German solar sector in distress as boom turns to bust

Germany’s residential solar panel industry is facing “a lot of anxiety” after a collapse in consumer demand triggered a wave of bankruptcies and layoffs in Europe’s biggest and most important market.

Many companies that distribute and install roof panels have gone under, been taken over, or had to change their strategy.

While the panel bust and resulting glut have sent consumer prices plummeting, industry figures warn they have hit investor sentiment and threaten to hurt a sector critical to meeting Europe’s ambitious demands. climate targets.

Dries Ake, deputy executive director of industry lobby group SolarPower Europe, described the situation as “not a positive trend”.

“This is somewhat of a consolidation after some exceptional years,” he said. But he added: “You cannot have a green transition with red numbers. The sector must be profitable.”

Demand for photovoltaic panels in Germany has increased in the wake of Russia’s full-scale invasion of Ukraine in 2022, as consumers face rising electricity prices. solar energy.

Manufacturers and distributors grew rapidly, adding manufacturing and distribution capacity, hiring staff and training installers.

Germany Installed 15 gigawatts of solar capacity in 2023, according to SolarPower Europe, up from 7.4 GW last year, a record for any European country.

Solar start-ups in Germany “expected double-digit growth rates to continue and each of them individually to capture significant market share,” said Dina Darshini, who heads LCP Delta’s solar and battery division.

“But actually the opposite has happened – the market has shrunk in 2024, there are more players and everyone is trying to fight for a smaller market.”

The decline raises questions about Germany’s target now to install 19 GW of new solar capacity a year by 2030 as part of a drive by Europe’s biggest economy to become carbon neutral by 2045.

After five years of rapid acceleration for all types of solar, growth in the world’s fifth largest photovoltaic panel market slowed in 2024. Germany added 16 GW of new solar capacity in 2024, 15 GW in 2023 and 7 GW in 2022.

The drop in demand, which has also hit the solar markets in Belgium and the Netherlands, is partly due to higher interest rates, which have raised the cost of consumer financing deals that are usually part of a solar package.

At the same time, flooding the European market with cheap solar cells and components from China has created intense competition. That has put a lot of pressure on European manufacturers, such as Switzerland’s Meyer Burger, which announced in September that cut a fifth of its workforceand squeezed the profits of roofing companies. Generous government subsidies have also been phased out.

Zolar, which has raised nearly 300 million euros in funding since the start of 2016, announced in September that it was exiting its business of selling solar panels to homeowners and cutting more than 50 percent of its 350-strong workforce.

CEO Jamie Heywood described a “unique” situation where solar installation costs have fallen significantly, but low energy prices also mean customers have less incentive to go solar. “Although customers can save money over the life of their system by switching to solar energy, the returns are less attractive than they were,” he told the Financial Times.

The company, whose investors include Singapore’s sovereign wealth fund GIC, has decided to offer services to thousands of local small businesses, which account for about 80 percent of the German solar installation market. Heywood said.

Zolar isn’t the only company in trouble: Berlin-based solar panel supplier ESS Kempfle warned of “dark clouds” over the industry in August. announced a restructuring plan, including job losses.

Industry insiders expect Germany’s biggest players, including well-known startups such as Enpal and 1Komma5, to ride out the turmoil.

Growth plans for Enpal, which is backed by SoftBank and TPG and is valued at 2.2 billion euros in 2023, have been hit by a “tumultuous year,” according to the company’s “chief evangelist” Wolfgang Gründinger.

He said the company was able to capitalize on the upheaval to double its market share in the solar sector, and also benefited from diversification into heat pumps and smart meters and the launch of an electricity trading platform.

However, Gründinger warned. “If a lot of companies go bankrupt, it’s not good for us either. Investors see that and say: “The market is going down. And you can’t plan.”

Another major player is 1Komma5, valued at €1 billion by 2023, which bills itself as a one-stop shop for residential green energy, including solar systems.

CEO Philipp Schroeder said that despite a challenging market, the company’s orders continued to grow in 2024, largely thanks to an AI-based tool to optimize energy use in homes. , as well as energy optimization.

There are still some bright spots for the solar sector in 2024. Demand for mini-photovoltaic systems on balconies has continued to grow.

Industry figures remain optimistic about the medium to long-term outlook, pointing to the fact that while 3 million residential rooftops in Germany are equipped with solar systems, there is room for much more.

“We expect the market to recover,” said LCP Delta’s Darshini, pointing to a large well of untapped demand from corporate customers and rising electrification rates as German households and businesses continue to push for decarbonisation.

“It’s unlikely to return to the height it was in 2022-23 unless there’s a stimulus package or event. You’re more likely to see a slow gradual increase towards 2030.”

That was echoed by Fabian Heilemann, a Berlin-based venture capital investor whose fund Aenu has backed companies including Zolar.

“In the medium to long term, the market is intact,” he said, arguing that even with Donald Trump’s re-election and concerns about the rise of populist parties in Germany, “the energy transition will not go backwards.” But he warned. “There’s going to be a lot of anxiety over the next 12 to 36 months.”