Peter Lorenz, president and CEO of the solar-system mounting and racking company Unirac Inc., says solar manufacturers and installers are facing tight margins as prices for photovoltaic systems continue to drop.
Price declines are helping build demand in the U.S. and elsewhere, establishing the foundations for long-term industry sustainability without subsidies.
But as income margins get squeezed, weaker companies are disappearing.
“Many companies are struggling to survive, given the pricing and margin pressures we’re all facing,” Lorenz said. “The market overall is growing, but it’s very competitive. A lot of consolidation is happening.”
Unirac, which makes mounting and racking systems for solar photovoltaic systems at an 80,000-square-foot factory in Albuquerque, is doing well, thanks to the company’s brand recognition built over years, lean operations and diversity in serving residential, commercial and utility-scale solar markets, Lorenz said.
But many of Unirac’s competitors are being absorbed by bigger players or being forced out of the market.
Industry leaders say such trends are inevitable as the solar market matures. In fact, in the long term, price declines and survival of the fittest is a necessary – and even positive – development for the health and sustainability of the industry, said Ryan Centerwall, general manager of Affordable Solar Group in Albuquerque, a wholesale provider of solar systems and a PV installation company.
“We’re all experiencing the pricing and margin pressures,” Centerwall said. “Now we have to build twice as much solar to earn an equal amount of dollars. But that’s a necessity to get costs down enough to where the market can live without subsidies, and in the long run, it makes the industry stronger.”
Until recently, solar-panel makers were the hardest hit from price declines and industry consolidation, with many manufacturers closing up shop, such as Schott Solar in Albuquerque last year.
But prices are now declining for many other system components, such as AC-DC inverters and racking structures.
“We’re seeing it in every segment of the industry now,” Centerwall said. “I believe the next big round of consolidation will happen in the racking sector. Strong, innovative companies like Unirac will thrive and survive, but smaller companies will either go away or be acquired by larger ones.”
In fact, after huge declines in the last two years, solar-panel prices actually have increased by an average of about 9 percent since January. That’s because oversupply has dissipated as new markets rapidly emerge in Asia and other places, and as manufacturers scramble to export panels to Europe before a new European Union import tariff takes effect, Centerwall said.
But prices for other components have continued to fall, leading to an average overall 9.3 percent drop in solar-system costs in the second quarter of 2013, compared with the January-March period, and an 11.1 percent decline compared with the same period last year, according to the Solar Energy Industry Association.
“I think the trends we’re seeing now will intensify in the next 12 months,” Centerwall said. “It’s a maturing of the market.”