BCG - The Boston Consulting Group

Situation

A large electric utility in China had a unique opportunity to coinvest with a global technology leader in a new thin-film solar photovoltaic (PV) module manufacturing operation. Since the company was already planning to develop significant solar PV farms in the Asia-Pacific region, it had a strategic as well as a financial interest in the transaction and had progressed to an advanced stage of negotiations. The utility asked BCG to help it evaluate the attractiveness and feasibility of the opportunity and to recommend whether or not to invest.

Approach

The BCG team assessed the global and regional demand outlook for solar PV modules and the underlying economic and political factors driving demand. It then reviewed the merits of crystalline silicon versus thin-film modules, as well as of the various thin-film technologies under development, and benchmarked the performance of major competitors against the likely performance of the planned operation. Finally, the team assessed the key risks inherent in the potential investment and the ability of the management team to execute its business plan successfully.

Despite a positive demand outlook for solar PV modules, BCG did not see a compelling strategic rationale for the investment. First, significant capacity increases in crystalline silicon were easing supply constraints. Second, it was not clear how the planned operation could approach cost parity with leading competitors, let alone reach a position of cost leadership, in an industry where relentless pursuit of cost reduction is of paramount importance. Given the expected deterioration in industry conditions, more attractive options for securing supply or investing in the sector were likely to be increasingly available.

Impact and value created

In addition to helping the client understand the likely economics of its potential investment and the drivers of those economics, BCG helped it to clarify its thinking about investment in areas unrelated to its core business of thermal power generation and distribution. The client walked away from a costly deal, which would have been made even worse by the dramatic declines in pricing and margins in the postcrisis environment.

• e-mail page
• print page