"Vertical integration" has become one of the buzzphrases of the day in the solar industry as a number of companies expand into different parts of the supply chain.
SolarWorld, which began as a solar trading house and now makes everything from silicon to solar panels, is one of the prime examples of this strategy. And the idea appears to be catching on.
SunPower, which makes solar panels, in November bought solar integrator Powerlight, saying the combination could help bring costs down to compete with retail electricity rates.
And Conergy, which sells solar power and small wind systems, among other products, expects to start making its own solar panels this year. Its subsidiary, SunTechnics, also bought Aztec, a solar water-heating company, in May.
Offering a portfolio of energy technologies helps Conergy better meet its customers' needs, said Kim McLawhorn, a managing director for the Conergy Group, at the Solar Power 2007 conference earlier this week. The strategy has helped the company outperform the market and grow 60 percent each year, she said.
And Philip von Schmeling, head of photovoltaics for Conergy, said making its own panels helps Conergy ensure it can provide high-quality panels on time to its customers during a shortage.
"We would have contracts and then, to the anger of a lot of colleagues here, would be delayed and would have to go back on our commitments," he said. It also can help reduce wafer breakage because Conergy can just bring them to its facility next door instead of shipping around the world, he said.
But not everyone thinks full vertical integration is the way to go.
Franz Zierling, director of sales and strategic purchases for Ersol, call it "a viable path for growth" in some cases, but said the company has decided against doing everything itself.
The company currently is involved in producing solar cells, wafer manufacturing and silicon recycling - almost everything up to the solar cell, he said. It also has small-scale production of panels - just about 10 percent of its business. But its main focus continues to be the sale of cells.
"It's OK to be vertically integrated, but from our point of view, it still makes sense to have cooperation with other companies," he said. "It's a challenge to really perfect the whole chain. Manufacturing looks simple, but there's a lot of research involved. We prefer to build up partnerships."
It's an interesting question because, while many energy companies are vertically integrated, most technology companies are not, said Solaria CEO Suvi Sharma.
"It will be something in the middle," he said. "But in general, if you look out 10 to 20 years, it's hard to imagine that one company will really be good at everything. Focus is very important."
"It will be interesting to see how they compete with more established vertically integrated players," he said. "It could cause some disruption."
Q-Cells CEO Anton Milner said while there are some synergies to be had from vertical integration, "integration, per se, will not bring down costs."
"What integration gives you is more control over costs, which is more important at a later stage," he said. It also would make sense to bring in new technologies, he said.
But today, integration is motivated more by margin considerations, he said.
"Just building a bigger system with value creation isn't going to make a big difference," he said. "Vertical integration makes sense for some reasons, but not for the main reasons it's happening today."
He added that plenty of people would disagree, however. "I'm a heretic," he said, "and you can quote me."