by Cedric Brehaut, Executive Consultant, SoliChamba Consulting
Consolidation is a recurring theme in many solar markets as they mature, but how fragmented or concentrated are each of these markets? How does the U.S. compare to Germany, Italy, or the U.K.? The latest edition of GTM Research’s annual report, Megawatt-Scale PV O&M and Asset Management 2016-2021, authored by yours truly, provides answers to this question for utility-scale plants. The chart below represents the share of the top 10 owners, asset managers, and O&M providers in 9 of the largest PV markets, as a percentage of the total installed base of PV plants 1 MWdc and above (at the end of Q3 2016).
Concentration & Fragmentation of ownership, asset management and O&M
The share of the asset pool owned by the top 10 owners ranges from less than 8% in Japan, the most fragmented market, to more than 50% in Canada, the most concentrated one.
The asset management landscape appears more concentrated than the ownership landscape across all board, with the top 10 players managing approximately 10% of the asset pool in Japan, up to almost 90% in Canada, for two main reasons:
Portfolios owned by several investors tend to be managed by one of them. For example, the Enel Green Power / F2i portfolio in Italy is managed by Enel GP.
Service providers aggregate portfolios owned by multiple small- to mid-size investors, and sometimes by top-tier owners as well.
The O&M landscape is even more concentrated, with the top 10 players managing in aggregate approximately 15% of the asset pool in Japan, up to 100% in Canada and France. Subcontracting is common in the O&M world, and there is often an overlap between the top players in scenarios where two of them are both doing O&M for the same assets, one as a prime contractor and the other as a subcontractor. As a consequence, the 100% aggregate figure does not necessarily mean that these top 10 players manage the entire asset pool.
Despite some activity on the secondary market, Germany remains a very fragmented space where the top owners’ portfolios only account for approximately 20% of the installed base of large-scale plants. The country’s top owner, Enerparc, is the only player that comes near the gigawatt portfolio size, while the other top investors own less than 250MW each. Asset management is usually self-performed, and concentration has been most visible in the O&M space. Few O&M contracts are reassigned to different providers (and these are typically subject to fiercely competitive RFPs) but consolidation is happening via mergers and acquisitions (M&A). In one of the latest examples of M&A in Germany, greentech GmbH recently acquired Conergy Services’ O&M activities and portfolio. There is ample room for more consolidation in the German asset ownership and O&M sectors.
The UK's fast consolidation
The U.K. market is consolidating at a fast pace, in all three sectors. The top 10 investors owned almost half of the asset pool of megawatt-scale PV plants at the end of Q3 2016, after a period of very intense activity in the secondary market when top owners and portfolios gobbled up assets sold by their initial investors. Asset management is even more concentrated: the top 10 players manage approximately two thirds of the asset pool, although this number likely includes some portfolio overlap in the case of top owners that subcontract part of the asset management scope while keeping the rest in-house. In the absence of this phenomenon, the O&M landscape appears slightly less fragmented on paper, with the top providers accounting for approximately 60% of the installed base. But a massive wave of consolidation is underway:
Some large owners are taking steps to bring O&M in-house (by investing in O&M companies or developing their own infrastructure, or both).
Other investors are issuing tenders (or preparing to do so) as plants reach the end of the initial 2-year contract period.
By the end of 2017 the U.K. market could very well have the most concentrated ownership market, and potentially equal Canada as one of the most concentrated asset management and O&M market.
Italy’s contradictory concentration and fragmentation
Italy presents unique characteristics: a fragmented asset ownership landscape (the top 10 owners only accounting for a third of the asset pool of megawatt-scale plants) combined with a concentrated asset management and O&M landscape (where the top 10 players account for approximately 80% and 60% of the installed base, respectively). This discrepancy is largely explained by the fact that many large portfolios in Italy are shared among multiple owners, and the analysis in the GTM report is based on net capacity owned by each investor. For clarification: if two owners each have a 50% stake in a 100MW portfolio, each investor is considered to own 50MW of net capacity. There has been active consolidation of portfolios for the past 18 months in Italy, and the trend is expected to continue in 2017 with aggressive players like Tages Capital continue to acquire assets while initial investors, small and large, seek an exit after seeing their returns shrink when legislators enacted a retroactive tariff cut. The O&M market will also consolidate further as portfolios become larger and as investors reassign management of the plants to a single provider (or a small number of providers).
US levels of consolidation
Utility-scale PV asset ownership in the U.S. is equally fragmented, with the top 10 investors accounting for approximately a third of the asset pool based on net capacity. Consolidation is happening at a slow pace because the secondary market for utility-scale PV assets in the U.S. remains constrained by the incentive structure. For tax reasons, initial investors tend to hold the assets until the Federal investment tax credit (ITC) and accelerated depreciation benefits are fully realized (five to seven years).
The asset management landscape is more concentrated: the top players account for almost 50% of the installed base. As in Italy, some large assets and portfolios are co-owned by two investors and managed by one of them. For example, ConEdison Development and Sempra U.S. Gas & Power share ownership of several assets, including the 250 MW Copper Mountain Solar 3 plant.
The O&M market shows even more concentration, due to three main factors:
The utility-scale PV development market was historically dominated by vertically-integrated firms First Solar, SunEdison and SunPower, who tend to do O&M themselves.
Service providers SOLV and MaxGen grew very fast in the past 24 months and contributed to the market consolidation by aggregating large O&M portfolios.
Very large plants are common in the U.S., and facilities above 75MWac are subject to NERC requirements that only a small number of O&M providers are currently able to comply with.
We can expect further consolidation of the ownership and asset management landscapes as secondary market activity increases, and of the O&M landscapes as a handful of large developers, EPCs and service providers compete to capture market share.