By Jennifer Kho

Let there be light, and cheap electricity. That was the thinking behind the move earlier this month by SunPower, which makes the most efficient solar cell on the market, to buy Berkeley, California-based PowerLight, the world’s biggest manager of large-scale commercial solar projects. Thanks to the $265-million deal, SunPower expects to make the cheapest solar electricity, with CEO Tom Werner aiming to lower the cost by 50 percent by 2012. “We both think we need to get competitive with retail electric rates, and we think together we can get competitive better than we can apart,” says Mr. Werner.

This solar combo could actually be the first of many, industry experts say. San Jose, California-based SunPower is paying what “seems like a lot of money,” says Mark Cox, CEO of the New Energy Fund hedge fund. But expect to see more such deals as “upstream” manufacturers hurry to buy “downstream” players like solar integrators and installers, he says. Because of a worldwide shortage of silicon, makers of solar silicon, wafers, cells, and panels have grown fat margins, selling everything they can make.

But the good times may not last. Many silicon producers are adding new plants. As a result, Mr. Cox expects that in two years, silicon prices will drop and manufacturers’ margins will slim, while project managers’ and installers’ margins will fatten.

The deal could be a harbinger of an industry consolidation that a few industry watchers say is coming. Michael Liebreich, CEO of London-based research and consulting firm New Energy Finance, says he is expecting a huge shake-out in four or five years. If Mr. Liebreich is right, startups have some time to decide whether they should be buying or selling. But they face the risk of mistaking their rightful place in the market once the supply shortage ends. “The danger is thinking you’re a champion just because things are going well at the moment,” he says. “If they think they’re [a company that buys other companies] and they’re not there yet, they lose access to capital and die.”

Mr. Cox says the acquisition of PowerLight is more a matter of diversification than consolidation. After all, he says the most successful European manufacturers—such as SolarWorld—do everything, including integrating equipment and installing it. That diversification makes them more stable, as margins decline for companies focused mainly on manufacturing. Joel Makower, a principal at research and consulting firm Clean Edge, agrees. “We’re going to be seeing more integration providing everything from raw material to rooftop,” he says. “We’re getting to that dot-com-like ‘Get Big Fast’ phase.” The hope is, of course, that the industry never actually reaches the bust phase.