The German solar sector is in distress as boom turns into recession

Germany’s residential solar panel industry is facing “a lot of distress” after the collapse in consumer demand led to a wave of bankruptcies and layoffs in Europe’s largest and most important market for the sector.

Many companies that distribute and install rooftop panels have gone bankrupt, been taken over or have had to adopt changes in strategy.

While the collapse and resulting glut of panels has led to a sharp drop in prices for consumers, industry figures warn it has dented investor sentiment and threatens to damage a sector seen as crucial to meeting Europe’s ambitious ambitions. Climate goals.

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

“To some extent, this is a merger after a few extraordinary years,” he said. But he added: “You can’t have a green transition with red numbers. “The sector must be profitable.”

Demand for photovoltaic panels has boomed in Germany following Russia’s large-scale invasion of Ukraine in 2022, as consumers face a spike in energy bills. Solar energy.

Manufacturers and distributors grew rapidly, increasing production and distribution capacity, hiring employees, and training installers.

Germany It installed 15 gigawatts of solar capacity in 2023, according to SolarPower Europe, up from 7.4 gigawatts the previous year, a record for any European country.

Germany’s solar startups “were expecting the double-digit growth rate to continue and for each to take a significant share of the market,” said Dina Darshini, 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 compete for a smaller market.”

The decline raises questions about Germany’s goal of installing 19 gigawatts of new solar capacity annually 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 in all types of solar, the pace of growth in the world’s fifth-largest PV market slowed in 2024. Germany added 16 GW of new solar capacity in 2024, compared to 15 GW in 2023 and 7 GW in 2022.

The decline in demand – which also hit solar markets in Belgium and the Netherlands – was partly caused by rising interest rates that have driven up the cost of consumer financing deals that typically form part of a solar package.

At the same time, the flooding of the European market with cheap solar panels and components from China has created fierce competition. This has increased pressure on European companies such as Swiss company Myer Burger, which announced in September that it would do so Reducing a fifth of its workforceand shrinking margins for companies offering rooftop installations. Generous government subsidies were also gradually reduced.

Zolar, the startup that has raised nearly €300 million in funding since its inception in 2016, announced last September that it would divest its business of selling solar panels to homeowners and cut more than 50 percent of its workforce. 350 individuals.

CEO Jamie Heywood described a “strange” situation where the cost of installing a solar system has fallen dramatically, but because of lower energy prices, customers also have less incentive to turn to solar panels. “Although customers can save money over the life of their system by moving to solar, the return is less attractive than it used to be,” he told the Financial Times.

The company, whose investors include Singaporean sovereign wealth fund GIC, has decided to focus on providing services to thousands of small local companies that hold around 80 per cent of the German solar installation market. “Although I am excited about the opportunities in installation, it was a difficult decision to make,” Heywood said.

Zolar isn’t the only company to suffer. Eigensonne, a Berlin-based solar panel supplier, declared bankruptcy at the end of 2023. ESS Kempfle, a solar panel supplier in southern Germany, warned in August of “dark clouds” hanging over the industry when it announced a plan to restart… Structuring including job loss.

Industry insiders expect Germany’s biggest players, including prominent startups such as Enpal and 1Komma5, to survive the turmoil. But they were not safe from pain.

Growth plans at Enpal, which is backed by SoftBank and TPG and valued at €2.2 billion in 2023, have been affected by a “turbulent year”, according to the company’s “chief evangelist” Wolfgang Grundinger.

He said the company was able to take advantage of the turmoil to double its market share in the solar energy sector, and also benefited from diversifying into heat pumps and smart meters and launching an electricity trading platform.

However, Grundinger warned: “If a lot of companies go bankrupt, it’s not in our interest either. Investors see that and say: The market is going bankrupt. You can’t plan.”

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

CEO Philipp Schroeder said that despite the difficult market, the company’s orders continued to grow in 2024, thanks to its artificial intelligence-based tool to optimize energy use in homes. But it has cut back on mergers and acquisitions for now, and is instead preparing to “go more aggressively” into batteries as well as energy improvements.

There are still some bright spots for the solar sector in 2024. Demand has continued to grow for mini-PV systems installed on balconies.

Industry figures remain optimistic about the medium to long term, indicating that although three 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’s Darshini, noting that there is significant untapped demand from corporate customers and rising electricity rates as German households and businesses continue their decarbonization endeavors.

“The economy is unlikely to return to the heights it was in 2022-2023 – unless there is a large stimulus package or event. It is likely to see a slow, gradual rise towards 2030.”

This was echoed by Fabian Hellmann, a Berlin-based venture capital investor, whose Aino fund backs companies including Zollar.

“The market is healthy in the medium to long term,” he said, stressing that even with concerns about the re-election of Donald Trump and the rise of populist parties in Germany, “the energy transition will not go in the opposite direction.” But he warned: “In the next 12 to 36 months there will be a lot of distress.”