Solar Power Players
Moves and mergers in the oil industry cast new light on the fast-growing solar energy market
By PATRICK REYNOLDS/LONDON

Some environmentalists may have lauded BP chief executive Sir John Browne as a reconstructed oilman, debating energy worries in the era of global warming. Last year he announced a decade-long goal to generate $1 billion per year in global sales from solar power by 2007. Browne's goal would give BP a 17-20% slice of the future market, doubling its present share. His bid for the solar crown comes from his belief that it will be "one of the great businesses of the next century." But he never quite explained how he would take BP from being an also-ran in solar power generation to market leader--until this August, when he helped launch one of the world's biggest oil mergers, BP's planned $110 billion linkup with Amoco.

While the deal may signal a new era of consolidation in the oil and gas industry, its impact is also being felt at the fringes of the energy game: their merger will mean that Amoco and BP will pool their solar assets and tip the balance of power in the nascent sector. In one giant leap the top prize in solar power has fallen within Browne's grasp.

It will be a long time before solar energy production rivals that of petroleum and natural gas. Still, looking to the distant future when those hydrocarbons begin to run out, forward-thinking oil companies have invested in the sector, slowly pushing new technologies despite plummeting oil prices which make alternative energy sources even less competitive. Amoco has been in the solar game since the mid-'70s. In 1995 it formed a joint venture with the U.S. energy conglomerate Enron, known as Amoco/Enron Solar, which wholly owns Solarex, a manufacturer of silicon-based photovoltaic (PV) cells that can convert sunlight into electricity. With a 13% share of total output (measured in megawatts), Solarex is the largest U.S.-owned producer of solar PV systems on the market, but it trails Germany's Siemens Solar Industries' 19% ouput share. Japan's Kyocera Solar Systems' 13% share puts it joint second in a $1.5 billion business which has been growing by about 15% a year throughout the '90s. BP Solar currently sits in fourth place with 10%, but the creation of BP Amoco, though not a fait accompli, is forcing the solar industry to view its combined market share at around 23%--or the new Number One.

Market leadership may give Browne's lieutenants the chance to steer the solar sector in new directions, but their initial task lies closer to home: exploiting synergies and cutting costs between companies that have different products, manufacturing abilities and marketing relationships. "There are some complementary possibilities," says Bob Johnson, director of solar PV research with the California-based market analysts Strategies Unlimited.

In the race for greater efficiency and lower material costs--information technology demand has driven up silicon prices--solar PV technology has shifted to thin-film systems, which are deposits of semiconductor alloys on glass. Older PV systems are made by etching crystalline wafers that are then laminated between plates. However, BP Solar and Solarex each has its own thin-film system in addition to their established technologies. A shakeout is almost inevitable, though both firms have recently beefed up production capacities.

The big challenges lie in rationalizing how the new operation will sell its wares. BP Solar leans more toward packaged systems based on its PV modules and tends to bypass distributors to work directly with dealers; Solarex is more technology-based with a strong distributor-dealer network, demanding less in-house support. "It looks like they have some interesting fits," says Johnson. "We don't know how this whole thing is going to play out."

But before the betrothed companies marry their solar assets and cash in on the added value, they face the Enron question: BP and Amoco's merger is not a straightforward marriage for the solar sector; it's a love triangle. "That makes it a little bit complicated," says Solarex president and chief executive Harvey Forest, but he adds: "Having BP join forces with Amoco is very positive for the industry." Earlier this year the Amoco-Enron partnership closed down Solarex's sister company, the solar farm development division, because "a lot of the projects we were doing were not coming to fruition," explains Forest. The restructuring helped to refocus Amoco-Enron's goals but Enron will not be drawn on how BP Amoco affects its strategic plans: "Until the merger closes, it is unclear what the position of the three parties will be regarding Solarex," says a company spokeswoman.