Solar investor sees fewer new start-up co's

NEW YORK (Reuters) - Rising competition from Chinese solar companies and high entry costs are likely to limit the number of start-up companies going into the photovoltaic manufacturing market, a managing director at private equity firm CMEA Capital said.

The global solar market is expected to grow by 30 percent annually in the coming years, but buyers of the renewable power source are increasingly focusing on equipment from established players such as First Solar, Suntech Power and Sharp Solar.

“I don’t think you’re going to see a lot of start-ups going after generation,” CMEA’s Faysal Sohail told Reuters in an interview.

Most major solar module manufacturers are ramping up their production capacity as they seek to increase their market shares, but starting new factories is expensive.

In addition, China’s Suntech, LDK Solar, Trina Solar and JA Solar have each received billions of dollars in loans from the China Development Bank to expand their businesses.

Sohail said the trend toward building large solar installations has led to a greater focus on real estate costs, since the facilities often stretch over dozens of acres.

That will likely favor companies that produce high-efficiency solar modules, such as Solaria, a company in which CMEA has invested.

“Real estate is going to be a factor ... getting more power out of each panel is going to matter,” he said.

The steep drop in panel prices in 2009, when average selling prices fell by as much as 50 cent, hurt many solar manufacturers but ended up creating more efficient companies, he said.

Costs for the panels and their installation are currently near $3.50 per watt, and many experts believe that figure must drop to about $2 to make solar competitive against more traditional forms of power generation.

“It has really pushed innovation, and I see a way to $2,” he said.

Prior to that price drop, many solar companies were winning funding from private investors even though they had high operating costs because of the high demand for solar modules, he said.

“What happened in that one- to two-year period was a lot of weak ideas got funded, and I think a lot of them will go away,” he said.

CMEA also is an investor in Solyndra, which canceled a planned initial public offering of shares in June.

Reporting by Matt Daily; Editing by Tim Dobbyn