TOKYO The solar power industry may be heading for a shake-out as sliding solar cell prices and looming overcapacity spark a round of consolidation and force small and weaker players out of the market, fund managers and industry executives said.
"Some companies may not be able to sustain business and may have to go as cost competition gets tougher," said Yutaka Yamamoto, president at the Japanese unit of Suntech Power Holdings, the world's largest panel-maker.
"In China alone, there are nearly 300 module makers. I don't think the globe can accommodate that many players," said Yamamoto at the Reuters Rebuilding Japan Summit.
Solar companies are rapidly increasing their capacity to produce equipment despite fears that demand could slip this year as countries such as Italy cut solar power subsidies.
That is heightening competition in the sector and sharply pushing down prices for solar equipment, with companies battling for customers and scrambling to cut costs.
The radiation crisis at Japan's Fukushima nuclear complex is also generating interest in renewable energy, likely sparking acquisitions in the sector, industry executives and analysts told reporters at the Reuters Summit.
"It's true that investors are more interested in companies with expertise in (renewable) energy technology," said Tamotsu Adachi, co-head of Carlyle in Japan, who predicted that Japan could make the sector a driver for economic growth after the nuclear crisis.
"We would like to get involved if there is an attractive opportunity for investment," he said.
French energy major Total SA's landmark $1.37 billion offer for a majority stake in U.S. company SunPower is giving fresh impetus to hopes of more deals.
Total's move is one of the biggest ever by an oil and gas giant into the market for renewable energy and highlights interest among bigger energy companies to expand into renewables.
Suntech's Yamamoto said acquisitions will likely pick up in solar technology and in some distribution channels.
"People are seeing a lot of potential in the solar market, that's why companies like Softbank are interested," said Sparx Group President and Chief Executive Shuhei Abe, referring to Japan's third largest mobile operator, Softbank Corp, which pledged to help build about a dozen solar power plants across Japan after the disaster.
Nearly 20 percent of merger and acquisition deals in the renewable energy sector in the first quarter involved targets in Asia, according to data from Thomson Reuters Deals Insight. Europe dominated deals, accounting for 48 percent, it said.
Consulting firm KPMG in a recent report said many businesses are targeting investments in the solar industry over the next 18 months, with deals likely concentrated in the United States, India and Italy.
India is increasingly attractive to investors because of the state incentives that are being used to support the sector, KPMG said.
"Actual acquisitions and consolidation in the region are not very active yet," said Suntech's Yamamoto. "But they soon will be."
(Additional reporting by Emi Emoto; Editing by Joseph Radford)