Thanks to Tej Kumar for sending me these two interesting stories (here and here) about how the solar industry is going through major restructuring. One challenge facing solar makers is that the price of polysilicone (a key ingredient in the manufacturer of solar panels) has fallen dramatically since 2008. The low price of polysilicone is knocking smaller less competitive companies out of the market place. Polysilicon accounts for one quarter of the cost of a finished solar panel (see here). While lower prices are good for consumers and should help to spur wider adoption of solar power, low prices eat into profit margins and this puts pressure on companies to find ways to increase competitive advantage. For large well organized companies, reducing costs might be enough. Sunpower, a large US company that we study in week 3 of BSUS 6600 is looking to cut next years operating costs by 10%. First Solar, the other big US solar company is looking for ways to consolidate its manufacturing. For other companies, vertical integration or horizontal integration are obvious choices to remaining in business. For some companies, survival through M&A activity may be the only option. Lower prices for polysilicone also puts pressure on governments to reduce or eliminate generous feed in tariffs. Germany and Spain have already cut subsidies for solar power and Ontario is currently reviewing its micro FIT program. On top of this, the euro debt crisis is slowing solar panel installation in Europe.
The impact on the share prices of publicly traded solar companies has been a disaster. Over the past 6 months, for example, a basket of solar stocks (in blue, grey is the S&P 500) has lost 50% of its value.