"The Fall of Icarus": commentators often invoke Greek mythology these days to describe the situation of Germany’s solar industry.

Only a few years ago, companies like Solarworld, Q-Cells, and Conergy were celebrated as the country’s new economic heroes, creating jobs and wealth in a fledgling, but promising, industry. Last week, the first of the country's manufacturers of solar panels, the Berlin-based Solon, filed for bankruptcy. Experts now doubt that any of Germany’s solar companies can survive.

“We are looking at a consolidation of the global solar industry,” says Wolfgang Hummel, director of the Center for Solar Research in Berlin. “Having seen a whole range of US companies go under in the last few months, it is now Germany’s turn. And the biggest threat comes from China.”

The development seems paradoxical. In 2011, renewable energy became the second-most important source of German electricity generation after brown coal, overtaking nuclear energy, hard coal, and natural gas. More than 20 percent of the country’s electricity is now comes from wind, solar, and biomass energy, making it the world leader for green energy among the big industrial nations. Germany’s energy laws give suppliers of green energy a 20-year-guarantee on the price and the amount of energy sold. By 2009, more than half the world’s solar panels were mounted on German roofs, according to the European Photovoltaic Industry Association (EPIA).

But the German solar industry depends on foreign markets. The eurozone crisis and the loss of subsidies in important markets like Spain and Italy have led to a decline in demand, while competition from China has stiffened. Already four of the world’s leading seven solar manufacturers are based in China.

“The German solar market is an artificial construct that cannot function without state subsidies and feed-in tariffs,” says Mr. Hummel. “At the same time Chinese manufacturers are aggressively pushing their products into Western markets.”

An hour’s drive south of Berlin in the town of Bitterfeld, Q-Cells has been manufacturing photovoltaic cells for about ten years. The company is exemplary for the way it brought about structural change in the region. In communist times, Bitterfeld was a center of East Germany’s petrochemical industry, supplying jobs to 30,000 people and causing enormous pollution. After reunification, the industry collapsed, leaving the region in a depression, but also giving way to other technologies. The creation of Q-Cells, generously supported by state loans and favorable conditions on real estate, turned the area into what has been dubbed Germany’s “Solar Valley."

For years Q-Cells reported increasing sales and profits – until suddenly, in 2009, the company suffered a loss of 1.3 billion euros and eliminated 500 jobs. In the second quarter of 2011, Q-Cells lost 355 million euros while generating only 316 million euros in sales. When the company went public in 2005, its shares sold for 57 euros apiece. Today they are worth 80 cents. In February, loans worth 200 million euros need to be repaid – money Q-Cells does not have.

“The Chinese have copied German technology and now they swamp the market with cheap products, manufactured with lots of state aid and at low wages,” complains Uwe Schmorl, an employees' representative at Q-Cells.

In October, SolarWorld CEO Frank Asbeck, whose company also has facilities in Oregon and California, initiated a petition to the US government signed by six other solar manufacturers, asking to impose tariffs on Chinese solar panels of up to 100 percent. The US is widely regarded as the most important future market for solar energy generation.

President Barack Obama was sympathetic. “We have seen a lot of questionable competitive practices coming out of China when it comes to clean energy,” Mr. Obama said in a November interview with Portland-based KGW NewsChannel 8. “We have filed actions against them when we see these kinds of dumping activities, and we’re going to look very carefully at this stuff and potentially bring actions.”

Obama’s remarks caused a short-lived rally of solar shares in US and European markets, but it did not prevent Solon’s bankruptcy in Germany, nor did it save US solar companies like Solyndra and Evergreen Solar. And not everybody sees a problem there.

“The industry gets a good shake-up,” says Claudia Kemfert, energy expert at the German Institute for Economic Research in Berlin. “Weaker and smaller competitors are kicked out. But the upside is that solar energy finally gets competitive and interesting for private investors – also in the US. This could be the break-through for solar energy.”