The green economy strikes out

Solar Flare-out

As companies go bust, Europe rethinks solar power subsidies.

The green economy strikes again, or shall we say strikes out. Oakland-based Solar Trust of America filed for bankruptcy this week, leaving its planned multibillion-dollar plant in California on ice. The company declared itself insolvent after its parent—Germany's Solar Millennium—filed for bankruptcy in December, and Solar Trust realized it wouldn't be able to pay a $1 million rent check due April 1.

Solar Millennium, in turn, had been hoping to sell a controlling stake in Solar Trust to the German company, solarhybrid, until solarhybrid also filed for bankruptcy in March. Then there's Q-Cells, another German solar company, which also filed for bankruptcy this week, sharing that fate with Solon, the Berlin-headquartered photovoltaic firm that went bust in December.

This cascade of insolvencies comes after Germany decided last year to slash the above-market prices it forces utilities to pay for renewable energy sources and to cut the subsidies that have locked German taxpayers into €100 billion in handouts to the solar industry. Even before the subsidy cut, German solar manufacturers were struggling under price pressure from China, which has responded to Western subsidies by ramping up its own production, undercutting higher-cost European and American producers in the process.

Greens in Germany and beyond are protesting that if only governments would continue soaking taxpayers to prop up solar, wind and other low-carbon favorites, these technologies would be viable. But even that is far from clear. Q-Cells and others had responded to Chinese competition by outsourcing some of their own production to Asia to cut costs. That wasn't enough to save them.

The real story is that green manufacturing, which was supposed to be the planet's salvation and Europe's new industrial base, proved to be as vulnerable to low-cost competition as many other industries. Far from creating a sustainable comparative advantage, German subsidies sparked the very rivalry now putting its home-grown industry out of business.

The Italian government appears to have taken note of these economic realities and last weekend said it would slash "excessive" subsidies for solar and wind power. Industry Minister Corrado Passera uttered the obligatory promise that Rome remains committed to generating a carbon-free, wind- and sun-powered economy, but that "we need to do so without overreliance on taxpayer resources."

If he sticks to that standard, Italy may soon see the layoffs and bankruptcies that have hit Germany. Given Italy's 9.3% unemployment rate and recession, the solar flare-out will be especially painful there.

Would that the Obama Administration showed similar sense. U.S. taxpayers only narrowly avoided shelling out for Solar Trust: Last year the company received a conditional commitment for a $2.1 billion loan guarantee from the Department of Energy, but Solar Trust said it backed out in August of its own accord.

The Administration's recovery.gov website lists five pages of other solar projects, with current and future loans worth hundreds of millions of dollars. Even after the $535 million Solyndra debacle, cheerleaders in Washington still insist these projects are the key to America's economic and energy future. As with so much else these days, Europe is showing what that unhappy future looks like.