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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.

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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.