner, head of investor relations. Three of the company's four founders came from Solon AG, a solar-module company based in Berlin. Unhappy with the quality of the cells they were able to purchase, they decided to make their own and founded Q-Cells in 1999. Located in the economically depressed former East Germany, Q-Cells has 869 employees and four factories, and currently plans a fifth. It will need one, with revenues projected to increase 75%, to $660 million, for 2006.

Q-Cells is a model for the job creation the German government hoped for when it passed solar legislation. Although highly educated and technically skilled, the country is struggling with a 10% unemployment rate. Building an advantage on the next big technology, goes the thinking, could drive economic growth. "We feel there's a chance for Germany to be innovative, to create an industry and possibly be the leader," says Cornelia Viertl, a senior adviser at the German Federal Environment Ministry. Public awareness of environmental issues and a desire to be less dependent on Russian natural gas have created a favorable climate for renewable energies. According to law, 12.5% of the nation's electricity must come from renewables by 2010, up from the current 10%; 20% must be renewable by 2020.

But at what cost? Claudia Kemfert, an energy expert at the German Institute for Economic Research, warns that Germany's solar industry will falter if current policy changes: "The major point of criticism says that [solar] is too far from being competitive. It's a political question of whether the country wants to keep subsidizing it." Utility companies must now pay 8.36 euro cents per kW-h to windmill owners; for solar, the price is far higher, at 51 euro cents. The utilities charge about 20 euro cents per kW-h, with consumers paying an extra 0.5 euro-cent charge per kW-h to fund green energy.

If fossil-fuel costs rise, though, the U.S. could become more competitive. "As an industry we are probably five years behind Germany," says Rhone Resch, president of Washington-based SEIA, who compares solar with the software and computer industries in their early stages. "But the U.S. market is starting to wake up." SEIA projects the U.S. will be the world's biggest market, with $25 billion in revenues, within five years.

SolarWorld AG, headquartered in Bonn, could be one of the beneficiaries. Founded in 1999, the company began as a distributor of solar modules, then added module production. Today it also produces cells, markets "plug and play" solar systems and develops and installs solar parks. "I didn't want to be squeezed between producers and the market," says CEO Frank Asbeck. "As a dealer, you are dependent on your suppliers, and when the market gets good, they kick you out."

In July the company acquired Shell Solar's crystalline-silicon solar business, which makes solar-grade silicon, wafers, cells and modules in California, Washington and Germany. This year revenues should increase 43%, to $630 million, making it the second largest integrated solar company in the world, after Sharp. For Asbeck, there's no question about which direction a solar company should go in: "You have to be fully integrated, or you don't have control."

In Hamburg, Conergy's CEO is convinced that the business will outgrow the need for government support. He thinks his company has a good shot in the U.S. market, where solar has received lukewarm federal support. "Americans," he says, "love to get German engineering." Even the subsidized kind.