EPA

Q-CELLS, based in Wolfen, just north of Leipzig, is the world's biggest maker of the photovoltaic cells used in solar panels. It overtook Sharp of Japan last year and announced big jumps in sales (up 59%) and profits (up 69%) on March 27th. Germany, which is not known for being sunny, seems an unusual place to find this industry leader. But the country leads the world in its installed capacity of renewable energy sources (see chart), and is the third-biggest producer of solar panels, after China and Japan.

The environment ministry's latest report on the state of the industry, released on March 12th, shows how quickly it is growing. Renewables now account for 6.7% of energy consumption, up from 5.5% in 2006 and 3.5% in 2003. The industry's turnover was €24.6 billion ($32.9 billion) in 2007, up 10% on 2006 and nearly four times the figure for 2000. The share of electricity generated from renewable sources reached 14.2%, a big jump from 11.7% in 2006, owing in part to stronger-than-usual winds last year. This means Germany has already met the European Union's national target that 12.5% of electricity should come from renewable sources.

Andreas Düser of Enercon, a wind-equipment maker in Lower Saxony, believes that renewable-energy equipment will become a big part of the country's manufacturing industry, alongside cars and machine tools. Employment in the renewables industry will increase from 250,000 in 2007 to around 710,000 in 2030, matching the jobs in carmaking by that time, predicts Torsten Henzelmann of Roland Berger, a consultancy.

Most of Germany's electricity comes from coal-fired and nuclear plants. But the former are unpopular because of their relatively high greenhouse-gas emissions, and the latter because of the fear of a catastrophic accident. So in 1991 Germany adopted a renewable-energy law, now known as the EEG, which encourages investment by cross-subsidising renewable electricity fed into the grid. The law is popular with those who support the rapid introduction of new clean technology. Stefan Schurig of the World Future Council, a green think-tank in Hamburg, calls it “the best law of its kind worldwide”.

The law says electricity produced from renewable sources must be purchased by utilities according to a generous “feed-in tariff” that sets higher-than-market rates and fixes them for 20 years. Roof-mounted photovoltaic systems installed in 2007, for example, can sell power at €0.49 per kilowatt-hour, or about seven times today's wholesale price, until 2027. The fixed rate allows investors to calculate returns and removes uncertainty over financing.

The utilities that buy power at these higher rates pass the extra costs back to their customers in the form of higher electricity bills. This added an average of 1 euro cent per kilowatt-hour to the price of electricity last year, increasing the typical household electricity bill by 5%, or €3 a month. For the country as a whole, the cost was €7.7 billion in 2007, up 38% on the year before. Enthusiasts consider that a small price to jump-start a new industry and start decarbonising the power supply.

Clouds on the horizon

But the government is not so sure. It has proposed a revision to the EEG, which calls for a shift away from solar and towards other forms of renewable energy, and offshore wind in particular. As things stand, the feed-in tariff for solar goes down by 5% every year. But new proposals call for a cut of 9.2% next year, and 7-8% thereafter.

The problem is not just the expense of the existing law. Cheerleaders for solar had hoped that the increased demand for panels would help manufacturers reduce unit costs, and thus make solar more competitive in the long run. Instead, the rush into solar has led to a shortage of the high-grade silicon used to make the cells, which has soared in price from $25 per kilogram in 2003 to around $400 today.

Indeed, such is the demand for solar panels in Germany that it has kept prices high globally. This is wonderful for manufacturers, but makes it more expensive to install solar capacity in sunnier parts of the world, where it would generate more electricity. The EEG's generous rates for solar amounted to “picking winners on a grand scale”, says Dieter Helm, an expert on energy policy at the University of Oxford. A euro in cross-subsidies spent on wind power, rather than solar, produces more generating capacity and a larger reduction in carbon emissions.

“Of course we want solar energy to pay for itself,” says Anton Milner, the chief executive of Q-Cells. But for some years it will not be competitive with conventional power sources, which are also subsidised, he says, since the cost of carbon emissions is not properly priced. Fans of solar also note that wind cannot expand for ever. Kurt Rohrig of ISET, a solar-research institute at the University of Kassel, predicts—somewhat heroically—that wind power in Germany will reach saturation by 2038. “Then solar will take over,” he says.

As the government tweaks the feed-in tariffs, manufacturers are also thinking ahead. Many expect silicon-based cells to be overtaken by new “thin film” technology. Inside the 300-strong R&D department at Q-Cells, they are working on both kinds. Ersol, a smaller company which is bent on mass-production, prefers to outsource research to institutions in Erfurt, Konstanz and Hameln. Throughout Germany, around 160 institutions are doing research on solar technology.

In the long run, the hope is that Germany's clean-tech industry will be able to survive without any subsidies, and will do its bit to preserve the country's status as an industrial titan. Yet unless solar power becomes competitive with cheaper forms of generation, it will never make much of a dent in the nuclear and coal-fired power on which Germany relies. And then there is the problem of storing it for use on cloudy days and at night. Meanwhile, the unlikely flowering of solar panels beneath Germany's cloudy skies continues.