German solar sector starting to attract investors

Germany's solar energy industry can breathe a sigh of relief: Subsidies are set for smaller cuts than expected, and the sector is set for consolidation many say is the crucial next step in its development.

The global electronics group Bosch was first off the mark, announcing the purchase last week of German solar energy equipment producer Ersol, the AFP reported.

Bosch is set to spend more than 500 million euros (770 million dollars) for a majority holding in Ersol and could invest up to 1.1 billion if it decides to take full control.

Analysts at the private bank Sal Oppenheim called it "the boldest move so far in what we see as the start of a consolidation process in the solar industry."

Matthias Fawer, who works at the Swiss bank Sarasin and wrote a study on the sector, had a similar interpretation.

"It is a very positive sign for the the photovoltaic industry that a major company is entering the market," he told AFP.

"This is proof the market is reaching maturity. Others may follow."

WestLB analyst Peter Wirtz added: "Other large industrial groups are potentially interested in entering the sector as part of their long-term strategy."

The main reason is solar energy's growth potential in light of soaring oil prices and a possible depletion of the earth's fossile fuel resources.

"The market is going to grow by more than 20 percent per year over the next decade," forecast Carsten Koernig, head of the German sector federation BSW.

In Germany alone, which leads Europe in the solar energy field, sales are expected to double within three years to 10 billion euros in 2010, according to a study by the Ifo and EuPD Research institutes.

Turnover is then tipped to quadruple by 2020 and to multiply seven-fold by 2030.

"And it is not only in Germany, in every country in the world we realize we don't have enough energy sources," Koernig told AFP.

That said, not all solar energy pioneers will profit from the anticipated boom, analysts say.

The sector attracted hundreds of entrepreneurs but represents only around one percent of total German energy production

"Many companies are too small," Wirtz said.

Created for the most part in eastern Germany, companies must compete with Chinese rivals that are also in their early stages but will undoubtedly grow as well, putting pressure on prices.

Major investments, meanwhile, are required to develop technology that is still in its infancy.

BSW estimates that solar energy will only be able to compete with fossil fuels in five to seven years.

That is the time needed for large, specialised companies to emerge and to attract investment from traditional industrial groups in the automotive and machine tool sectors.

"It is important that during this phase of expansion, we do not lack capital. So that we make the competitive leap successfully," Koernig said.

He expressed satisfaction that a draft law adopted which after much debate would extend the period during which the sector benefits from subsidies.

"At term, there will be large companies and niche players," said Wirtz at WestLB.

Sector employment, meanwhile, should grow, according to Ifo and EuPD Research, from 41,000 jobs last year to around 110,000 by 2020.

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