Tentative Solar Investing Rule #6:
Vertical integration, from polysilicon through installing systems, is necessary for success in solar.
Certainly, this is the way all the big companies are going. FSLR, SPWRA, and STP are already committed to a Systems strategy. The new loans from the Chinese government to TSL and STP will probably be used for Systems. LDK is trying to move upstream from modules to polysilicon, while WFR tries to move downstream.
Both ends of the production line, polysilicon and Systems (the Balance-Of-System post-module), look to be low-margin businesses, now and probably forever. The middle parts (wafers, cells, modules) are higher-margin. So, for the companies doing only those middle parts, their profit margins will fall permanently, if they enter Systems or polysilicon. So why is everyone doing it?
Maybe they all think overcapacity is going to become chronic in the cell/module business, so success requires a "captive market". If all the big companies in solar get into Systems, and build close relationships with electric utilities and governments, it will make it much harder for new entrants into the cell/module business.
Anyone else have any Rules they follow, tentative or otherwise? |
