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UPDATE 1-SolarCity buys solar panel maker to lower costs

* To pay Silevo $200 mln in shares

* May pay $150 mln more in shares upon meeting targets

* SolarCity shares rise as much as 18 pct

(Adds details from blog post, background)

June 17 (Reuters) - SolarCity Corp, the largest residential solar panel installer in the United States, said it would buy solar panel maker Silevo to drive down costs.

SolarCity's shares rose 18 percent to $64.77 on Tuesday on the Nasdaq.

The company, backed by Tesla Motors Inc's founder Elon Musk, will pay $200 million in shares and an additional $150 million in shares upon the achievement of certain milestones, SolarCity said in a regulatory filing. (http://link.reuters.com/kax22w)

"Given that there is excess supplier capacity today, this may seem counter-intuitive ..." SolarCity Chairman Musk and co-founders Peter Rive and Lyndon Rive wrote in a blog.

"Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed." (http://blog.solarcity.com/silevo/)

SolarCity has grown rapidly because it allows homeowners to pay a monthly fee to lease solar panels instead of making a large upfront payment, but the company's costs have also escalated with its dramatic growth.

A glut of panels, mostly produced in China, has depressed prices, but analysts have warned that SolarCity may be affected by the United States' recently imposed import duties on solar panels and other related products from China.

The tariff could push up average panel prices to more than 80 cents per watt from about 72 cents, Roth Capital Partners analyst Philip Shen wrote in a note earlier this month.

This is SolarCity's second acquisition of a solar equipment maker. The company last October said it will acquire Zep Solar, a maker of mounting systems for residential solar panels.

SolarCity is in discussions with the state of New York to build a plant with a capacity to produce more than 1 gigawatt of panels annually, as planned by Silevo, within the next two years, according to the blog post.

(Reporting by Swetha Gopinath in Bangalore; Editing by Maju Samuel and Don Sebastian)