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The sharp decline in solar PV component prices is making investors uneasy enough to look for downstream and BOS options. The remarkable decline in the price of solar photovoltaic (PV) components and the resultant fall in the profitability of its manufacturers undermined the interest of venture capitalists (VCs) in the segment. Already, many VCs have lost money by investing in solar equipment companies who could not compete on cost or were slow to roll out innovative technologies.According to one estimate, the price of PV modules and the associated electrics declined by 50 per cent in recent years mainly because of overcapacity and intensifying competition from Chinese manufacturers. It is learnt that some equipment makers like Solyndra in the US and Solon in Germany failed to survive the price war and ended up in bankruptcy protection. During April-June 2012, 16 companies, including Q-Cells, Abound Solar, Solar Trust of America and Konarka Technologies, announced restructuring and downsizing of their business.Therefore, investors are now taking a more cautious approach, resulting in smaller deal sizes–CIGS and solar lease companies being exceptions, notes Mercom Capital Group. According to data from the group, the average size of VC deal in solar power sector gradually trended downward from $15.2 million in January-March 2010 to $11.8 million in April-June 2012.Downstream firms: A case of greener grass Given that solar power equipment manufacturers are facing existential crisis, investors are turning their attention to downstream companies and thin film makers. While downstream companies received $251 million funding in 17 deals so far during 2012, thin film companies secured $239 million in 11 deals. With solar manufacturing in trouble from overcapacity and price pressures, there is a natural shift toward downstream companies. Since 2011, most solar VC investments have gone to thin film companies with $835 million, and with panel prices falling more than 60 per cent over the same period, solar downstream companies have been an attractive play, notes Mercom Capital Group in a report.The report shows that balance-of-system (BOS) companies also represent a significant opportunity for investment, innovation and cost reduction. With the fall in PV prices, BOS is now the largest slice of the solar system pie, but VC investments in BOS have been surprisingly low, the report notes. The steep fall in module prices have put BOS companies in focus for sometime now as markets look for cost reductions and improved efficiencies.As solar PV module prices continue to decline globally, BOS components will assume a majority share of a PV project’s total cost per watt, according to GTM Research. This economic shift is driving industry attention beyond the module toward achieving economic gains for key BOS components and services, including mounting structures, foundations, labour, civil works, cables, engineering and combiner boxes.Mergers and AcquisitionData from Mercom Group shows, merger and acquisition (M&A) activity in solar energy sector during April-June 2012 involved eight manufacturers, five solar downstream companies and one thin film company. There were 14 M&A transactions during the quarter totalling $325 million. In January-March 2012, there were 14 M&A transactions totalling almost $5 billion, although $4.7 billion of that was the Solutia acquisition.This quarter, most of the M&A activities were small strategic transactions with a few of them being acquisitions of business divisions for synergistic reasons. Some of the acquisitions were for ‘sick’ companies getting rid of non-strategic businesses and assets. The largest disclosed transaction was the $276 million acquisition of Chinese mono and polycrystalline ingot maker Zhejiang Topoint Photovoltaic by Chinese firm Guangxi Beisheng Pharmaceutical.Raja Iyer, FIRST Infocentre