What European Economic Struggles Mean For Solar Power

Modified Time:

6/7/2012 12:00:00 AM

Source:Original

The 2012 year was expected to be one of consolidation in the solar energy market. The ongoing struggles in Europe may be changing that forecast and not for the better. 
Europe Matter

The first thing to understand is that Europe matters when it comes to solar energy. Really matters. Six of the top 10 solar energy using countries in the world are located in Europe – Germany, Italy, Spain, France, Belgium and the Czech Republic. Germany alone generates and uses over 17,000 megawatts of energy from solar, the largest amount in the world and more than four times what the United States, China or Japan produces. Europe had to form the European Union to remain relevant in the economic world, but there is not doubt it is the most important market in the world when it comes to solar energy.

Problems

Given the importance of the European market to the solar industry, it should be no surprise that the economic malaise in the region is currently hurting the industry and may potentially devastate it in the near future. There are a couple of reasons to worry.

The first reason is the EU as a whole is going to fall into a recession, potentially a bad one. The first thing that dies in a recession is demand. One only has to look at the housing market in the United States to see the impact of a dramatic drop in demand. If people are fearful for their future, they will not spend money. This will result in the residential market for solar panels taking a beating. Unfortunately, this will not be the only impact.

Solar energy is strong in Europe because the countries offer enticing incentives to individuals and companies that convert to the energy platform. These incentives come in the form of tax breaks. The economic problems in Europe have resulted in massive unemployment and business closures. This translates to the government in the form of reduced tax revenues. As governments see their debt loads skyrocket, the bonds markets start demanding higher interest rates. We've already seen Greece and Iceland fail for all practical purposes because they couldn't refinance their debts in the bond markets. What many people don't realize is Portugal has also received bailouts. Now Spain and Italy are having problems selling their treasury notes and many people think they could need bailouts as well. 

With all this going on, the countries are cutting their expenditures like mad and trying to raise tax revenues however they can. The end result for solar energy is most of the incentives related to it have either been terminated or greatly reduced.


Practical Impact

The situation is Europe is not good for solar now. People don't have any money to buy them or are hoarding their money in fear of what will occur. Even if they were interested in buying, the financial incentives that made solar attractive are now gone. That is a brutal 1-2 punch.

Is there any silver lining to this mess? Yes. We are already seeing a glut of panel systems on the market. This is driving prices down. If you are considering going solar on your home, you might want to sit back and watch the price for the system you are interested in. It is probably only going to drop over the rest of 2012.  

Dropping prices are certainly good for consumers in the short term. Before you get to excited, however, keep in mind that many manufacturers and companies associated with solar energy are going to be closing in 2012 and 2013. That means a lot of lost jobs, the last thing we all need these days.

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