Wednesday, June 21, 2006

Solar: Get ready for some big moves

There's a lot of shifting going on right now behind the scenes in solar, and cleantech investors should be ready for some major moves over the next 12-18 months in this market. The following is just one man's half-educated guesses, so take it for what it's worth:
  • Thin-films startups are gearing up to make major launches in production. From today's very public news about Nanosolar's massive round and plans for the "world's largest solar cell factory," to less public news about other thin-films startups that are finalizing their production lines, the end of this year and beginning of next year should see some actual market-ready product launches out of CIGS and other silicon-alternative PV players. Will there be hiccups? Probably -- there have already been significant delays and some realignments along the way, and this is not easy stuff to work with. Will the window for rapid adoption of new solar techs (driven in large part by the current shortages of silicon) still be open when these new products come out? Hopefully. But thin-film players sure sound like at least a few of them are getting ready for prime-time soon, and that's going to have impacts across the market.
  • Get ready for a big wave of solar IPOs. From current rumors, it seems that just about every solar startup, including many that are some ways away from actually launching product, are being courted by I-bankers who are promising fat valuations and nice pops. Certainly when you see private investors putting $75mm into a pre-production solar company, you know they're expecting a near-term liquidity event. After the successful recent IPOs of SunPower, Suntech, etc., which demonstrated a lot of retail investor hunger for solar investments, a lot of companies are looking to jump out there before valuations come back down or the IPO window closes. When will that happen? After the fifth solar IPO? The tenth? The 19th?
  • As solar IPOs start to come fast and furious over the next year or so, expect that to trigger a wave of consolidation in the industry as well. There are a lot of reasons why the market will see consolidation of the various PV techs by single large players: The need to offer breadth of technology options to fit end-users' and installers' specific needs, the desire to hedge bets across different technologies, and the importance of strong brands in successful introductions of new technologies. As larger cash-rich players (SunPower, perhaps?) see potential acquisitions getting ready to take rich valuations in IPOs, there will be a scramble to grab them at more reasonable trade sale valuations before that can happen. A wave of IPOs, followed by a wave of acquisitions, therefore seems like a likely potential scenario...
  • Interestingly, however, some of the most likely acquirers are themselves exiting solar. Shell Solar sold off their silicon PV business earlier this year, and it's likely that BP Solar will soon be spun out or sold off as well. In some ways this makes perfect sense: These solar divisions are too small to move the needle on valuation multiples for these major oil giants, so they can achieve better multiples if sold off or turned into independent efforts. It's just a shareholder value maximization move, therefore, but it does raise the question about who the consolidators will be -- GE seems likely, as do the recently cash-rich early IPOers mentioned above... There are also rumors of very major LBO-type private equity roll-up efforts being considered, so look for signals that late-stage players are putting money into potential platform companies for such efforts...
Other news to note: A lot of "green = green" type articles this past week in major business journals, including Forbes and BusinessWeek... Solar to be competitive with grid-power costs by 2015?... Here's a nice column on the market potential for demand response, something we've talked about before... Looking forward to seeing everyone at Larta next week.


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