Solar Mergers: Guarding Against a Slumping Economy

As for SolarWorks, French – who will serve as the president of the new, yet-to-be-named company that will be based in Connecticut – sees the merger with SolarWrights as a necessary step to gain management and marketing expertise quickly to meet the demands of a growing market.

"If the solar industry is to grow, the integrators have to grow as well - they need broader management talents, better information technology systems, logistics and access to capital," French said in a joint interview with Chew.

French said he considered raising more venture capital to expand Solar Works instead of agreeing to a merger. But Riverside offers strong financial backing, market research and advice that he considers more valuable, he added. 

Both companies engineer, install and operate solar energy systems and offer customers different ways of paying for the projects. Customers can pay the upfront installation costs outright or through leases, in which they finance the upfront cost of the systems in exchange for an agreement to pay it back by buying the electricity generated.

The last option has become increasingly popular in the United States, as a 1-megawatt commercial project costs roughly $7 million and the average home system costs tens of thousands of dollars. 

So far, Solar Works has focused more on projects with businesses, while SolarWrights has carved out a market among residences in the northeast. Combined, the two have carried out more than 2,000 installations, making the new company the largest installer in the northeast, according to Riverside.

French and Chew began working on the merger before Lehman Brothers’ bankruptcy filing in September, which helped to trigger global financial-market turmoil. But troubles from maverick mortgage lending practices already had caused a housing and economic slump in the United States before Lehman’s fall.

French said the solar market could potentially see more consolidation, though he doesn’t foresee that trend taking roots in the northeast. He added that solar equipment makers could find it difficult to make money in the retail market if they are keen on using only their own products.

"It becomes problematic. You need to have a full range of solutions, and not many manufacturers have a full range of solutions," French said. "The strategy has worked well for Apple, but by and large, the sales person needs to be able to propose a number of solutions."

Before the merger, Solar Works and SolarWrights had used both conventional silicon-based panels and thin-film panels for its projects, as well as offering solar-thermal water heaters.

With fewer banks to offer loans and fears of a worsening economy, solar companies could have trouble raising the money they need to build factories and power plants. Consumers, too, could prefer to hold on to money instead of investing in solar, even with the recently passed federal subsidies that will reduce an energy system’s cost by 30 percent (see Lawmakers Approve Energy Tax Credits, Bailout).

French and Chew said the credit crunch will impact their business, but the outcome won’t be as dire as some might expect. Having Riverside’s backing will make a big difference because the private equity firm will help line up loans.

"If we are on our own, it will be OK, but it will get tougher," French said.

With investments from Riverside and revenues from power-purchase agreements with customers, the new company won’t need to raise new funds in 2009 to finance solar power projects, French said. 

Solar Works and SolarWrights began merging their operations even before Riverside finalized the acquisitions. The new company has 110 employees.

The new company wants to improve its business in local markets in northeastern United States, such as New York, French said.

-- Editor Jennifer Kho contributed to this story.