25 June 2012
Selling prices continue to spiral downward, and several solar companies have announced bankruptcy in recent months. Only a handful will survive – but it is not too late to take action and be among the winners.
Until recently, countries such as Germany were lucrative markets because the solar sector was heavily subsidized by the government. Suppliers from Germany and the US could deliver the high quality demanded by customers, whereas Asian companies struggled with quality issues and customer acceptance. But now the situation has tipped. Subsidies are rapidly dwindling in the developed countries and Chinese manufacturers have caught up ground, being able to offer similar quality at significantly lower prices. The increased pressure from Asia has already forced some of the big players – including Solon from Germany – to announce insolvency. More are likely to follow. National governments are called on to take action. Just recently, for example, the US Department of Commerce decided to back domestic sales by raising import duties for Chinese solar products.
A strong financial position, the right sales and professional pricing are the key to sustainable profit growth.
In its 2012 Solar Analysis, the global strategy consultancy Simon-Kucher & Partners analyzed the market situation in the solar energy industry. The study assessed companies’ relative market performance and financial power based on their business reports for 2011 or for Q1-Q3 2011. A scoring model was used to determine their relative market performance. This model used a variety of profitability and growth indicators. Financial power was assessed by means of liquidity ratios and figures relating to the structure of assets and liabilities.
In 2011 the Consultancy had predicted that over half of all solar energy companies would vanish from the market in the coming years. In its most recent comparison of market players in the US, China and Germany, it found that only just over 10% of the companies achieved a relatively high market performance last year. But it’s not over yet; almost half of the companies surveyed are in a stable financial position.
Strong market performance is rare
Germany’s SMA Solar Technology is one of the few successful market players. With a profit margin of 13.4% in 2011, it is the only company in the study to boast both a strong market performance and solid financial power. Outperformers such as SMA can act from a position of strength and segment their markets even more systematically, develop their brands and further invest in internationalization to improve their standing.
The story is different for companies such as Centrotherm Photovoltaics that perform well in the market but lack financial power. They urgently need growth and profits to strengthen their internal stability. Broadening their service portfolio or offering partner programs are key here, and they also need to create a ‘growth story’ for investors and stakeholders.
Success depends on financial backing
Companies with a poor relative market performance but solid financial power should extensively invest in their sales power and focus on price as a profit lever. In this situation are First Solar from the US, Trina Solar from China, and SolarWorld from Germany. Even small price increases could lead them back into the profit zone.
For companies performing poorly in both market performance and financial strength, such as Sunpower, Conergy and Yingli, only quick wins can turn the situation around. Sales training or charging additional fees for extras offered to small customers are the solution here.
Getting back on track
Despite the bleak situation, Philip Grothe, partner at Simon-Kucher and author of the study, predicts that “It’s not over for the solar industry yet”. A strong financial position, the right sales and professional pricing are the key to sustainable profit growth. Getting back on track will be no problem if the right action is taken – the sooner, the better.
About the authors: Dr. Philip Grothe is a partner at Simon-Kucher & Partners and responsible for Renewable Energies. Alexander Thoele is a director at Simon-Kucher.