The closure of First Solar Inc.'s (FSLR) plant in the eastern German city of Frankfurt Oder wasn't caused by the German government's decision to cut solar subsidies, but by sharp falls in the price of photovoltaic modules and massive worldwide overcapacity, German Environment Minister Norbert Roettgen said Wednesday.

"Accusations the plant closure is directly related to the new compensation rates for photovoltaic electricity effective since April 1 are unfounded and not based on reality," Roettgen said.

He said the First Solar plant closure was instead caused by excess supply for modules and falling prices.

"The global market situation is dramatic: production capacity of up to 70 gigawatts in 2011 in the face of sales of about 27 gigawatts," Roettgen said, adding the subsequent price drop can't be borne by manufacturers around the world, with even Chinese manufacturers are trading in the red.

Industry observers have attributed the sharp drop to increasingly tough competition from Asian low-cost peers that export their products to Europe .

Roettgen also defended the government's decision to slash compensation subsidies, which parliament approved last month.

"Were Germany to keep the feed-in compensation rates unchanged in spite of falling prices around the world, the German market would be threatened by global excess supply, at the expense of the German power consumer," he said.

Subsidies for solar power facilities, such as rooftop installations and open space solar farms, have been reduced by over 30% depending on their output capacity.

First Solar's decision to close the operations in the fourth quarter of this year is a serious blow for employees in a region that has pinned great hope on the photovoltaic industry, Roettgen said.

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