The Wind at Germany's Back

Cutting-edge tech and government incentives have made it a world-beater in renewable energy

To see Germany's latest cash crop, take a train across the flat plains between Hannover and Berlin or cruise the waters off the gusty North Sea coast. In both places, you can't miss the rows of windmills marching to the horizon, quietly generating some 7% of the nation's electricity needs—and powering an important new industry.

Thanks to smart regulation, Germany has become a global powerhouse in green energy, producing more electricity from wind than any other country. While the industry owes some of its success to German expertise in fields such as aerodynamics, the biggest boost has come from the government. The nation's energy law guarantees operators of windmills and solar generators an above-market price for power for as long as 20 years. Other countries have similar policies, but few have applied them as consistently as Germany. "The crucial point," says Paul Buchwitz, a Deutsche Bank (DB) fund manager who focuses on renewable energy, is "you know how much you will get in advance."


Now, as oil prices surge and global warming concerns fuel demand for green energy, Germany is seeing the payoff. The sector—both energy suppliers and equipment manufacturers—employs more than 235,000 people and generates annual sales upwards of $33 billion, government figures show. Nearly 60 companies in Germany specialize in wind systems. Enercon, based near the North Sea, is in a dead heat with General Electric's (GE) wind-power unit and Spain's Gamesa for the No. 2 slot in the global market for wind generators. The leader, Denmark's Vestas, produces key components such as windmill blades in Germany. Winergy, a unit of Siemens, says half the world's windmills use its parts.

Despite Germany's reputation for gray skies, the energy law has also helped build up a solar industry. Nearly 100 companies manufacture solar cells or supply the sector, with more than half of those in the old East Germany, which has earned the nickname Solar Valley. One of the stars, 9-year-old Q-Cells, is second only to Japan's Sharp in producing solar cells. And last year, Phoenix-based First Solar opened a $170 million solar-module plant near the border with Poland.

First Solar is just one of a slew of foreign outfits investing in renewables in Germany. GE makes turbines near the Dutch border and is expanding production. Solar wafer maker EverQ, backed by Massachusetts' Evergreen Solar, has opened two factories in eastern Germany since 2006 and now employs 800 people there. And India's Suzlon last year acquired a majority stake in REpower, a Hamburg wind-equipment supplier.

The challenge for Germany will be staying ahead. While the country leads in wind-generation capacity, the U.S. market is growing faster. As sales shift to other regions, so, inevitably, will manufacturing. To hold on to its lead, Germany will have to keep its edge in innovation. Siemens (SI), which has 7% of the global wind-turbine market, aims to gain share via its expertise in conventional power and its strong relationships with utilities. And Germany's network of research institutes continues to work on renewables. One group hopes to cheaply produce silicon impregnated with hydrogen, creating a fuel that's easy to transport and can be used to power fuel cells, solving the problem of getting energy from remote wind and solar farms to cities. Another outfit is working to commercialize a generator that combines elements of sun and wind power, in which solar collectors at ground level produce hot air that rises through a chimney and turns a power-generating turbine. Says Q-Cells CEO Anton Milner: "This industry is still in the warm-up phase."

    Before it's here, it's on the Bloomberg Terminal.