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Safe Solar Havens - What You Dont Expect Wont Happen

Commodities / Solar Energy Mar 29, 2013 - 06:12 PM GMT

By: Andrew_McKillop


On March 29 Bloomberg told its readers that Germany’s solar industry "is set to benefit from the financial crisis in Cyprus as investors seek a haven in the guaranteed returns provided by clean-energy plants". It cited a small German firm called Milk the Sun GmbH (more appropriately Milk the Pigeons Unlimited) which claims it is now deluged with investor requests for advice on placements in the "sensitive range" of 100 000 euros and up.

European zombie media has been loyally maintaining the storyline that in Cyprus the so-called tax, or in fact theft of deposits would only operate on accounts holding more than 100 000 euros.

This propaganda can be put to rest right away. This carefully maintained lie, still being bleated on 29 March by (for example) French state-owned media and its partner news outlets owned by big business friends of the State, round the clock, is decorated by the storyline that the Cypriot cash confiscation primarily affects rich, tax-evading Russians.

These are in fact about the last and least to have been affected, due to "capital control breaches" being organized, more than a week ago, to Help the Rich. One choice target for theft has been small and medium-size businesses with net working capital held in Cypriot banks,  which is now gone forever to feed the creepingly insolvent Euro-monster.

As we know or can find out, round the clock from crony media in Europe, Cyprus is a highly special case, like Greece was, and Slovenia will be. Bank deposits elsewhere are sacred. Even Queen of Hearts Merkel feels obliged to have German media "reiterate her four-and-a-half year old pledge" to guarantee bank savings deposits. Now we asked to believe that following Cyprus, there will be a "flight to quality" bringing funds to Germany’s solar industry.

Q Cells as recently as 2010 was not only Germany's biggest producer of solar PV equipment, but the world's largest, fattened on generous government electric power feed-in tariff subsidies, by federal and local government aid and subsidies, and almost unlimited investor enthusiasm. Q-Cells filed for insolvency on April 3, 2012, at the insolvency court in Dessau. The executive board reached the decision after its review of alternatives for financial restructuring came to no avail. A very heavily downsized Q Cells was finally bought-out by South Korea's Hanwha Group. Relative to its peak stock exchange value in 2007-2008, its final 2012 share price value of 9 euro cents resulted in a total or maximum loss of shareholder value estimated by analysts at around 8 billion euros ($10.5 billion).

Q Cells was replaced by China's Suntech as the national, and the world's biggest producer of solar PV equipment. On March 21, 2013 the Wuxi Municipal Intermediate People's Court in Jiangsu Province officially accepted the petition for insolvency and restructuring of Suntech Power Holdings Co. As at present, the exact amount of losses are conjectural and depend on the restructuring or break-up of the company, which has already sold its Arizona, US subsidiary. To date, net losses only on defaulted debt notes of the company are about $1 billion. IHS Solar and other industry analysts explain that Suntech's insolvency, exactly like Q Cells' crash, was due to an inexorable cost squeeze between falling prices for whole systems, modules, and unit cells, while finished wafer costs despite lower silicon costs remained stubbornly high. Loss of government subsidies and in Suntech's case trade disputes with the US then sealed the fate of these former giants.

Today however, Bloomberg tells us that Germans with savings of more than 100 000 euros, concerned because of what has happened in Cyprus, would "rather put their money in renewable energy plant", with supposedly "guaranteed returns" than leave it in the bank or invest it in stocks. We could or might suggest they buy gold bars (without the titanium infilling), if they want to lose less than they will lose dabbling in solar energy investor plays.

The Cyprus crisis has surely and certainly reduced trust in the euro, and this distrust may be especially strong in Germany for historical reasons. In theory, this should fuel a flight into material assets, but the current situation is far more complex than this easy one-liner readout suggests. One immediate and real problem, for this "conventional readout", is that the Cyprus theft or "confiscation" of savings and of small business working capital has increased public concern that bank savings accounts may be unsafe, further limiting investment options. Operating an investor account and holding, selling and buying shares firstly needs a bank account. To be sure, you can visit your broker with a bag of gold filings, dust or coins but this will be a tiresome and probably expensive way to run your investor account!

The Bloomberg article talking up the "solar security option", or at least what it says now applies in Germany, claimed that even "elderly people from rural areas" are now being moved to invest in solar energy, but the article quoted a German retail solar equipment dealer as saying there are also "other reasons". These in particular include the rising cost of electricity in Germany - and the approach of Spring and then Summer!

Showing the woeful quality of investor advice in this renewable energy domain, in Germany, buyers of solar equipment prefer to buy plants in Germany, and make a point of avoiding purchases in countries such as Spain or Italy. In both these countries, and in Portugal and Greece however, the quantity of distressed assets in the solar energy sector is massive. Per-kilowatt prices of recently installed but now uneconomic equipment are often 33% to 50% less than in Germany - despite its solar industry rout!

The reason is "perceived investor risk", which due to the Eurozone crisis and its latest, most extreme manifestation in Cyprus, has become political risk. Much more important and other than the smart option of purchasing the distressed assets in the solar domain, which also exist in windpower, and shipping the equipment out of Europe to back out oil-fired power production, Germans believe that current feed-in tariffs favouring solar PV and windpower will remain intact, or only slowly decrease. They believe that the sudden, almost total abandonment of feed-in tariffs in Spain, in particular, signals almost continent-wide scaling back of feed-in tariffs - but not in Germany. This belief may well be a massive mistake.

Solar energy is a decreasingly good investment in Europe, especially northern Europe, and the easy years of exaggerated returns are over. Believing the Bloomberg storyline would have been easier if Bloomberg had published it on April 1st, as an April Fool's Day piece of investor advice!

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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