German engineering major Siemens has announced that it is in talks to sell its solar power business, highlighting the fragile state of the once thriving European solar sector.

The announcement that Siemens would exit the business – while retaining its wind and hydro businesses – came following the firm’s announcement earlier this month that it would be unveiling a wider group cost reduction programme in November.

The company’s expectations for solar energy activities had not been met as a result of lower growth, strong price pressure in solar markets and changes to regulatory conditions, said Siemens.

“The global market for concentrated solar power has shrunk from four gigawatts to slightly more than one gigawatt today,” said Michael Suss, CEO of the company’s energy sector. “In this environment specialised companies will be able to maximise their strengths.”

For Siemens itself, solar represents a small part of its business, generating revenues in the low triple digit millions in the past year, with around 800 employees.

Last year, the company took impairment charges of €231 million on its solar business, overshadowing what was otherwise a strong performance for its renewable energy business.

Crisis hit sector

Siemens’ announcement follows a number of insolvencies within the sector, including Germany’s Sovello and Solar Millennium. Former industry leader Q-Cells is being sold to South Korean firm Hanwha Chemical Corporation and even BP announced the closure of its several-decade-old solar division last year.

Among the challenges facing the industry are cuts, and in some cases, complete withdrawal of the generous support once given to the industry by national governments, as part of wider austerity drives, volatility in demand, which has placed manufacturers in a feast and famine cycle that they struggle to keep up with, and tougher credit conditions, says Kash Burchett, senior energy analyst at IHS Global Insight.

However, the biggest challenge to Europe’s solar industry has come from China, with European firms struggling to compete with them particularly on price.

“With the policy uncertainty it is generally hard for the smaller firms in Europe to access credit, in stark contrast to China, where state backing has turned on the taps to ensure that solar PV module manufacturers have access to liquidity in difficult times,” says Burchett.

Last month, the European Commission launched an investigation into allegations of dumping by Chinese firm, with the possibility of punitive tariffs looming.

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