Could Solar Energy Be Headed For Consolidation?

Sunedison Inc (NYSE: SUNE) announced today that it would acquire Vivint Solar Inc (NYSE: VSLR) in a $2 billion deal. The move triggered a 40 percent spike in Vivint's stock.

Unexpectedly, however, it also gave SolarCity Corp (NASDAQ: SCTY) a 7 percent boost, as traders became optimistic that the solar space could be in for additional consolidation.

Nicole Litvak, senior solar markets analyst for GTM Research, offered Benzinga some insights into the future of the solar industry.

Related Link: Vivint Solar Takeout Sparks Buying Interest In SolarCity

Vertical Integration In Solar Sector

According to Litvak, there has been a trend of vertical integration within the space. Vertically integrated solar companies, she detailed, handle financing, sales and installation. Litvak said that, within residential markets, Sunedison has historically played a large financing role, but from there, handed the baton to separate installation companies. Vivint, on the other hand, depended on other firms for financing but was "strong in the sales portion."

Therefore, in Litvak's opinion, the two companies were a perfect match. "Vivint is good at selling [residential] solar and Sunedison can finance it."

Looking Forward

She highlighted Sunron International and NRG Energy Inc (NYSE: NRG) as two other financing firms that moved to acquire installers.

Although she expects this trend of vertical integration to continue, she doesn't think that individual "originators," which focus on sales, will be crowded out. She noted that "there are still a lot of those types of companies around" and that there are also "a lot of new loan companies coming in" to finance their operations.

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