Funding for solar energy projects and M&A soars, as investors and developers continue to confidently ride the demand wave.
New Hampshire, USA --
Project funding and merger and acquisition (M&A) activity in the
solar energy sector reached record levels from July-September of this
year, reflecting an improved outlook for solar demand, according to a
new report from Mercom Capital Group.
Global funding for solar energy spiked to $2.18 billion, more than twice the funding seen in 2Q13 ($915 million), Mercom says.
Top VC recipients in the quarter included Solexel ($40 million,
high-efficiency silicon solar cells), eSolar ($22 million, concentrated
solar power developer), Clean Power Finance ($20 million, third-party
solar PV financing), HelioVolt ($19 million, thin-film), and Dyesol ($16
million, dye-sensitized/organic solar cells). On the M&A side, the
Applied Materials-Tokyo Electron deal was a major shakeup in the
semiconductor sector but less so for silicon solar manufacturing.
Solar VC funding in 3Q 2013. Credit: Mercom Capital Group LLC
Here's a look at some takeaway themes from 3Q13 solar funding and M&A:
The new normal is now. It's time to stop comparing
today's levels of solar energy investment to the heady days of two or
three years ago, when $400-$500 million quarters were routine and money
flowed freely to solar technology developers jostled for positioning.
"We're not seeing anything over $200 million in the last 3-6 quarters,"
noted Mercom CEO Raj Prabhu. "This is where we are: the new normal."
Strategic investors are stepping up. SK Group put
more money into Heliovolt. Saudi conglomerate Tasnee invested in Dyesol.
Over the past year Hanergy and Hanwha have been extending their reach
into solar. Big strategic partners with a ton of money continue to hedge
some bets on technology, possibly where they can leverage manufacturing
experience.
Solar leasing's hot. Third-party solar finance
companies raised approximately $584 million in the past quarter, with
SolarCity, Sungevity, SunRun, etc. raising funds with help from banks.
So far with three months to go, third-party solar leasing firms have
raised roughly $2.5 billion this year, compared to just $2 billion in
both 2012 and 2011. "This shows that it's still pretty healthy out
there," Prabhu said. "Everything we're seeing is going up." Of course
the ability to pull down lots of funding is especially important to
third-party firms; it's not just enough to raise a few million of VC or
private equity funding, but they need to raise tens and hundreds of
millions of dollars and put that right into rooftop installations,
Prabhu pointed out. "If they're not doing that they have a problem."
Also noteworthy during 3Q12 was SolarCity's acquisition of sales channel partner Paramount Solar,
underscoring the importance of customer acquisition in the solar
leasing model. "At the end of the day, anyone can go install" solar,
Prabhu pointed out, but "the ability to go out and land the residential
customers makes you unique."
Projects are popular. Project acquisitions were the
highest in three years, with around 5.5-GW of large-scale projects
announced in the quarter, according to Prabhu. That generally supports
industry projections of a total installed solar capacity of ~38 GW this
year and 40-45 GW or more in 2014. And the projects' locations have
really spread out: "Before it used to be in the top six or seven
countries," Prabhu said, and now "we see them in Malaysia to Vietnam to
the Philippines, all over the place."
"It's important for utility-scale projects to be really successful in
the next two or three years," Prabhu said, because they bring the costs
down for the entire industry. And as costs continue to fall, developers
are jumping market to market wherever they see the best returns. Right
now that's in Japan, Prabhu said; tomorrow it could very well be in
Chile. "They're playing the game, looking at market by market -- it
doesn't matter where globally."
Big solar is in the spotlight. Financing for solar,
especially utility-scale projects, continues to improve. Thirty-seven
large-scale project funding deals were announced in 3Q13 totaling $2.89
billion, bringing year-to-date funding deals to 106 compared with just
84 in 2012. More than half of this quarter's 30 project acquisitions
involved pure investment firms, not developers or solar companies. After
the 2010-2012 financial collapse developers found it tough to get big
projects financed, but now "that fear is gone," according to Prabhu.
"Solar has gotten to the next level in 2013" where to those investment
firms it "looks like wind [energy]" in terms of risk, confidence around a
maturing technology, and slow and steady returns for 20-25 years, he
said. "Everyone in the investment community is pretty comfortable."
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