Consolidation is the new way for Solar Companies to Suvive
Consolidation in the global solar industry continues at an accelerated pace with companies exiting the solar business (Sharp, Siemens), bankruptcies being announced (Q-Cells), takeovers by government (LDK) and private companies (GTAT buys Twin Creek). Now two of the largest Taiwanese solar companies have decided to merge. Neo Solar Power which is the fastest growing solar cell company had decided to merge with Del Solar which was a small solar cell maker owned by Taiwanese electronics giant Delta Electronics. Note while Taiwanese companies have benefited from duties imposed on Chinese solar panel makers by USA and now in the near future Europe, they have not been able to stave off the massive drop in solar cell prices. Solar Cell prices have dropped to as low as 35c/watt which is almost a 70% drop over the last one year. Despite the prices of solar wafers falling, the ASP of 35c/watt means that the gross margin is negative.
The Taiwanese companies concentration on the solar cell part of the supply chain has made them vulnerable as their European and Japanese customers have been hit very hard. There is excess cell capacity in China which means that the orders for these companies have gone down sharply. Consolidation is the only way that these companies will survive. It remains to be seen what tactics will be used by the other big solar companies Motech and Gintech to survive.
How Taiwanese Solar Industry has evolved
Taiwan’s Solar Energy Industry has shown the fastest growth after China in recent years. The country’s leadership in the Solar Industry was led by Motech which was once a top 10 Solar Cell Producer. However the recent financial crisis had hit the island nation’s solar industry very hard with Motech and E-Ton facing massive erosion in profits and revenues. With the recovery in the solar industry in 2010, Taiwan’s Solar Cell Producers have come back with a vengeance. Gintech, NeoSolar, DelSolar are some of the newer entrants which have grown sharply in 2010. Taiwan’s Solar Industry has broadened significantly in the past few years with presence in all parts of the Solar Supply Chain. A Polysilicon Plant was also recently opened in Taiwan which is totally dependent on raw material imports for solar crystalline cells. Note the Wafer and Poly Tightness has already started increasing putting pressure on the input cost of cell producers. However the country’s solar industry remains largely dependent on the manufacture and exports of Solar Cells.
Massive Demand lifts all Boats Including Taiwanese Cell Producers
Huge demand from Solar Module Producers in Europe and Japan has led to boom times for Taiwanese Cell Manufacturers. Motech has again reclaimed it leadership position with sales of more than 100 MW in a single month. Other companies too are showing record revenues and profits. Note this phenomenon has been seen across the world with even high cost European producers like Aleo and Solon making impressive revenues and profits. The Strong Solar Demand Tide has lifted all boats even the uncompetitive ones. The real test will come in 2011 when increased supply comes online particularly from ultra low cost producers from China.
Solar Capacity Expansion threatens Taiwanese pure play Cell Makers
However Solar Capacity in the Industry has increased rapidly particularly in Taiwan and China. Besides Semiconductor and LCD Heavyweights like AUO , UMC and TSMC have made huge investments into Solar Production. Korean Companies are too making a strong entry into the already crowded segment. Despite some capacity build in the wafer and module parts of the supply chain, Taiwan remains largely a cell producer. Compared to the integrated Chinese producers like Trina, Yingli, LDK and others, Taiwanese Solar Makers are vulnerable to sharp price cuts. They depend on European customers who are largely uncompetitive and would face huge pressures with the decline in the German market. Chinese producers have much lower costs due to their vertical integration which currently most Taiwanese lack except Motech. Taiwanese Cell Capacity is set to increase manifold next year from the current 5 GW. Most of the Tier 2 Cell Producers would be running empty while even Tier 1 players will see a sharp decrease from this year.
Google+Neo Solar Power Corp. will acquire Delsolar, a subsidiary of Delta Electronics, at 100% via share swap and cash payment in two stages by the end of next June, thereby becoming Taiwan’s largest and the world’s second largest solar-cell company, announced Neo Solar yesterday (Nov. 19).
This is the first 100% merger in the history of Taiwan’s solar-energy industry. Institutional investors estimated that the acquisition will cost less than NT$3 billion. Hai Ying-chun, chairman of Delta, remarked that as a pioneer for new-energy business in Taiwan, Delta hoped the merger can trigger merger between other domestic firms in the line, thereby rectifying the imbalance of supply and demand plaguing the solar-energy industry.
Hai stressed that Delta still harbors a rosy outlook for the solar-energy industry. As a result, after the merger, Delta will become the largest shareholder of Neo Solar, with 17% stake and two seats in the seven-seat board of directors. The merger will be carried out in two stages. In the first stage, from Nov. 20 to Dec. 14, Neo Solar will acquire 13-15% stake of Delsolar, based on the latter’s closing price of NT$10.85 per share on Nov. 16, plus 5% premium. It will be carried out by exchanging 0.703 share of Neo Solar, plus cash of NT$0.5, for one share of Delsolar. The merger will be completed by the end of next June. Delta now owns 54% interest in Delsolar, which will drop to less than 41% after share swap in the first stage. Then, Delta will own 5% stake in Neo Solar.
