Insight: More solar firms set to burn up as prices sink
(Reuters) – Only four years ago, hundreds of start-ups optimistically built factories and churned out solar panels to meet rising demand. Now, closures and failure loom for many.
The brutal shakeout is a dramatic reversal for an industry that has seen overall global growth of more than 30 percent annually over the past decade and this year will reach new records for solar panel sales.
Only a handful of manufacturers are now profitable in the face of too much capacity, which has contributed to a plunge in prices, and as government subsidies have been curbed. European banks that lent billions for solar installation have also pulled back as they struggle in the euro zone credit crisis, and debt-laden Chinese solar companies are in danger of burning up.
Solar profit margins that often approached 50 percent in 2007 have in many cases disappeared altogether. The pain – namely bankruptcy for some key players in the sector – may get much worse before it begins to ease.
“When you look at some of those balance sheets and how levered those companies are, and you look at how thin their profit margins are, it can really make your hair stand on end,” said Kevin Landis, portfolio manager of the Firsthand Alternative Energy Fund, whose top holdings include Swiss solar equipment maker Meyer Burger Technology AG and U.S. equipment maker GT Advanced Technologies Inc.
And while sliding prices are making solar more competitive, the prospect of new cheap supplies of natural gas around the world is undermining those gains.
The continuing shakeout is seeing many of the early entrants to the solar industry either fail or sell out. A whole new breed of big investors, such as Warren Buffett and Google Inc, or oil industry companies such as TransCanada Corp, are moving into solar power production. Some, including oil giant Total, have even entered the tumultuous panel manufacturing market. Its rival BP Plc, however, said this week it was exiting the solar business entirely.
Asian conglomerates that already have solar panel manufacturing operations, such as Japan’s Sharp Corp or South Korea’s LG Corp, could scoop up their smaller, struggling rivals, or simply allow them to fold and benefit from reduced capacity.
The rapid march down in prices and the Darwinian survival of only the fittest – without the aid of large government subsidies – is making solar power more competitive against conventional energy sources, such as oil, coal
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