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Finow Tower is one of Europe’s largest and possibly one of Germany’s last big solar power stations

Finow Tower, 60km north of Berlin, is one of Europe’s largest and very possibly one of Germany’s last big solar power stations. Subsidy cuts, poised to be passed by parliament on Thursday, are threatening the economics of plants of this size – and the companies that help make them.

Solarhybrid, the company that designed, funded, and built the two-stage Finow Tower project, filed for creditor protection last week, joining an increasing list of German peers led by equipment makers Solon and Solar Millennium. Q-Cells, once considered a high-flyer but now restructuring its finances, on Tuesday reported a net loss of €846m on group revenues of €1bn for 2011.

In Finowfurt, Michael Hüfner looks sceptically across 185 hectares black with solar panels facing skywards. “I don’t think we’re going to see any more projects like this in Germany,” says the engineer who managed the plant’s construction on an old Soviet military airfield in 2010-2011.

Like many in the sector, Mr Hüfner reckons Berlin’s plan to cut price guarantees for sun-made electricity at the start of April will end a decade-old bonanza, which formed 25 GW – or about 17 nuclear plants’ worth – in generating capacity and as many as 130,000 jobs in Germany.

“A few years ago, your return on investment was anywhere between 10 and 13 per cent,” says Tom Schröder, chief executive of Solarhybrid, which masterminded the €180m Finow Tower project. Two years’ of cuts in guaranteed prices narrowed that margin to 6-7 per cent, he says, but the looming cuts will erode the economics of any new projects even further.

Speaking to the FT at the beginning of March, Mr Schröder was still hoping to finish four German projects, provided Solarhybrid could meet planning deadlines, extended from June to September in a last-minute change – to make them fall under the old price regime. Then he wants to focus only on foreign business, which already includes projects in the US and the Middle East.

Whether the company may yet emerge from insolvency proceedings to pursue these remained an open question late last week. Mr Schröder says that any plan for Solarhybrid’s future would only emerge once the court-appointed administrator took the reins at the group.

After a series of incremental cuts, Angela Merkel’s government now plans to slash price guarantees for new small plants by as much as a third to between 13.50 and 19.50 cents per KWH, and to abolish them entirely for new industrial-scale plants, which at present receive about 18 cents per KWH. By way of comparison, industrial users of electricity pay about 14 cents per KWH.

The decision appears ill-timed for a government that intends to phase out nuclear power and to replace it with renewable energy by 2022. But even chancellor Merkel’s colleague, environment minister Norbert Röttgen, supports the cuts for fear that the rash of photovoltaic plants will send electricity prices spiralling and kill public support for renewable energy.

That is because the guaranteed price Finow Tower will collect for every KWH of electricity during the next 20 years is funded by a renewable energy surcharge paid by electricity users – the more capacity built, the more solar electricity has to be bought, the more customers have to pay.

In 2011, professional investors such as Solarhybrid, but also tens of thousands of home owners, installed 7,500 MW in solar capacity – twice as much as the government had forecasted. As a result, the renewables surcharge jumped 70 per cent to 3.5 cents per KWH, making German electricity among the most expensive in Europe. Some €8bn in guaranteed revenue flowed to solar operators – and only €6bn to the five other renewable energy types such as wind.

Berlin hopes that cutting back on preferential treatment of solar electricity – the legacy of the coalition of Social Democrats and environmentalist Greens that ruled a decade ago – will end the recent price surge. In case it is wrong, it has asked parliament to empower it to cut guarantees further by decree if solar capacity were to grow by more than 2,500-3,500 MW in a year.

That is bad news for a solar sector already battling lower-cost Chinese competitors. “There’s going to be even more pressure on the German solar industry to consolidate,” says Wolfgang Hummel at the centre for solar market research. “Too many companies believed they could remain competitive in a low-to-mid-tech field, where wage costs are an important cost-factor.”

Grimly, the German solar industry association has started speaking of a government-induced “solar phase-out” akin to the “nuclear phase-out” which Berlin hailed last year. This month Carsten Körnig, managing director, said 75 per cent of German solar companies could disappear.

Meandering through Finow Tower’s Chinese-built solar modules on a drizzly day, Mr Hüfner tried to take heart: “The further south you build, the better the economics of your plant” – even if the prospects of projects being led by German groups using German parts are cloudy.

Samsung C&T, the construction and trading arm of South Korea’s largest conglomerate, is taking its first big step into the European power market, with a 15 per cent stake in a UK carbon capture and storage project.

In what could be an important boost for Britain’s troubled efforts to create a carbon capture industry, the Korean group will invest in the Don Valley power project in South Yorkshire, a centre of UK coal-fired electricity generation.

The venture is being developed by 2Co Energy, a company headed by former BP executive Lewis Gillies, and backed by US private equity group TPG.

Carbon capture and storage has long been hailed as the answer to efforts to cut emissions of carbon dioxide from the coal-fired power plants on which many economies depend.

It involves capturing carbon emissions and storing them deep below the ground or sea. Although parts of the process have been used for years in industries such as gas extraction, developing a commercially viable CCS system that can be fitted to power plants has proved more elusive.

A $1.25bn project backed by the Canadian government in the province of Saskatchewan is the most advanced so far, according to Bloomberg New Energy Finance’s “Race to First” report on leading large-scale CCS ventures.

2Co plans to start building a 650MW coal gasification power plant next year and start operating it from 2016, depending on whether it can get backing from the UK and the European Union.

Carbon dioxide emissions captured from the Yorkshire plant would be piped underground to the North Sea, where they would be used to help recover “hard to reach” oil and then stored beneath the seabed.

2Co Energy says if it goes ahead it could spark a cluster of new CCS projects in a region responsible for some 18 per cent of the UK’s annual carbon emissions.

Neither Samsung nor 2Co Energy disclosed the financial terms of their deal. 2Co Energy says the total cost of the CCS project, including its offshore component, is likely be up to £5bn.

Mr Gillies, 2Co Energy’s chief executive, said the deal with Samsung was a “major vote of confidence in the UK’s potential to lead the world in carbon capture and storage technology”.

The UK has long sought to play a big role in the emerging CCS industry and launched a competition to find a suitable developer in 2007.

The government agreed to invest up to £1bn in the winning project, which a consortium led by Scottish Power had planned to build in Longannet, Scotland.

But the venture collapsed late last year after the two sides failed to agree financial terms.