Solar Mergers: Guarding Against a Slumping Economy

In early August, Bob Chew invited Ron French to lunch in Hartford, Conn. to talk business. The two were competitors, each the president of a company that installed and operated solar-energy systems at homes and businesses in the northeastern United States.

Before the lunch, Chew already had agreed to sell a controlling stake of his company SolarWrights Inc., to Riverside Partners, a private-equity firm in Boston. Chew's mission during lunch was to persuade French to do the same with Solar Works Inc. and merge the two companies.

"We knew we needed to go to the next level. We thought the companies' cultures were similar, and we felt it was a good mix," said Chew, recalling the lunch conversation at the Solar Power International conference in San Diego this week.

Riverside Partners on Tuesday announced that it had bought controlling stakes in both companies and merged the two. The companies declined to disclose financial terms of the deal. Riverside inked the deal with Bristol, R.I.-based SolarWrights two weeks ago and with Montpelier, Vt.-based Solar Works last Friday, Chew said.

The deal follows news earlier this month that Suntech Power Holdings was buying solar-project developer EI Solutions, and would enter the power-plant financing market through a joint venture with MMA Renewable Ventures (see Suntech Buys EI Solutions, Teams Up With MMA).

Some industry insiders speculate that a consolidation trend is emerging, and that more mergers and acquisitions could be coming as companies try to bolster themselves to survive in a weak economy with the possibility of heated competition in the solar industry.

Real Goods Solar (NDSQ: RSOL) in Boulder, Colo., for one, said Wednesday it had merged with Regrid Power Inc. in Campbell, Calif. Both solar installers have focused on the residential market. Tom McCalmont, Regrid's CEO, will become Real Goods Solar's new CEO.

"With the economic situation, we obviously think the solar industry can survive it, but some companies will get weeded out and some of the results of that is going to be companies consolidating," said Julia Hamm, executive director of Solar Electric Power Association.

Even though installers say the supply of solar equipment has remained tight, suppliers have announced major expansion plans that some analysts have forecast could result in an oversupply of solar equipment as early as next year. If that happens, it could bring lower prices – and lower margins – to the industry.

To position themselves competitively, companies have discussed the possibility of using acquisitions as a strategy to grow more quickly, to expand into different parts of the supply chain or to ensure access to end customers.

Solar project developers also will have to compete with utilities that see no reason not to get into the installation and service business. In fact, David Mohler, chief technology officer of Duke Energy said during a Solar Power panel on Wednesday that it made sense for Duke to get a slice of the business.

"Ultimately, we will get into it. We’ve installed meters in every customer squo;s premise. [Installing solar energy systems] isn’t dangerous or much more difficult," Mohler said. "In eight years, utilities and other players will be able to sort out the value chain. I don’t think you can capture the maximum benefits from solar assets without a network behind it."

But while many analysts say more acquisitions are likely, they also aren’t expecting a big consolidation - like the ones experienced in industries such as semiconductors and telecom – that would shrink the industry to just a few big players anytime soon.