LG joins Conergy in solar energy venture

By Song Jung-a in Seoul
Published: September 12 2008 02:02

LG Electronics will buy a 75 per cent stake in Conergy’s solar module plant in Germany, the South Korean company said on Thursday, its first overseas foray into the lucrative sector.
The group sees the deal, which is expected to cost LG at least Won200bn ($180m), as a potential driver of future growth as it tries to become one of the world’s top three electronics makers. Germany is a world leader in solar power generation, largely because of generous government incentives.
“The joint venture with Conergy provides LG a unique opportunity to make a swift and effective entry into the solar industry, with a leading downstream company as its partner,” the company said.
LG’s chief executive, Nam Yong, said in May that the company wanted to enter the solar energy business and was reviewing possible options including an acquisition.
Conergy, one of the largest European solar energy businesses, is downsizing non-core businesses to focus on photovoltaic activities.
This week the company said it had sold its wind turbine generator business to Warburg Pincus, a US private equity fund.
“This strategic alliance will help us further develop into a leading provider within the photovoltaic market,” said Dieter Ammer, CEO of Conergy.
“This would also mean moving significantly further in our realignment programme with a clear focus on downstream activities.”
The German company will retain a 25 per cent stake in the solar module plant in Frankfurt, which is in the ramp-up phase.
Analysts said the investment was positive for LG, citing the solar energy industry’s high growth potential. Samsung Economic Research Institute forecast recently that the global market for electricity produced by solar generation would grow from $15bn in 2005 to $36bn in 2010.
The move could herald more active cross-border acquisitions by the South Korean electronics maker, analysts said. After being burnt by bad overseas investments in the 1980s and 1990s – LG bought the ill-fated US television maker Zenith in 1995 – Korean companies have been conservative with their expansion plans.
But with strong cash reserves and a rising global profile, they are beginning to look offshore again.
Germany boasts more than 50 per cent of the world’s installed solar power capacity, thanks to subsidies, known as feed-in tariffs, that give households with solar panels a fixed income for 20 years from electricity sold to the national grid.
The resulting industry, with about 60,000 employees, has a turnover that could rise to €13bn ($20.4bn) a year by 2010, compared with about €7bn in 2007, according to industry estimates.
The country is the third- largest producer of solar cells, with a 20 per cent market share, compared with China with 28 per cent.
Experts predict that in the long term solar energy may provide up to 30 per cent of Germany’s power needs for electricity and hot water, compared with less than 1 per cent today.
Copyright The Financial Times Limited 2008