Pros and Cons of the solar panel industry

June 13, 2019

by a searcher from Arizona State University in Boston, MA, USA

Searchers....I may have a solar panel company coming up for sale in the near future and wanted to gauge the appetite for this industry. Here is what I know.

1) Recently pivoted from residential to commercial and now they are experiencing a lot of growth.

2) Revenues mid-$2M on pace for $3M+ for 2019

3) Located in New England

4) Motivated Seller

So the question is....

What is good and bad about the solar panel business model?

What are the industry tailwinds? What are the industry headwinds?

Would this fit a traditional searcher or more of a self-funded searcher?

Appreciate any insights you may have. I have my hutches but want to hear from you.

Regards,

Michael Ballard

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Replies

Reply by an investor
from University of Canberra in Perth WA 6000, Australia

Hi Michael, Charles is right on all fronts. I looked at one of these businesses a few years back and decide not to purchase. While I am based in Australia and our regulatory regimes are vastly different to the States in terms of power gen and distribution, some of the downsides for your may be like the ones for us here including a)limited ability to do more than sell and install the base offering (solar panels). The conversations I had with a few people in the industry highlighted that they were finding it difficult to sell ongoing maintenance programs as the product is so good these days (and in Australia it's almost self cleaning with the rain washing away the dust - we dont have the extreme cold like in USA that may require additional maintenance?). b) for many companies in Australia they have had to rely on 3rd party labor for installation. Could be a good strategy to keep internal costs down in a tight market but quality management becomes an issue. c)power gen and selling surplus into the grid is something that could be developed as a product (i.e. provide the panels to a building for "free" and sell them the power for a reduced rate, while selling surplus to the grid). This was something I explored but for us in Aus, surplus must be sold to the .power company (mostly state government owned) who are the price makers. In a nutshell - a great industry with lots of potential but you will need to really do some deep investigation into what could be possible in building a)scale in traditional product sales and b)developing added value and new services, all depending on the regulatory laws where you operate. Combining the company with one that provides allied services (e.g. insulation, etc) could also provide an exciting opportunity. Hope this helps.

Reply by a searcher
from Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya in Hyderabad, Telangana, India

I agree with both Charles and Akram. My opinion in only in addition to theirs. I have been working with solar panel manufactures, the Structure manufacturers, the Engineering and Installation teams, The Solar tracking solution providers, the Solar farm owners who sell power and to sum up its getting extremely competitive. Getting into it is relatively easy, finding an exit is not so easy. I think if I am not wrong you are clearly mentioning the prospect to be a solar panel company. Chinese will dump their panels and you will find it hard to compete. While the customer is oblivion to source of the panels, the opportunity may lie in sourcing it from china and rebranding it. In all probability this is what would have been already employed at your prospect. The reason I say that is he is switching from Residential to commercial. Which means he is not able to have a break even on his Fixed cost for manufacturing. In commercial its relatively easy to import in bulk from china and the orders can be steady. If the prospect you are considering is not going to hold inventory then I suggest you can manage the business. If the working capital funded by the bank needs inventory then I guess you will have to look at them being funded for receivables rather than for inventory. You must see if in each sale cycle that gets generated you must know for sure if its managed with strict vigilance where variable cost is not going to be higher than estimated. You invest less and allow operations of the company over a 4-5 year to pull of your investment. This is a method to pullout your investment. If you look to sell it to others after buying then I guess its not going to be working on your plan.

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