Germany was proud of its supposedly future-proof solar industry and subsidized it to the hilt. But then the Chinese got in on the act and started making much cheaper solar cells. Now, following a glut in production, companies in both countries are fighting for survival

Michael Zhu gazes at the watch he's placed in front of him on the glass table in his office. He'll have to get a move on. He has to walk over to the factory and continue to work on forcing the Germans out of the very market they've created.

Zhu is the vice president of Suntech Power, which has an annual output of 10 million solar panels. No company in the world makes more than his, and no country in the world buys more than Germany.

"We really have to thank Germany," says Zhu, whose office is in Wuxi, a city on China's eastern coast. He raves about Germany -- about the clean air, about the politicians who decided early on to subsidize the production of green energy, and about the country's eco-conscious customers. Nearly one-third of the modules from his factory are sold to Germany.

Reiner Beutel stands in his solar technology plant 8,500 kilometers (5,300 miles) away, in Bitterfeld-Wolfen, and says he's not prepared to simply admit defeat.

"We intend to undercut the Chinese on price," says Beutel, who is CEO of German solar cell maker Sovello. Although he originally comes from near the southwestern city of Stuttgart, Beutel's job brought him to this industrial park, known as Solar Valley, on the outskirts of town.

In a conference room, he steps up to an exhibit that is 1.5 meters long and 90 centimeters wide (about 5 feet by 3 feet). It's a solar module from Sovello's "T Series" which is particularly well-suited for roof installations and is manufactured in the nearby production halls.

Two Continents and Two Economic Systems
He raps on the aluminum frame and says, in English: "Made in Germany." Beutel wants to save the German solar panel. Though he's fighting an uphill battle, he still believes he has a chance. Nevertheless, he was hit by yet another setback when his company filed for bankruptcy two weeks ago. Now he's hoping to find new investors who, under the more favorable terms of the insolvency proceedings, are prepared to put money into this future-oriented industry.

Beutel is engaged in a fight being waged between two continents and two economic systems. In China, the communist government controls the economy, meaning that it steers and supports large, private companies, including manufacturers of solar panels, like Suntech. Its competitors, German manufacturers of solar technology, suspect that companies like Suntech have only grown so powerful thanks to government assistance and that China is providing its solar companies with cheap loans.

In a sense, it's a battle of state capitalism versus market capitalism. But there's not a genuine market for solar modules in Germany, either. Instead, there's a market that politicians created in 2000 with the Renewable Energy Sources Act (EEG), which promised tens of thousands of green jobs and now steers half of its €14 billion ($17.6 billion) in annual funding toward the solar industry.

People in Germany aren't buying all these solar modules because the sun shines particularly often in their country. They're buying them because they will receive subsidies known as feed-in tariffs for the electricity for 20 years. The state has guaranteed every producer of solar power a price that was initially 50 euro cents per kilowatt hour higher than the market price.

The Makings of a Solar Bubble
Under these circumstances, politicians have generated the demand for solar modules, including the one Beutel is standing next to in Bitterfeld, which is made up of 108 polycrystalline-silicon cells and weighs 17.4 kilos (38.3 pounds). Although size and weight vary from manufacturer to manufacturer, the basic principle remains the same: A solar module consists of solar cells, which are silicon wafers on which ribbons of silver and aluminum are printed. They are then soldered together, sandwiched between films and under glass in a frame, and provided with a plug.

Since making solar modules is no longer difficult, more and more companies have entered the sector in recent years, not only in Germany and China, but also in Japan and Korea. However, the subsidies available in Germany have not been limited to electricity produced by German-made solar panels, as politicians did not specify where the modules should come from. In Italy, by contrast, power customers receive a bonus for installing solar panels made in Europe. As a result, the German subsidy program has had an effect across the world, and primarily in Asia.

This led to a bubble in the solar-technology market. Manufacturers worldwide were soon making far more modules than customers wanted to purchase, and they started to undercut each other's prices, which fell by 50 percent last year.

Since then, one manufacturer after the other has filed for bankruptcy, more than half a dozen in Germany alone since December. Many solar-panel production facilities are in eastern Germany, in Brandenburg, Thuringia, Saxony and Saxony-Anhalt, where Bitterfeld is located.

In April, the town lost Q-Cells, the city's first and best-known solar company. Its production halls are located across from Beutel's factory in Solar Valley. In Bitterfeld, they were hoping that Sovello, at least, would survive the crisis. The firm has a workforce of 1,250, or more than the other solar-technology production plants here.

A "Challenging Situation" for All
By contrast, there are 12,000 people working in the production halls underneath Zhu's office in Wuxi. Every morning and every evening, when their long shifts begin, the company picks them up with 55 shuttle buses that circulate through the various districts of this city of over 6 million.

Zhu grew up in Shanghai, 45 minutes away by high-speed train. But before he came to Wuxi, he spent half his life in the United States. A few years ago, he returned to China as a manager, with an American first name and an American approach to business. He's 49 years old, a tall, lanky man who wears a white shirt and a bright red tie; white and red are the colors of his company. His office is sparsely furnished. Next to a glass table stands a simple desk, and there's a plastic water dispenser on a shelf. Zhu only came to Suntech last year, when the solar industry's crisis was already in full swing.

Instead of referring to it as a crisis, Zhu calls it a "challenging situation" -- but the drop in prices is, of course, also affecting his company. He snaps his fingers and says "the profit margin" -- meaning that it's gone. Suntech is also losing money, and its stock price has plummeted.

Zhu finds the question of who is to blame for this an odd one. Instead, he asks whether Germany isn't also a market economy and notes that it's a simple, well-known principle that every oversupply is followed by a market shake-out. That's how it is with capitalism, he says. There's no sense in complaining about it.

When asked about the cheap loans from the Chinese government, Zhu says his company has never received any.

Zhu is in charge of product development, which these days mostly means he has to find a way to produce solar panels even more cheaply. Zhu's strategy for combating falling prices -- which, in turn, could lead to yet another deterioration in prices -- is "aggressive cost-cutting."

The idea is for the workers to assemble the modules even more quickly. Laminating a solar panel -- that is, gluing the cells between films -- takes 18 and sometimes up to 20 minutes. Perhaps 15 minutes would be enough, Zhu says. They also have to reduce the amount of materials they use, he says, so they've made the modules' aluminum frames even thinner.

Sensing that this could prompt some criticism, he points to a document with a blue and white emblem and the words "top brand." Since just recently, his modules have been allowed to bear this emblem. It's awarded by a company that tests photovoltaic products, and the best thing about it is the fact that the tester is based in the western German city of Bonn. "A German seal of quality," Zhu says, pausing briefly for effect.

Arriving in the Real Economy
German quality at Chinese costs -- that's where things now stand. In principle, this is also what Beutel wants to achieve in Bitterfeld. His modules also have quality seals, including the one from Bonn.

"Ten to 20 percent more output with the same workforce," is what Beutel is aiming to get out of his production plant. This is his strategy in the duel. It sounds a lot like the one pursued by Zhu, his Chinese competitor.

Beutel also didn't enter the solar industry until two years ago, when the crisis was already underway. He had previously spent many years working for a company that manufactures power tools and for automotive-parts suppliers. The 52-year-old, broad-shouldered man keeps his hair combed back and has furrows on his brow. He speaks in short sentences and introduces himself as an "expert in restructuring, reorganization and cost-cutting."

"Solar has arrived in the real economy," says Beutel -- where men like him come from.

In the real economy, competitive pressure is high and often comes from Asia. Beutel was already dealing with the Chinese 20 years ago, when he was working in the power-tools business. He's a veteran of Germany's struggle to retain its market share. At the time, he learned that you mainly have to reduce costs if you want to stand your ground with them.

Solar Fairy Tale
Beutel came to Solar Valley to save a subsidiary of Q-Cells. He had been hired by an investor. He shrugs his shoulders when asked about the time before the crisis, about the early years in Solar Valley. It wasn't a real economy, he says.

When others in Bitterfeld talk about Solar Valley's humble beginnings, it sounds more like an illusion, a fairy tale. Eleven years ago, four men came from Berlin -- three technicians and a business consultant -- and built a factory for solar cells in a village. They called their company Q-Cells, which stood for quality cells. The village was located near Bitterfeld and Wolfen, the urban centers of the then-defunct chemical industry of the former East Germany.

Tens of thousands of people had lost their jobs here after the fall of the Berlin Wall. The mayor quickly arranged for building permits and low taxes. Q-Cells hired a few hundred people, established a subsidiary and created Solar Valley, which soon boasted 3,000 jobs. People said that it would soon be 10,000. Back then, no other company in the world made more solar cells than Q-Cells did in Bitterfeld.

Nevertheless, until late last year, Q-Cells only built solar cells, rather than the complete modules that their competitors in China and elsewhere did.

Part 2: The Chinese Advantage
"The Germans were pioneers," says Zhu, using the past tense. But there are still some other pioneers in the business, he says, such as his boss, whom he invariably refers to as "Dr. Shi."

In Wuxi, the story of the solar industry also sounds like a fairy tale. It's about Dr. Shi, whose full name is Zhengrong Shi. He is the son of poor farmers who gave him away at birth. Shi was a model student who studied in China, more or less accidentally got involved in solar research in Australia, received his doctorate there and bought a stake in his first solar company. Eleven years ago, Shi returned to China, founded Suntech and became a millionaire.

"Dr. Shi's decisions have always been correct; he will lead us through the crisis," says Zhu, who contends that his boss is a kind of Steve Jobs of the solar industry. Shi relied on producing large quantities -- the usual Chinese strategy --and had everything from the cells to the modules manufactured in his own plants. His company has three other facilities besides the one in Wuxi, with an additional 8,000 workers.

"Dr. Shi" is the best argument that his vice president can muster in response to the allegation that the Chinese have once again stolen technology from the Germans, and that they actually understand nothing about solar energy.

Confusing Situation
Shi not only has a Ph.D. in photovoltaics, he has also made his former professor from Australia the head of his company's research department. And he advises the United Nations on issues concerning renewable energy sources. Zhu's boss is always traveling, and when he happens to be in the production plant, he can be seen walking behind a woman, a functionary of the Communist Party who has come from Beijing, from the politburo.

The Chinese government has finally decided to introduce a small aid program for solar-energy companies, Zhu says, though he adds that it is "not as good a program as the one in Germany."

Zhu receives regular reports from his German colleagues, who work for Suntech in Munich and Switzerland and keep him abreast of any changes in Germany's funding for solar power. At the moment, the situation is unfortunately confusing, says Zhu, who has heard that politicians are wrangling over cutbacks in subsidies.

He has also heard that some Germans are calling for funding to only be granted for electricity that is generated with European modules, and that they are pushing for punitive tariffs on Chinese-made solar panels. They want to be protected in the duel.

Victory in Massachusetts
Back in Bitterfeld, Beutel doesn't talk about punitive tariffs, nor does he even complain much about the Chinese. He actually purchases commodities from the Chinese, such as aluminum or glass, when he can get them cheaper that way. What's more, in December, Beutel flew to the United States to make a business deal resulting from a rival's demise.

He likes to talk about this trip, which seemed like an intermediate victory. It took him to Fort Devens, Massachusetts. A solar-technology production plant there had gone bankrupt, 800 workers had to be let go, and now the company's equipment was being auctioned off. The crowd mostly consisted of locals who had come to buy the forklifts.

Beutel was there because of the furnaces -- tall, gray machines in which silicon is melted at 1,400 degrees Celsius (2,550 degrees Fahrenheit) and rolled out in strips. The strips are cut into sheets called wafers, which are then made into solar cells. Most manufacturers cut them from silicon blocks.

Beutel wanted more of these furnaces for his factory; they save electricity and materials, and he had room for them in his production halls. He hoped that the furnaces would help him beat the Chinese at the price game. He purchased 180 of them along with other machines -- half the factory in total -- for €4 million, and had everything sent back to Bitterfeld. It was his first and last major investment.

Life in a German Plant
Since January, the furnaces have been installed in Plant 3. This is where Annett Henssler works. She is a wafer-production technician, and she says it's the best job she's ever had. Henssler is a prime example of how the solar industry has generated jobs in eastern Germany.

She is a small, compact woman in a white protective suit. Half of her face is covered by a pair of safety glasses. She is 41 years old, has two children who are almost grown up, and her boyfriend travels from construction site to construction site throughout Germany, always going wherever there's work.

Henssler grew up in Bitterfeld, and she completed an apprenticeship at the local chemical plant after 10th grade. The plant was closed after the Wall fell, so Henssler sold flowers, stocked supermarket shelves, attended training courses and lived from temporary work. "My CV is three pages long," she says. She couldn't find a permanent position until she started working at the solar-technology production plant five years ago.

These days, Henssler monitors 16 furnaces. When one of them beeps, she adds more silicon or pushes one of the strips back into the molten mass whenever one of them is torn. She works four shifts a week, eight hours each, as well as every other weekend.

Long Hours in China
Zhao Tiantian works 11 hours a day in Suntech's P2 plant in Wuxi. After four days, she has two days off -- unless her bosses decide she needs to work overtime. Since she has to clean her workplace after every shift, she is usually at the factory for over 12 hours.

During her lunch break, Zhao sits with two fellow female workers at a table in the canteen with a view outside. She sets down a metal tray in front of her with rice, strips of beef, fried shrimp and vegetables, and she places her cell phone next to the tray.

She has left her smock in the factory and slipped into a short, gray cardigan. Her hair is falling into her face, and she's sitting at the table like a tired high school student. Zhao is 25 years old. She has a 4-year-old son, and her husband also works at Suntech.

After completing secondary school, Zhao moved to Wuxi from Xuzhou, a city in the northern province of Jiangsu. She had originally intended to pursue university studies, she says, but then she took part-time work in a Sony factory, had a child and started working in the solar-technology production plant.

She seized this opportunity in a new industry, just like Henssler, the worker in Bitterfeld. Zhao has never been unemployed for long, and the job in the solar-technology plant wasn't her only option. But she says the conditions at Suntech seemed better to her than they did elsewhere.

As the union representative explains, whether men or women, all workers who start out at Suntech should be high school graduates and healthy. The starting wage is 2,500 yuan a month -- a bit more than €300 -- without overtime or bonuses and before tax. There are five days of paid vacation per year as well as health insurance.

Zhao and her friends say that work in the factory is exhausting, that the days are long and that the pressure is constant. But that's how it is in every factory, she adds. She says that she and her husband are saving up to buy an apartment. Then she walks back into the plant.

A Fighting Spirit
In the factory, one can stand in the corridor and observe her and the other workers as they turn wafers into solar cells. They clean the wafers and imprint them. They are standing close to each other, and they do more work by hand than their German counterparts, but they also operate large machines. A supervisor points to one bearing the name Centrotherm. It's one of many German machines here.

The walls of the corridor are lined with certificates for teams that have been particularly punctual or fast-working. Newspapers on the wall bear photos of dancing and sports competitions. Indeed, the lives of the workers at Suntech seem like one huge competition.

Upstairs, next to the offices, employees from the accounting department are practicing for a singing competition on the weekend. "We are the sun's emissaries," they sing, "holding forth holy fire that spills throughout the world." It's the company song. Down in the factory, there are large screens displaying the song, a hymn, a fighting song: "Chase the sun, realizing dreams, united in spirit and effort, challenge hardship."

Before Zhu rushes out of his office, he rattles off the names of countries: India, Brazil, Chile, Romania and Ukraine. "South Africa also looks very promising," he says. If he had time, Zhu could continue on like this for some time. He is referring to the places where Suntech will be able to sell its solar panels. Zhu believes this includes virtually every country on the planet. Since the modules have become so cheap, he'll even be able to sell them where there are few or no subsidies for solar power. That's the nice thing about the crisis, he says. Even the environment benefits from this, he adds, pointing at the smog outside his window.

Germany will soon no longer be the most important market for his solar panels, Zhu says. Over the past eight years, Germany's market share of the global photovoltaic industry has dropped from nearly 70 percent to less than 20 percent. But if the Germans decide to continue supporting sales in their country for a while, he'd be happy. Inexpensive modules plus government subsidies add up to excellent deals for his German customers.

Holding on while Help is Debated
The Germans have shelled out over €100 billion alone in funding for the solar panels that have been installed to date. This is paid for by all electricity customers, who will soon be shelling out 4 cents per kilowatt hour on their utility bills to support solar power. Indeed, the government wanted to reduce the subsidies for solar power, which have been falling since 2009, by another 20 to 30 percent. Since solar panels have become much cheaper, they reason, buyers no longer need to be lured with subsidies.

But the governments of the German states that are home to solar-power companies hope that government funding will at least be able to save a few of these firms. Germany's upper house of parliament, the Bundesrat, which represents the states, recently voted against the cutbacks.

This summer, politicians plan to continue debating the matter, which is now being handled by the mediation committee, a body that acts as an intermediary between the Bundesrat and the Bundestag, the lower house of parliament. They could extend the funding, but that would help everyone who sells solar panels, especially companies like China's Suntech, whose jobs would continue to be subsidized by German electricity customers. Companies like Sovello would also benefit -- assuming, of course, that they are still in business.

On a recent Tuesday, Beutel assembled his workers in Sovello's Plant 2. He will remain their boss, he told them, adding that he is working on a new, even tougher restructuring plan. Their wages have been secured by the insolvency money, he assured them, but only until the end of July.

"Everyone wants to beat the competition -- that's normal," says Zhu in Wuxi. The Chinese-American entrepreneur has learned how capitalism works. When the state intervenes, he says, capitalism is always smart enough to ensure that something other than what the state wanted is ultimately achieved.

No, he says, he's not afraid of the Germans anymore. What worries him are the competitors in his own country.

(By Wiebke Hollersen*, Der Spiegel, 29/05/2012)

* Translated from the German by Paul Cohen.