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The Next Phase for Solar
As the market matures, installers consolidate.
By rONA FrIeD, Ph.D.
Rona Fried, Ph.D., is
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the combination of drastically lower prices for solar panels and the huge potential for industry growth is attracting the next level of industry players —
It’s a familiar trajectory. As an industry matures, companies with greater marketing and financial muscle roll up
many of the pioneering “mom-and-pops” into fewer but
That’s beginning to happen with solar installation firms.
A handful of solar integrators are buying small U.S. installers. Akeena Solar (Nasdaq: AKNS), Real Goods Solar
(Nasdaq: RSOL), Solar City (private), Renewable Energy
Corp. (REC.OL) and Acro Energy Technologies (AR T.V)
are the most active consolidators.
Acro CEO Harry Fleming told me solar installers are
ripe for roll-up. There are more than 750 installer firms in
California alone, accounting for 80 percent of the retail
revenue in the U.S. solar market. Most of the founders are
former electricians, not businesspeople, he says, and that’s
a classic mark of an immature market. Mom-and-pops still
own 60 percent of the market, but the top 10 installers in
California are gaining ground and now share 40 percent
of the market.
“As the market matures and consolidates, mom-and-pops
will be reduced to under 10 percent of the market,” Fleming
says. “Larger companies are more sophisticated, have a better cost structure and more efficient marketing costs.”
Acro Energy made its first acquisition in February
2009. It bought Acro Electric, California’s seventh-largest
installer with only $7 million in sales. The company has
since bought two more solar installers, one with about $2
million in sales and another with $4.5 million. With these
three acquisitions, Acro Energy now generates about $15
million in revenue, making it one of the top five solar installers in California.
The very biggest players bring in $50 million to $60
million in revenue, with a mix of residential and commercial installations.
Acro is talking to companies earning $8 million to $25
million and with a strong geographic presence. After acquisitions in northern and southern California, the company
plans to move to Arizona, Oregon or Texas.
“As our stock price rises in reaction to our acquisitions,
we’ll be able to fundraise more and buy bigger companies,”
Fleming says. “Our first goal is to achieve a strong presence
in the most important geographical areas.”
When Acro buys a company, it takes over the financial
and marketing sides of the business. Acro sends marketing
leads to the acquired company, which continues to sell and
install. To get the best volume pricing, it buys panels only
Copyright © 2010 by the American Solar Energy Society Inc. All rights reserved.
from Suntech (NYSE: STP), Sharp (SHCAY) and SunPower (Nasdaq: SPWRA), segmenting its product offering
by low-, medium- and high-priced panels.
“Because of vastly lower solar panel costs, we’re banking
on 2010 being a breakout year for solar in states beyond
California,” Fleming says.
Indeed, solar installers are now in the catbird seat. The
number of solar manufacturers increased dramatically
over the past few years; many of them are from China
and have low cost structures. The factories are competing
madly for market share. They expect the United States to
become the world’s largest market for photovoltaic (PV)
modules, and to lever their way into American warehouses, they’re building solar panels as fast as they can despite
the present oversupply.
“Prices are dropping so rapidly, it’s hard to keep track
of,” Fleming says. “We buy as few as we can at a time right
now because prices keep going down. I get daily emails
from no-name Chinese panel manufacturers offering me
$1.50 a watt. They all expect to double capacity over the
next six months, as do all the big players, including First
Solar (Nasdaq: FSLR), SunPower and Suntech. The market glut will only get worse, or better, depending on your
Fleming points out that just last year, solar panels for a
typical 5-kilowatt (k W) systems cost $4 a watt, constituting
about half the value of a $40,000 system. (Installed cost was
about $8 a watt.) Today, panels cost $2 a watt, and prices
may drop to $1 or $1.20 a watt over the next year or two.
That means a 5-kW system now costs a customer
$30,000 to $32,000; next year, the same system could cost
$20,000 to $23,000 before rebates. With state and federal rebates, the systems would end up costing $10,000 to
$12,000. “That’s what gets us really excited,” Fleming says.
“Solar is becoming a middle-class product.”
The few publicly traded solar integrators aren’t yet profitable. “Wall Street analysts don’t know what to make of the
integrator, but we think we’ll be profitable by the first quarter of 2010,” Fleming says. Although 90 percent of Acro’s
business is residential, it’s moving into small commercial
systems now that California has adopted a feed-in law for
commercial systems under 3 megawatts.
Acro plans to list on Nasdaq in early 2010 after its fourth
In 10 years, Fleming thinks that mom-and-pops will still
hold 10 percent of the market. There will be regional leaders
and three to four national players. Solar manufacturers will
invest in or acquire the integrators to protect the channel
flows for their products. First Solar has already invested in
Solar City, and Acro has received offers. ST