For Solar Power, Storm Clouds From Greece

As Europe grapples with the fallout from Greece's fiscal crisis, one early economic casualty is the renewable energy industry. Why? Few wind or solar installations would be profitable without subsidies, and as governments across Europe curb spending in response to the Greek crisis, support is being cut back. "The uncertainty in Europe is a further burden in a market that's still challenging," says Kathleen McGinty, a former adviser in the Clinton White House and a partner at private equity firm Element Partners in Radnor, Pa.

German lawmakers on May 6 slashed subsidies for new solar plants by as much as 16 percent. Italian solar industry groups expect support for new plants to be scaled back by as much as 25 percent in June. In Spain, power companies are bracing for cuts of 30 percent or more on new solar cell installations. Spain's government may also reduce its backing for existing solar producers, which had expected guaranteed prices for 25 years. Across the Continent, "the risk to subsidies is increasing," says Barclays Capital (BCS) analyst Vishal Shah. "It's going to be painful."

For green energy companies based outside Europe, the pain is compounded by the falling euro. As the currency has dropped by 14 percent this year, profits on European sales have dwindled. Canadian Solar (CSIQ), a panel maker based in Ontario, took a $20 million charge for foreign-exchange losses in the first quarter and could see earnings fall 84 percent if the euro averages $1.25 this year, Barclays estimates. Profits for Chinese solar-cell maker Yingli Green Energy Holding (YGE) would fall 42 percent with the euro at that level, while rival Suntech Power Holdings (STP) would see a 79 percent drop, Barclays says. Although using European suppliers has helped, says Suntech strategy chief Jerry Stokes, "the falling euro has been difficult to manage."

The troubles are taking a toll on stocks. Spanish turbine-maker Gamesa Tecnológica, which is laying off a tenth of its staff after sales slumped 43 percent in the first quarter, has seen its shares tumble 23 percent since Apr. 1. Canadian Solar's stock is down 50 percent in the same period, and Suntech is off by 35 percent. The 88-company WilderHill New Energy Global Innovation Index has fallen by 16 percent since Apr. 1, vs. a 10 percent decline for the MSCI World index.

Uncertainty about subsidies is making it harder for renewable companies to secure funding. Renovalia Energy and Grupo T-Solar Global, Spanish solar companies hoping to expand overseas, have delayed initial public offerings that together aimed to raise more than $500 million. Solar Opportunities, a Madrid-based investment company, has put off a $165 million purchase of a solar plant in northern Spain until the government sorts out how much it will spend to support the industry. For long-term investments such as renewable energy, says Solar Opportunities Chief Executive Officer Paul Turney, "business needs certainty."

The bottom line: The troubles that started in Greece are threatening subsidies in Europe needed to make green energy investments viable.

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