German solar sector in distress as boom turns to bust

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

Many companies that distribute and install roof panels have gone bust, taken over or forced to change strategy.

While the bust of panels has led to sharp declines in prices for consumers and consequently, industry figures warn that they have hurt sentiment among investors and threaten to damage a sector crucial to meeting Europe’s ambitions. Climate targets.

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

“To some extent it’s consolidation after a couple of exceptional years,” he said. But he added: “You can’t have a green transition with red numbers. The sector has to be profitable.”

Photovoltaic panel demand in Germany surges ahead of Russia’s full-scale invasion of Ukraine in 2022, as consumers face rising energy bills solar energy.

Manufacturers and distributors have grown rapidly by increasing production and distribution capacity, hiring staff, and training installers.

Germany According to SolarPower Europe, 15 GW of solar capacity will be installed in 2023 – up from 7.4 GW the previous year and a record for any European country.

Solar start-ups in Germany were “expecting to continue double-digit growth rates and take a significant market share for each of them individually”, said Dina Darsini, who heads LCP Delta’s solar and battery division.

“But in reality, 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 drop raises questions about Germany’s goal to install 19GW of new solar capacity every year between now and 2030 as part of a drive to make Europe’s largest economy carbon-neutral by 2045.

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

The slowdown in demand – which has also hit the solar market in Belgium and the Netherlands – is partly due to higher interest rates that have driven up the cost of consumer financing contracts that are typically part of a solar package.

At the same time, a flood of European markets with cheap solar panels and components from China has created intense competition. That has put pressure on European manufacturers such as Switzerland’s Meyer Burger, which announced in September that it would do the same Cut a fifth of his workforceAnd squeezing the margins of companies offering roof installation. Generous government subsidies have also been gradually reduced.

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

Chief executive Jamie Heywood described a “strange” situation where the cost of installing a solar system has fallen significantly but, due to lower electricity prices, consumers also have less incentive to switch to solar panels. “While customers may save money by switching to solar over the life of their system, the payback is less attractive,” he told the Financial Times.

The company, whose investors include Singapore’s sovereign wealth fund GIC, decided to pivot to serve the thousands of small local businesses that hold about 80 percent of the German solar installation market. “While I’m excited about the opportunity in the installer space, this has been a difficult decision to make,” said Haywood.

Zola isn’t the only company that has struggled. Berlin-based Eigensonne, a solar panel supplier, has declared bankruptcy at the end of 2023. ESS Kempfle, a solar panel supplier in southern Germany, warned in August of a “dark cloud” over the industry as it announced a restructuring plan including job losses.

Industry insiders expect Germany’s biggest players, which include prominent start-ups such as Enpal and 1coma5, to survive the turmoil. But they were not spared from the pain.

Enpal’s growth plan, which is backed by SoftBank and TPG and is valued at 2.2 billion euros in 2023, has been hit by a “turbulent year”, according to the company’s “chief evangelist” Wolfgang Grändinger.

He said the company was able to capitalize on the upswing in the solar sector to double its market share and benefited by diversifying into heat pumps and smart meters and launching an electricity trading platform.

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

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

Chief executive Philipp Schröder said that despite the tough market, the company’s orders continue to grow in 2024, thanks mainly to its AI-powered tools for optimizing energy use at home. But it has put M&A on hold for now, instead preparing to “move forward more aggressively” in batteries as well as energy optimization.

There are still some bright spots for the solar sector in 2024. The demand for mini photovoltaic systems installed on balconies has steadily increased.

Industry figures remain optimistic about the medium to long term, pointing to the fact that although 3 million residential roofs in Germany are equipped with a solar system, there is room for more.

“We expect the market to recover,” said LCP Delta Darshini, pointing to pent-up demand from corporate customers and electrification rates rising as German households and businesses continue their drive to decarbonize.

“It is unlikely to return to the highs it was in 2022-23 – unless there is a major stimulus package or event. You will probably see a gradual uptick towards 2030.”

This was echoed by Berlin-based venture capital investor Fabian Heilemann whose fund Aenu has backed companies including Zoller.

“Mid- to long-term markets remain intact,” he said, stressing that even amid concerns about Donald Trump’s re-election and the rise of populist parties in Germany, “the energy transition is not going to go in the opposite direction”. But he warned: “There will be a lot of trouble over the next 12 to 36 months.”