We just finished listening to an excellent panel discussion on mergers and acquisitions in the solar industry.  The discussion was heavily weighted towards vertical integration and the acquisition of development pipeline by solar companies.  As my involvement in the solar industry is focused on the front end site acquisition stage of utility scale projects, I was very interested to hear the thoughts of the panelists.  In my mind the most compelling discussion revolved around the entry of firms that are essentially equipment manufacturers into the development business.  This trend is problematic in ways that aren’t immediately obvious.

To sum up a point that the panelists made, manufacturing is a business in which advantages are gained through steady incremental improvements.  Development is a business that is high risk, high reward, high failure rate.  The same people that understand one business are not necessarily going to understand the other.  Or, to use an analogy that I like, manufacturers are like card counters that strive for a slight advantage over the “house” that will pay off over time.  Developers are poker players that have to size up each situation on its own, make a risk-based judgment call and hope that the wins outnumber the losses.  Developers are the riverboat gamblers, while manufacturers are the kids from MIT that took Vegas.

The discussion this morning hit on a theme that we have seen in our own business.  The firms that hire actual developers for the planning of their utility scale projects are light years ahead of the firms that are throwing personnel from some other part of their business into the development process.  Development is essentially an experience based business, so it’s not good enough to simply throw the “smartest guy in the room” at the problem.  Arrogance is a fatal flaw for a development project.  Underestimating the permitting process or other development related processes isn’t going to do your project any good.  Some companies get it.  If you are reading this right now and nodding your head, this isn’t directed at you.  If you are reading this right now and thinking that I have it wrong, and your re-purposed development team will get it done, then the odds are about 90% in favor of your development deal getting screwed up.

I suppose this is all sort of relative, as very few in the industry have practice at actually getting a solar project approved.  This will change over time, and what I call the “re-purposed” development team will probably eventually get very good.  But for today’s world, and given the amount riding on these projects, the companies that have actual developers in charge (that aren’t doing this for the first time) will be the companies whose projects will be built first.

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