In the roller coaster of the solar business, ups and downs are the norm. But over the past two years several well-known solar installers and manufacturers went bankrupt, exited the industry or consolidated with other companies. The trend in consolidation left few non-bankrupt solar companies remaining.
Industry practices hampered sustainability
During the heyday, many solar companies issued debt to take advantage of the explosive demand for green building and solar products. But the mounting debt led to a loss of pricing power and stable footing. Staying relevant with updated technology was another concern as older products and manufacturing methods quickly became obsolete.
More recently, the steep price drop for solar panels escalated the problem, with the price dropping more than 30 percent. To compensate, solar companies sold product below book value and relied on a treadmill of growth to sustain profits. When growth slowed or stalled, the companies could not generate enough revenue to maintain long-term profitability. The bankruptcy of the world’s largest renewable energy developer further added to the problem by driving up the rates of return on investment for solar investors and buyers.
Consolidation to battle the downturn
In strategic moves to battle the down turn, solar companies turned to consolidation. The trend continues with the fifth largest residential solar installer recently emerging from bankruptcy and joining with another company to create a business platform for future acquisitions.
Smaller market installers, dubbed the long tail, tended to have a more successful local approach than their counterparts attempting a nationwide reach. Larger companies thwarted by expansion continue to attempt consolidation with long tail companies to stay afloat.
In many ways consolidation lowers costs and provides a larger platform from which to conduct business, including leverage for price negations. However, consolidation also reshapes the industry into powerful monopolies with unchecked and unregulated control. As more solar manufacturers and installers join, the possibly of a distorted economy increases.