US giant General Electric entered the solar power race in April when it announced the acquisition of PrimeStar Solar, Inc. — a company in which GE has held a majority equity stake since 2008.
GE entered the wind energy business about a decade ago and has since grown its turbine manufacturing arm to generate about $6 billion in annual sales.
It now hopes to repeat this success with solar, with plans to open America's largest solar photovoltaic factory in 2013.
Global demand for solar PV is likely to increase by 75 gigawatts over the next five years, GE said, justifying a decision to invest $600 million in solar technology and commercialisation.
Scale – and cost – is everything
The move marks the US giant's entry into the race to build low-cost photovoltaic panels with the aim of bringing solar power to the mainstream.
The new US factory will produce thin-film photovoltaic panels relying on Cadmium Telluride (CdTe), a market now dominated by First Solar, another American company, which pioneered the technology.
Although less efficient than conventional solar panels, CdTe allows for quicker assembly and mass production of solar panels at lower cost, a method designed for energy production at utility-scale rather than for small rooftop installations.
And for GE as well as First Solar, scale – and cost reduction – is everything.
"This will be the initial market to focus on: utility-operated and utility-scale solar farms," said Mark Vachon, vice-president of GE Energy's Ecoimagination programme. "I still think the market is largely immature and I think our scale will bring us to a position we will be proud of," he told EurActiv.
Vachon declined to say how big the scaling up was going to be, simply saying "it is pretty big". "You can imagine we want a return on that investment."
The company's chief executive, Jeff Immelt, told investors in December that he believed it could be a $2 billion to $3 billion business for GE by 2015.
Total bid could signal further acquisitions
In a related move, French energy major Total SA has offered in April to buy up a majority stake in US company SunPower Corp. for a price of $1.37 billion.
Total's move is one of the biggest ever by an oil and gas giant into the market for renewable energy and could signal the start of large-scale consolidation in the solar sector, something for which investors have been waiting for years.
Big utilities have so far shunned the sector – which predominantly features small roof-installed systems – in favour of large-scale wind farms that fit better into their business models.
The deal "is something we have been waiting for and with the industry gradually moving more from Germany, Italy and the rest of Europe to the US and China, the utilities and power groups will get a bigger role," said Jon Sigurdsen, renewable fund manager at DnB Nor Group unit Carlson.
"We are now becoming a lot more positive [on the sector] and we have recently bought a lot of solar shares actually since the start of the year," Sigurdsen told Reuters.
Arno Behrens, head of energy at the Centre for European Policy Studies (CEPS), a Brussels-based think tank, believes the sector is braced for further consolidation. "With constant pressure on the solar industry to become more competitive, further consolidation of the sector is unavoidable, also in view of increasing competition from China," Behrens told EurActiv.
"This will involve mergers within the industry, but also take-overs from other power and energy companies."
The moves by GE and Total are not isolated. In April, US Internet search giant Google announced $168 million of investment to help build a thermal solar plant in California's Mojave Desert.
Google's venture into solar thermal follows a $5 million investment in a solar photovoltaic power plant near Berlin, Germany – Google's first investment in Europe.
Although smaller in scale than the GE and Total deals, the investment signals growing interest in the solar sector from big listed companies.
With the EU mandating a 2020 target for renewables and the Fukishima nuclear disaster in Japan, energy utilities have an incentive to diversify their portfolio, said Georg Zachman, a research fellow at Bruegel, a Brussels-based economic policy think-tank.
"Solar companies are […] a great hedge for a conventional portfolio and also provide a potentially valuable 'ear on the ground' in the highly politicised renewables sector," Zachmann told EurActiv.
However, he said solar is still far from entering the energy mainstream as it cannot yet compete with lower cost fossil fuels and still relies heavily on subsidies.
According to experts, solar photovoltaic is on track to reach so-called grid parity with fossil fuels in 2017 on average across the European Union.
EurActiv with Reuters