There is still money to be had in solar.
Swiss firm ABB (NYSE:ABB) demonstrated its seriousness about solar by agreeing to purchase U.S. solar company Power-One Inc. (NASDAQ:PWER) for around $1 billion.
Through the Power-One acquisition, ABB will have access to the company’s profitable solar inverters, which are responsible for translating solar energy into grids through converting DC power to AC.
Chilean fruit company Subsole relies on Power-One inverters for its plant in the Atacama Desert, which allowed the company to get away from the nation’s higher-priced energy grid. Power-One is a large scale company, employing 3,300 people in China, the United States, and Italy.
ABB is entering the solar field through its field of expertise in the technology field.
ABB also wants to make it clear that the company is not entering the solar market full-steam ahead; the company considers the larger solar panel and cell markets out of its expertise range. Power-One will be integrated into ABB’s Discrete Automation and Motion sector, which manufactures hard drives, motors, and robots, according to Businessweek.
ABB intends to compensate shareholders by paying $6.35 per share in cash through Power-One’s net cash of $266 million. The purchasing share is a 57 percent increase from last Friday’s closing price.
Power-One has a total value of $762 million. Shareholders will be compensated handsomely, but the deal still needs approval from investors and regulators.
In 2012, Power-One made a profit of $120 million from commercial and residential solar inverter sales. There are too many solar panels on the market, but inverters are still highly valued. The company expects the solar inverter market, which was worth $7 billion last year, to grow 10 percent annually until 2021.
ABB concedes that such a buy is a risk in a still shaky market, but the company is betting on growing demand and solar potential to compete with coal and gasoline.
ABB expects net income from the Power-One deal to flow within the year.
Although solar inverters have suffered along with panels, there is still money to be made in an expanding market with higher demand from utility companies and residents.
Solar Return
Companies in the solar inverter business have not been exempt from the overall market slump. SMA Solar (ETR:S92) of Germany, considered the world’s largest manufacturer of solar inverters, suffered a 58 percent drop in sales in 2012, and growing competition could affect future earnings.
ABB competitor Siemens (NYSE:SI) is actually selling its solar business assets. German company Bosch will also be withdrawing from solar due to fierce competition.
Europe and China are allowing their solar companies to go through a consolidation process, where only the strong will come out on top.
The German government will begin subsidizing consumer purchases of solar batteries next year, but a return to the grand old days of subsidies for struggling solar companies seems long gone.
German solar companies Sovello, Solarion, and SolarWorld (ETR:SWV) are all going through hard times, with no help in sight.
But ABB’s acquisition of Power-One is a sign that the solar industry can recover. It is true that solar has suffered immensely from sub-priced panels and dwindling subsidies from downtrodden European governments, but this market’s fate is not so readily sealed.
Solar inverters are “one of the last profitable parts of the solar value chain,” according to Reuters, because of the complexity involved in this technology.
If the solar market as a whole is to become profitable, there must more emphasis on storage and transfer technology.
And while it will take years before the market sifts through the excess panels, there is a light at the end of the tunnel.
According to the Financial Times, ABB CEO Joe Hogan wants to get a head-start on his competition when the solar market begins to show a rebound. Most assuredly, if Hogan’s predictions are right about the solar market, companies will be clamoring back to the solar fold to get in on the success. ABB plans to be one of the few companies ahead of the game.
On an investor and solar manufacturing front, solar was dead in the water. But it’s coming back, and even now there is potential in the form of energy storage and inverter technology.
Solar energy can be revived through R&D, convincing more consumers and energy suppliers that renewable power will save them money.
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Solar Companies
Many European and Chinese solar companies are struggling, but turn your investment eyes to America for the most growth. SolarCity (NASDAQ:SCTY), First Solar (NASDAQ:FSLR), and SunPower Corp. (NASDAQ:SPWR) are all American-based companies doing quite well for an industry going through troubled times.
These companies have been able to do well through rising demand from consumers, utility companies, and power plants.
There was a 76 percent increase in solar installations in 2012, and the market has increased from $3.6 billion in 2009 to $11.5 billion in 2012.
The actual panels and cells for solar technology are still going through a rough patch, but there is growth in installation and technology.
Hogan’s ABB is focused on technology, though he has not ruled out future deals involving solar. And future deals will either make or break the industry.
German company SolarWorld is still trying stay in the game by eyeing Borsch’s divested solar production, according to Reuters.
And Chinese solar company LDK Solar (NYSE:LDK), still in the midst of restructuring, snagged a deal that will deliver solar modules to Thai-based EA Solar Nakornsawan Co., Ltd., as reported by Yahoo! Finance.
Watch out for Asia as well. ABB foresees rising solar demand in China and the Middle East.
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