Normally, when an industry shifts from cottage to mainstream, the companies that held lead positions in the early days are rarely the ones on top several years down the line. You can look at almost any industry or sector for clear examples of this, going back as far as you want.
Within the UK solar industry today, if you were to ask 100 people walking through the doors at the UK’s flagship solar event Solar Energy UK in Birmingham this October: “Who is the largest player in the UK solar industry?” I suspect that more than 90% would reply in a split second – Lightsource.
Now, if the UK solar industry was just a blip on the global – or European – stage, then being number one would hardly be headline news. But of course, the UK is centre stage today within a global solar industry that is one of the most widely supported and financed sectors around, and that changes everything.
So being top dog in UK solar is a massive accomplishment these days – especially if you have maintained this position for several years and with a significant lead during this time period.
While the UK market saw its initial growth surge on the back of residential feed-in tariff (FiT) activity back in 2010, the only reason the UK market is a global powerhouse today is the large-scale ground-mount utility segment. So, looking at the key players in UK solar, one has no choice but to extract the leading companies that have been at the forefront of ground-mounted solar farm deployment as the de-facto route in determining who the key players really are in UK solar.
However, looking at the different companies active in any downstream segment can appear somewhat like comparing apples with oranges. In fact, ask the same 100 people coming to Solar Energy UK to explain exactly how Lightsource, or say SunEdison or TGC Renewables, plays within the segment, and I doubt more than 5% will give the correct answer. Which of them develop, build or own, or do two of these tasks; or even all three?
Different companies have different approaches, or strategies, depending on in-house skill sets, levels of risk taking, and access to equity to see a screening opinion through to a completed asset. So, when it comes to ranking companies, it is not a walk in the park by any imagination.
Therefore, to do this, the Solar Media research team has devised a brand new methodology. Before we get into this to explain the rationale, it is worth noting that no methodology works at all without having a detailed bottom-up audit trail of every solar farm built in the UK, and right now, the most comprehensive audit trail of solar farms built in the UK almost certainly resides with the Solar Intelligence team at Solar Media.
Our proprietary in-house methodology starts by grouping all companies that are active in any of the following key categories for solar farm creation:
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Primary project developer
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Lead EPC
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Completed asset holder
We ran this hypothesis by a bunch of contacts in the UK recently, and there was resounding agreement that these three functional categories were the key ones in terms of solar farms getting completed.
Yes, many other parties are essential to the process: module and inverter suppliers, ICPs, EPC sub-contractors, DNOs, PPA off-takers. No disrespect to any of these groupings, but it can be argued that each of them really only has business as a result of the above three bulleted roles being in place to start with. Similarly, the legal and financial sectors active at various stages in the ultimate success of any solar farm are essential parts of the overall process (including construction financing, debt financing, or asset refinancing, etc.), but even these notable entities tend to feed into the process on a reactive basis, rather than being the dominant pro-active ones.
ICPs, PPA off-takers, and component suppliers (modules, inverters, mounting) can be ranked, but more as a secondary exercise and only really on a like-for-like basis, such as a direct ranking of module suppliers etc. As such, they are not factored into the analysis outlined here and they are also in some respect servicing demand that has been created by others in the first place.
So, given we have accepted that primary project development, lead EPC building and completed asset holding (often linked to development financing) are the three main activities to compare, the next contentious issue is what weighting to give each of them. Here, there is no single answer, but the broad rule-of-thumb in project creation is that risk typically increases the further you go upstream in the value-chain.
Another way of putting this is as follows: without successful primary (or ‘greenfield’) project developers, there is no utility-based solar sector. This only becomes more applicable when approved planning status is directly linked to success with local (or if relevant, national) planning authorities, during any planning application process. This guides our chosen weighting to be biased to developers, when stack ranking the different companies active in the above three main categories.
Equivalent weightings (but lower than the developers’ figure) are afforded to EPCs and asset owners, although plenty of companies specialising within each of these fields will argue one way or another.
We opted for 40% (primary project developer), 30% (EPC), and 30% (asset holder) weightings. So very simply put, if you were a joint developer/EPC that sold all sites on completion, and you had been behind say 200MW of completed sites, then you would score 200×40% + 200×30%, so a ‘strength factor’ of 140. Now, go through every solar farm built until now in the UK with its full audit trail, and simply add up the scores of all the companies participating in these completed sites, and a comparative ranking table emerges. The figure below shows the Top 10 companies, as of 13 July 2015 market activity.
Figure 1: The Top 10 companies in the UK solar industry, as ranked by a new proprietary methodology devised by the Solar Intelligence team at Solar Media Limited, to factor in success in developing, building or asset ownership of completed ground-mounted solar farms in the UK as of 13 July 2015. Source: Solar Media Ltd, July 2015.
So, very quickly, the graphic confirms the original question at the start of this article, as putting Lightsource well above all other companies in the UK solar industry. But of more interest perhaps is British Solar Renewables (BSR) clear position at number two. BSR has been one of the key companies in the UK solar industry from the start of the market, and is not really prone to blow its own trumpet every time it has success. And during 2015, success has very much come the way of BSR.
SunEdison was a late entrant to the UK sector, and initially was involved only in buying some sites, performing the lead EPC role, and then flipping to an institutional investor. This all changed when TerraForm was established, and while SunEdison is still most active in buying sites from third-party developers, it has extended its focus to development, lead EPC work, and portfolio growth. SunEdison and TerraForm are lumped together in the analysis, with it very hard to see any SunEdison acquired project not ending up within the interrelated yield vehicle TerraForm.
Solarcentury, Vogt Solar and Lark Energy then make up positions four to six, and are by now very much household names in the UK solar sector, with the different companies having very similar business models in developing and building sites, before selling them off. Of recent, Solarcentury’s model has changed slightly, with less focus on developing and more on pure-play EPC work. Vogt Solar and Lark Energy have continued strong site development today, and (along with Solarcentury) each has a very strong completion rate in taking sites through from initial development to fully-built.
Foresight is the only pure-play asset holder to feature in the Top 10 list, and has added some of the largest completed sites in the UK to its portfolio in the past 12 months. It should therefore not come as any surprise that Foresight is looking to have a stronger role in what happens to sites after they are built.
On a similar theme, Grupotec is the only pure-play EPC in the list, and has been one of the main beneficiaries of Lightsource’s success in the UK in the past few years. Other EPCs, ranked lower in the complete listing, can also thank Lightsource for effectively putting them on the map for UK solar business since 2011.
Keeping the pure-play theme, Hive is the only developer in this category to feature on this list. Hive has been one of the most prolific developers of sites in the UK, and typically the company has bundled packages of shovel-ready sites, forming some of the most sought after package deals in the UK over the past few years.
Finally, Anesco rounds out the Top 10 table. From a business model perspective, Anesco falls somewhere between Lark Energy (or Vogt Solar) and Solarcentury. From a site acquisition standpoint however, Anesco is closer to SunEdison is the way in which the company has been hunting down conditionally-approved sites to take through to completion, build and sell on. The difference between Anesco and SunEdison here being that Anesco sells to third-parties, but SunEdison channels sites effectively in-house to TerraForm.
As outlined above, the overall ‘score’ to each company is something we have assigned as a ‘strength-factor’, or how important each company has been to the overall growth of the large-scale solar industry in the UK until now. But, from a market research standpoint, that’s half of the story. The other part relates to changes in ranking and which companies are declining relative to the market and which ones are on the ascendency.
The market-research way of doing this is to assign a reference date in the past and then do a comparison relative to where the market was then, and where it is today. So, in an overall market that is growing fast, any companies that have increased market share (or simply maintained positions) have generally been doing the right things and growing at an even faster rate than the market itself.
These two parameters (market-strength and relative-ranking) then form the basis of a quadrant plot that provides a visual overview of all the companies being compared. In an ideal world, you want to be as high as possible (greatest strength factor) and as much to the right (based on left side being ‘losing share’ to right side ‘gaining share’). Lastly, to fully explain the plot, a baseline market-strength reference (x-axis line) is taken to include only the Top 20 as above this line. So, companies below the line are generally secondary contributors to the market, or may be new entrants gaining share.
All said and done, here is the final quadrant plot generated after our research team crunched all the numbers and double-checked all the Excel calculations.
Figure 2: Market strength and share quadrant plot, across more than 200 companies responsible for the development, build and asset ownership of the 5.3GW of solar farms currently within the UK solar sector. Source: Solar Media Ltd, July 2015.
We have chosen to highlight a few companies on the graphic, through data labels. Anyone wishing to see the full listing should contact us at Solar Media. The tier group rankings of the Top 500 companies by value-chain segment can also be seen by subscribing to our Top 500 database report.
Before we return to the Lightsource theme at the start of this blog, let’s talk through some of the conclusions from the graphic.
The two main companies that have been gaining share in 2015 are British Solar Renewables and SunEdison. Each played a strong part in the 2.5GW of new solar that was added in the UK during Q1 2015, punching above their historic play in the market, thereby putting their marker position to the right-hand-side of the upper quadrant.
The one company we have flagged by name in the graphic, not in the Top 10 but now featuring in the Top 20, is Push Energy. Inclusion here is guaranteed by Push Energy adding in-house EPC activities to what was previously a pure-play developer. And most of Push Energy’s success has come in the past 12 months, so the company shows well over to the right side of the plot.
However, the single most important takeaway from the graphic is the clear dominance of Lightsource from a market strength perspective. Indeed, had we chosen a different weighting approach across each category (with less assigned to the EPC stage), then the delta between Lightsource and the others could have been even greater.
With Lightsource’s contribution from in-house developed sites likely to grow significantly in the next nine months, the only missing part of the chain is EPC work. Given the company’s active role in developing the large-scale rooftop market today, it would not be a great surprise if Lightsource does indeed choose to plug this gap in value-chain activities going forward, thereby having full ownership of large-scale solar site build-out, whether on roofs or on the ground.
Finally, returning to the cottage-to-mainstream analogy at the start, the bigger message from the plot is the fact that Lightsource has effectively maintained its position from a share standpoint during 2015. This is shown by Lightsource’s data point being virtually on the y-axis that marks the point of static market share, based upon the chosen comparison to where things were in the market before the Q1 2015 deluge. Some say that getting to number one is the easy part: staying there in a rapidly growing market being an even greater challenge from a strategic management standpoint.
As the UK solar industry evolves after 31 March 2016, the specific rankings may have to take account of rooftop activity. Moreover, as Contracts for Difference (CfDs) come into fruition, it is highly unlikely that we will have to stack rank more than 200 companies within such a quadrant plot.
However, until 31 March 2016, the all-in approach is still the order of the day with more (not less) companies playing in the sub-5MW RO environment that exists today. Which of the new developer entrants can make an appreciable mark on the sector now remains to be seen, as is the thorny question of how many will actually be around in the UK two years down the line.