TechPulse 360

Solar energy is not the easiest of businesses. Profit margins are thin as over production continues to push solar cell prices lower.

"A lot of companies aren't going to be around anymore," says K Scott Son, director of finance at Suntech America

Meanwhile, banks remain reluctant to finance big projects, unconvinced they will produce power cheaper than coal and natural gas plants.

Sure, demand has recovered modestly since the depths of last year’s recession. But not enough to head off a period of consolidation with stronger companies swallowing up weaker ones to capture market share and improve the bottom line.

“A lot of companies aren’t going to be around anymore,” predicted K. Scott Son, director of finance at Suntech America, at last week’s Cleantech Forum. “It’s only a matter of time before there is consolidation.”

The pairing has already begun. Last month, U.S. SunPower said it would acquire SunRay Renewable Energy, the Italian solar plant developer, and late last year, Siemens agreed to buy solar thermal company Solel from Israel. MEMC has also put money on the table. It scooped up solar farm developer Sun Edison.

Companies can pick up additional margin by expanding vertically, says Ullas Naik of Globespan Capital Partners

More deals will follow. It makes sense for companies to “vertically integrate,” in other words, expand from manufacturing solar cells to building solar plants, says Ullas Naik, managing director at Globespan Capital Partners. They can pick up additional margin.

They also will create larger companies more likely to qualify for bank financing. Banks are less likely to lend to a project if they fear the solar panel supplier won’t  be in business 25 years from now to stand behind a product warranty.

Suntech is one company looking to expand into “distribution,” says Son. “It’s a way of ensuring our panels will be used.”

It’s also a way of bringing stability to a fragmented industry where big suppliers see attractive prospects for growth.

This entry was posted on Wednesday, March 3rd, 2010 at 9:39 am and is filed under news. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.