September 30, 2008 1:37 pm

Spanish solar company glut could lead to business failure, investing abroad seen as solution

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Spanish solar power companies that stay on the sidelines of the wave of consolidation that will soon sweep the industry could go out of business, according to a number of executives surveyed by mergermarket.

The managers also said that the new regulatory framework for the sector will lead to the withdrawal of foreign investors and the need for survivors to invest aggressively overseas.

The executives said they did not believe that foreign investors would use the new framework as an excuse to enter the market through acquisitions. Indeed, some of the managers said that foreign investors are leaving Spain and heading for countries such as Greece and Italy instead.

“More than 80% of the companies will have to close,” Blaen Director General Francisco Blasco said, adding that 400,000 jobs would likely be lost in the sector by Christmas.

The executive said that the privately owned Spanish solar installer company he runs is willing to open its capital to new investors as a way of surviving the new market conditions.

“We are willing to welcome investor to our capital or reach agreements with companies which support us with new projects,” Blasco said. ”We are open to all possibilities.”

The executive, who holds a 33% stake in Blaen, said the company needed a financial investor because it is a small company. The company will hit EUR 1m in revenues in 2008. He added that one option would be for smaller companies to go to countries such as Italy, France, the US or Arabic countries where the industry is less developed than in Spain.

Meanwhile, the executive of a solar power promotion and development company who requested anonymity said: “Simply, some companies will disappear.”

He added that with the new legislation only a few companies will continue operations and those who do will not require a lot of money to acquire competitors.

According to Monica Martins, an executive in the financial department of Valsolar, the new regulation will lead to a number of companies going into administration.

Manuel Santiago, manager of the promoter and constructor Avant Solar group, agreed with this analysis. “The new regulation obliges companies to have a strong financial position and few companies have it so there will be a lot of insolvency cases.”

Juan Catala, executive of LCT, agreed that the new regulation would decimate the sector.

Gregory Lukens, manager of OpcionDos, said companies must “adapt or die.” He added that costs must come down. Lukens said that his firm will adapt its technological solutions to those which provide adequate return on investment under the new feed-in tariff scheme, while still being apt for rooftops.

“Other firms may look for international opportunities outside of Spain, while still others may be forced to move out of the photovoltaic sector or even close their doors,” Lukens said.

The chief executive of one large Spanish energy company said that in his opinion many of the smaller solar power companies that have sprung up in Spain in recent years make a living claiming subsidies. He added that public policy should reward genuine research and development (R&D) in this field, adding that he does not believe this is happening at the moment.

The chief executive said that the real costs of solar power make it ”impossible” to work as an alternative power source because alternative generators are necessary at night and when it is cloudy.

According to an executive of solar project developer Grupo Imera, the previous regulatory regime led to highly speculative movements in the sector.

Grupotec Solar expansion manager Manuel Folgado estimated that the new regime could bring a 30% cut in revenue for companies in the sector.

In the opinion of Tomas Gaviro, Martifer Solar PR manager, smaller ones will suffer the worst losses.

Heliosilice manager Luis Sanchez said that some largers companies also face bankruptcy because of smaller margins.

Meanwhile, Wattpic CEO Pep Salas said that the different links of the chain will suffer under the new regulation. “Small and medium promoters will be very affected because they won’t be able to get good prices,” Salas said. “However, big promoters will offshore. Installation and engineering companies will be the links with more problems. Manufacturers should internationalize and find new markets. Maintenance companies still have a lot of work thanks to the previous regulation,” he said.

Sunpower business development director for South Europe Luis Torres said that companies with low financial capacity or a short-term strategy will have to lay off staff to survive. He said that widespread M&A will be a reality by the second quarter of next year.

Meanwhile, Alfonso Sanchez, manager of FT-Solar Consulting, said that he believed that foreign investors will minimize their investments in Spain because the country will be a less profitable region. He also predicted domestic M&A.

Enrique Desamparados, sales director of Esaune Solar, a privately owned Spanish solar and industrial engineering company, said that Spain will stop being attractive for foreign investors. “They will make investments in Greece, Italy or Portugal, because they have more appeal,” he said.

Companies will also be able to leverage their expertise in Spain in markets where solar power is less developed, executives said.

Sunpower’s Torres said that Spanish companies with a foothold overseas will be in a good position to grow internationally.

Meanwhile, Angel Turpin, executive of Esfera Solar, supported the idea of going abroad. “The big companies will move to Portugal, Greece or Italy,” he said.

In the longer term, some see foreign investment returning to the sector. For example, Javier Anta, chairman of solar power association ASIF said that after two or three years, when the market is growing again, foreign investors could return.

Torres, the executive of listed SunPower, which is based in San Jose, California, said that foreign companies could make acquisitions in Spain by 2010. Until then, he said that promotion and installation companies would bear the brunt of the consolidation movement.

Meanwhile, Santiago of Avant Solar said that he would not be surprised if some foreign players bought some of the better panels and cellular manufacturers. He said that a lot of the companies are too small and have limited growth prospects.

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