By Charles Guo 9/24/13
Are firms in the renewable energy industry going out of business, or are they consolidating to set course to finally scale? Industry experts ranging from financiers to manufactures from the solar energy industry shared their foresights into the hotly followed solar energy industry. The panelist collectively agreed that this industry is just starting to rise. Three key strategy drivers of growth for the industry will need to come from tech innovation, globalization, and cost reduction. While instillation cost of solar PV has dropped tremendously in the last five years, the industry needs financing costs to come down even further before the industry can truly take-off. Industry experts are optimistic that the advance of data aggregation for the industry will allow investors to better understand and manage risks in their investments for this sector. As more firms develop financial vehicles to increase liquidity in the sector, experts expect capital injections to accelerate.
Maturation rate in the solar energy industry differs greatly for upstream (inverter producers) and downstream (commercial developers) firms. On the downstream side, expect to see firms strategically develop customer acquisition strategies to optimize their platforms. On the upstream side, American firms need to remain nimble as Chinese inverter manufactures set course to enter the global market. Experts believe that consolidation upstream will benefit customers and firms downstream by giving scale to drive velocity. Consolidation will also help reduce internal risk for the larger players in the market, further reducing risk for investors and sponsors. Even traditional utility companies have taken notice and are set to acquire downstream firms to prevent being shut out altogether.
As with any industry, companies do fail. Five years ago, 38 Chinese polysilicon firms vied for businesses. Only a handful exists today. Even promising American firms such as Solyndra and Suntech are susceptible to market forces. While bankers are not rattled by these failures, developers do face legitimate concerns. With the lack of standardization in panels, challenges will arise as the need for replacement panels grows.
As the panelist concluded their discussion, the one key takeaway for me is that the industry understands that it must focus on getting PV down to grid price parity or lower. The industry must move beyond tax- driven incentives and focus on a post-incentive world driven by economics.
Charles Guo, MBA Class of 2015 at UC Berkeley Haas School of Business
Charles advised several retailers on building private label program, most recently in the Dallas area. During his stay in Dallas, Charles developed a growing interest in the energy industry.