US solar sector to witness dramatic consolidation ahead of ITC cut - report

Oct 21, 2014 - The planned reduction of the federal investment tax credit (ITC) in 2016 is likely to spur merger and acquisition (M&A) activity in the US solar industry going into next year, according to a sector specialist.

Currently, about 30% of development costs for solar installations are reimbursed under the ITC. This will change as of January 1, 2017, when the percentage will drop to 10%. Until then, some solar firms will be forced to participate in a sector-wide consolidation because otherwise they would not be able to remain competitive, Michael Horwitz, the head of energy technology investment banking at Robert W Baird & Co, told Bloomberg. Horwitz believes that the expected consolidation will leave the solar industry with between six and 12 large conglomerates capable of beating utility power prices.

Some of the earliest such deals already spotted in the sector were implemented by NRG Energy Inc (NYSE:NRG) which bought New Jersey-headquartered sector company Roof Diagnostics Solar (RDS) and portable solar systems company Goal Zero LLC earlier this year. Bloomberg cited NRG’s CFO David Crane as saying that certain businesses had contacted the company with proposals for it to buy them “for billions of dollars”. Crane believes that within the residential solar field, for example, there will be three or four companies left next year that target a national footprint and brand name. Together, they will control between 70% and 80% of the market. He noted that NRG itself does not plan any more M&A transactions.

Other solar companies that bet on acquisitions this year are SolarCity Corp (NASDAQ:SCTY), SunEdison Inc (NYSE:SUNE) and Sunrun Inc.

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