(Fortune Magazine) -- The former East Germany, once one of the world's gloomiest places, has become home to one of the world's brightest industries: solar power.
In late April ground was broken at a former Soviet air base near Leipzig for a $176 million, 40-megawatt photo-voltaic power plant, four times the size of the largest existing solar plant in the world. The facility, being built by Germany's Juwi International, is scheduled to begin production in late 2009. When it does, it will add significant capacity to eastern Germany's mushrooming solar power industry.
Germany has invested $1.3 billion in photovoltaic research over the past decade, creating a $5 billion industry that accounts for 52% of the world's installed solar panels. Of 45 producers in Germany, 33 are start-ups in the former East Germany, employing 70% of the industry's 8,000 workers, with 2,000 new jobs on the way. Even companies headquartered in the west have most of their production in the east.
The manufacturers have found a new foothold in an economically depressed place, which has an educated labor force, 20% unemployment, and old industrial complexes with redevelopment potential. Eastern Germany was the engineering center of the Eastern bloc, and top tech schools and research centers pepper places where solar manufacturing is now booming - near the world-class opticians and lens cutters of Jena and the old industrial centers of Dresden and Chemnitz.
Government incentives have helped. This year German consumers are expected to contribute $3.8 billion in surcharges on their monthly power bills to support wind, solar, and other alternative energies. Perks for building in the east include backing for loans, responsive planning officials, and - if certain thresholds are met - a 30% payback of capital investment by the Berlin government.
"There's lots of space," says Anton Milner, CEO of Q-Cells, a German firm whose revenues rose 80% last year, to $730 million. "The people are well trained. It's a good environment for us." Milner expects to break ground in November on a plant for silicon wafers used in solar panels.
Conergy, based in Hamburg, is investing $340 million to make integrated wafers, cells, and modules on the site of an old plant near the Polish border. One of the oldest concerns, Solarwatt Solar-Systeme of Dresden, which started in 1993 with two employees and $200,000 in state subsidies, now has 400 employees and annual sales of $140 million.
Companies are taking advantage of foreign demand. Q-Cells exported half its solar cells last year to southern Europe, North America, and Asia, and expects to increase that to 60% this year. At Solar World, a $695 million producer in Bonn whose revenues rose 45% last year, CEO Frank Asbeck says he has booked $3.2 billion in contracts to Asian players.
China has set a goal of 15% renewable energy by 2010. With huge projects planned for its underdeveloped interior, photovoltaic capacity will rise to two gigawatts within three years - twice the size of the current German market - says Sal. Oppenheim energy analyst Hartmut Moers. "The question," he says, "is whether it will be more on the production side or more on the installation side."
That means German wafers could travel halfway around the world to be packaged by Chinese companies into finished cells and used there, or reexported back to Europe to meet rising demand. In either case, prospects are bright for Germany's solar industry. 
