Manufacturers and services specializing in solar energy have been cast in the M&A spotlight. Recently, Gibraltar Industries agreed to buy both RBI Solar Inc. and Rough Brothers Manufacturing Inc. for $130 million. Before that, SunEdison Inc. bought seven renewable energy projects on the heels of Solar Power Inc.’s acquisition of a Mongolian solar energy project for $101.3 million in November.
This uptick in deals stems from the anxiety companies are feeling over the ratcheting down of the federal solar investment tax credit. This ITC is expected to be reduced to 10 percent or less by the end of 2016, down from 30 percent.
“Right now the rush is to get solar projects installed completely, or corporate investors will lose the 30 percent investment tax credit,” says Raj Prabhu, CEO of advisory firm Mercom Capital. In other words, Congress says all solar panels need to be “placed in service” in order for a corporation to get a tax credit. The chances of a “commence construction” provision are slim. So, the goal is to close as many deals before the investment tax credit is eliminated.
Meanwhile, companies are using M&A to get a leg up on the situation. Vivint Solar (NYSE: VSLR) and NRG Energy Inc. (NYSE: NRG) will have plenty of opportunities to buy up smaller shops. So will SolarCity Corp. (Nasdaq: SCTY), the primary supplier in the U.S. residential rooftop solar market. San Mateo, California-based Solar City bought Silevo Inc. for $350 million in 2014.
Consolidating could help a manufacturer include financing services, or grant a project financier installation capabilities as a way to gain control over appraisals. Companies can also buy leasing providers rather than pay outside parties.
Currently, solar panel sales are high. Between now and 2040, $3.7 trillion is expected to be spent on solar systems worldwide, according to a recent Bloomberg Energy report. Half will go into roof panels, which are getting cheaper and boxing out traditional utilities in selling power.
“Everyone knows solar energy providers will make more money between now and then,” Prabhu says. “You’ll see these companies buy others to expand, so they’re not caught after 2016 with low business levels.”