Title: Lighting up the German solar power industry

Sub-title: The strong loonie is handicapping export-oriented SMEs in the key U.S. market. To compensate, more are diversifying across the Atlantic.

 

Bischofswerda - Sjouke Zijlstra bounded the stairs of Arise Technologies’ new photovoltaic solar cell manufacturing plant punching air. He turned the corner and gestured to a huge factory bay, which was barren except for one production line manned by uniformed employees. “This may not look like much now,” said Zijlstra, the Germany-based factory’s general manager. “But soon this whole place will be buzzing.”

 

Arise Technologies’ plant, located just few kilometres from the Polish border, officially opened earlier this month. And the facility could not be coming on-stream at a better time.

 

Germany, which has only limited fossil fuel resources, leads the world in developing renewable energy systems. Lately, spurred by government incentives, wind and solar farms are popping up all over the country. And suppliers, like Waterloo-based Arise Technologies, are pouring in to provide the components to build them.

 

According to the German Solar Association, 100,000 solar systems were installed in that country during 2006 alone. Not surprisingly, demand for solar cells, including the 6” x 6”, four watt models that Arise produces, is exploding. “There is a lot of competition in our industry,” said Zjilstra. “But right now there is room for everyone.”

 

Arise Technologies isn’t the only Canadian small business that is gearing up its efforts in Europe. Stung, by the rising loonie, which is increasingly hampering the competitiveness of Canadian exports to the United States (which absorbs the lion’s share of Canadian exports) many SMEs are diversifying.

 

According to data provided by the Department of Foreign Affairs and International Trade, Canadian merchandise trade with the 27 countries of the European Union shot up from $20 billion in 2003 to $35 billion last year. Germany has been among the biggest winners of those increased trade flows. During that period, Canadian trade with Europe’s largest economy shot up from $2.9 billion to $3.9 billion.

 

Different approaches to the U.S. and European markets

According to Christopher MacLean, a senior trade official at the Canadian embassy in Berlin, Canadian companies have long been attracted to the huge European economy. However not many achieve the same success there as they do in the United States.

 

In fact businesses appear to be using different strategies in the two markets. “Canadian companies that sell to the United States tend to export directly there, as opposed to selling through their U.S. affiliates,” said MacLean. “However sales in Europe by European affiliates of Canadian multi-nationals, are more than twice the level of Canadian exports to the European Union.”

 

The reasons for this can vary. For example according to Marc Suys, general manager at St-Laurent based 5N Plus, which supplies material compounds, notably cadmium telluride, to the solar power industry, proximity is a key consideration. “There are environmental factors at play in many of the compounds that we sell,” said Suys. “As a result, we provide extensive recycling services to our clients. And to do that effectively, it helps to be near them.”

 

In addition, Germany offers substantial assistance to manufacturers that set up shop in the eastern half of the country. 5N Plus’s plant in Eisenhüttenstadt which should be in full operation by mid-summer, is one such beneficiary. Much of the former German Democratic Republic (or GDR, as East Germany used to be known) is still recovering from decades of Soviet occupation and high unemployment there remains a problem.

 

However Suys is unconcerned. “This area has excellent infrastructure and a good, readily available workforce,” says Suys. “Furthermore, labour costs are not a major component of our products. So there is little temptation to locate across the border in Poland, where salaries are lower.”

 

The German government’s substantial support of the solar power industry is another key attraction of setting up shop there. “Generating electricity from sunlight costs more than producing conventionally,” says Suys. “To encourage development the German government has promised to buy all solar power that is produced in-country at a fixed price. And when we started to see solar farms the size of football fields popping up, we knew that there was a major opportunity.”

 

But it’s not just Germany’s solar industry that has been doing well. Lately, the entire economy as a whole has.  After a sluggish 2007, German real GDP jumped by an eye popping annualized quarterly rate of 6.3 per cent during the first three months of 2008, its fasted pace in 12 years. And although growth rates in many countries of “Old Europe,” appear weak on paper, much of this is related to the fact that populations in many of those countries are not growing. However on a per capita GDP growth basis, countries like German are doing just fine thank you, as has household spending power.

 

In fact the German solar power industry is in many ways emblematic of many sectors that have been doing well there: growth is centered in knowledge-based and high-value added initiatives. One expert who knows all about that is John Hudson, president and CEO of EEDO, a supplier of learning content management systems to German customers, which recently expanded its Berlin presence.

 

“Because labour costs and efficiency can be so high there, businesses and governments place a lot of emphasis on effective teaching and training solutions,” says Hudson. “As a result, we have seen considerable demand for many of our software applications, particularly in knowledge-intensive industries such as aerospace and defence.”

 

Shouke Zijlstra of Arise Technolgies agrees. The veteran general manager is highly optimistic about opportunities for adding knowledge-based value to Germany’s economy, especially to its solar power industry.

 

“Right now we are producing using commercial off-the-shelf techniques. And the next production run will be off-the-shelf as well,” said Zijlstra. “But after that we will be introducing improvements that will boost product performance. We need to. Because when the Germans say they are going to boost alternate energy sources. They really mean it.”

 

 

Photo captions:

 

#1 (Supplied) Shouke Zijlstra, general manager at Arise Technologies, at the company’s plant in Bischofswerda, Germany

 

#2 (Find file photo) Germany is a world leader in the development of renewable energy systems. Wind and solar farms are popping up all over the country.

 

Peter Diekmeyer (Peter@peterdiekmeyer.com) is a Montreal-based freelance business and economics writer.

 

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