Consolidation in the Solar Industry Expected to Continue
Experts expect large scale consolidation of the solar industry in 2012 and over the course of the next 10 years. As reported by Reuters, these projections come in the wake of a brutal year for the solar industry which saw a number of high profile insolvency filings for companies in the US and Europe. The decade long consolidation of the semiconductor industry serves as an example for solar companies expecting to survive the industry shakeout: be big and basic or small and selective.
With the increasing commoditization of solar technology, those businesses who can boast neither specialization nor scale may not be around in the long run. The Reuters article quotes Stefan Raithel, managing director of the European solar arm of Semi, "there might be between 10 and 30 companies globally in the next 10 years, which will control the mass market" compared with the hundreds of companies currently operating in the solar industry.
Cheap Asian competition and global overcapacity has brought about a significant decline in prices and profit margins making it harder for companies specializing in solar technology to compete in the marketplace.
Business Week reports on a study authored by the consulting agency Ernst & Young LLP that the industry decline in prices and profit margins coupled with declining investments, the slashing of feed-in-tariffs in Europe, and the uncertainty of continued government subsidies in the US will be the driving forces for industry-wide consolidation in the near term.
Business Week quotes Ben Warren, Ernst & Young's energy and environmental finance leader: "The next 12 months are likely to be characterized by further consolidation in the solar...supply chain, with a large number of deals expected in Asia."
Ernst & Young's report details a sector wide increase in Mergers and Acquisitions activity in the first quarter of 2012 and predicts that the increases will continue into the latter half of the year. These deals have been motivated by businesses hoping to cut costs, control supply chain fluctuations, and gain access to new markets.
While M&A activity has increased, funding for new projects has fallen 30 percent from the fourth quarter of 2011; down 7 percent year-over-year. Funding has been "undermined by wavering political support and continued lack of liquidity in the financing market," states Ernst & Young. In the foreseeable future, access to capital will remain a huge hurdle for companies in the solar industry. Continued lack of a long-term energy policy in the US and global uncertainty over solar subsidies will force the industry to weed out its weakest links.