Commodity Online
LONDON: Tapping the solar energy never looked so good as of now with subsidies in many countries in a rush to reduce carbon emissions and ensure energy security.

However, being a small player has its own disadvantages with falling margins, squeeze on subsidies and oversupply of components. Therefore, they risk the prospect of being taken over by giant conglomerates.

The trend has already been set with Bosch, the German privately owned conglomerate, making a €1.1bn ($1.7bn) takeover bid for the solar energy company Ersol.

The acquisition is the biggest being made by Bosch in past five years. It comes as the company plans aggressive expansion through acquisitions after passing up opportunities until recently as they were too expensive.

German manufacturers Conergy and Q-Cells are being eagerly watched by big players as they are the world’s largest solar energy companies

According to market analysts, the revenues from solar panels or photovoltaics stood at $21.2 bn last year which is slated to reach $71 bn in 2012.

If production volumes rise, solar industry will also reach its “holy grail” of “grid parity”. Grid parity means that the cost of producing solar energy would be comparable to obtaining electricity from fossil fuels.

The current price of about $3.80 per watt of solar capacity equates to a power price of about $0.245 per kilowatt hour of electricity produced. This compares with average wholesale electricity prices of about $0.1272 per kilowatt hour in Europe.

In many countries such as Germany and US, solar energy is heavily subsidized that is such power sold to the grid is priced higher to promote the nascent industry.

Germany has about 55 per cent of the solar market, due to generous subsidies called feed-in tariffs whereby solar energy can be sold to the grid at a price fixed above the standard electricity price for as much as 20 years. Japan has about 17 per cent of the world market, and the US accounts for about 5 per cent

Once grid parity is achieved, the dependence on subsidies by solar companies will stop. But the true level of grid parity is hard to judge, given that all the major markets are subsidised today.

Only those companies who can achieve large production scales can become successful. For example, Masdar Solar, an Abu Dhabi company is investing $2bn in solar manufacturing facility in the emirates.

Technology is also an important variable in success in solar industry. Those using thin-film cells have an edge over others using the older polycrystalline silicon technology. First Solar, the US company that has been among the first to commercialise thin-film cells made with cadmium telluride, has seen its stock market value rise tenfold to more than $20bn since it went public last year, despite a recent pull-back.

The situation in solar industry is similar to what happened in wind energy a few years back when major companies stayed away from it because of skepticism until GE and Siemens acquired wind companies changing the market environment.