Rapid growth in the U.S. solar power industry and rising share prices of panel makers have shone a spotlight on consolidation in the sector, but deals are most likely for companies that build renewable power plants or make the panels more efficient.
Large established companies such as First Solar and SunPower Corp will be leading the charge, analysts say.
As competition heats up and prices fall, companies that make the modules at the heart of most solar systems will be looking for "any method to sustain a technological edge," said Christine Hersey, an analyst at Wedbush Morgan.
That includes anything that could help them boost profit margins at a time when they must compete against the many players that are slashing prices to win market share, particularly big Chinese companies such as LDK Solar and Suntech Power.
Solar panel companies have started to snap up plant builders that can provide stable demand for their ever-growing production.
That helps solar companies "avoid competition in the open market where the modules are viewed as commodity products," which drives down prices, Hersey said. Modules are the building blocks for the solar panels needed to generate electricity from the sun.
Last month, Sharp Corp paid up to $305 million for developer Recurrent Energy and its pipeline of projects totaling 2 gigawatts.
Earlier this year, First Solar bought NextLight, with projects totaling 570 megawatts, for $297 million, and SunPower bought Sunray, a European plant builder with a 1,200-megwatt pipeline, for $277 million.
INDEPENDENTS STILL STANDING
That leaves the big developers of solar plants mostly spoken for. But a few remain independent, such as San Francisco-based Silverado Power LLC, which specializes in plants of 20 megawatts or less. While these are smaller than the proposed 300-plus-megawatt plants that have grabbed headlines recently, Silverado executives say they are easier to plan, permit and connect to the grid.
The company has focused on privately owned land in less environmentally sensitive areas than many of the public areas some developers have sought for plants.
That's a philosophy shared by San Juan Capistrano, California-based Axio Power Inc, another privately held concern with about 500 megawatts of projects in the pipeline.
Other companies that ordinarily would make good targets are keeping potential suitors at bay, in part because they think valuations will go higher.
Brendan Neagle is chief operations officer for Borrego Solar Systems Inc, which finances solar systems and is on track for its most profitable year to date. The company talks to interested parties on a regular basis, but "right now, we're not looking toward an imminent sale of the company," Neagle told Reuters.
