A surge in project development debt finance and investments in
downstream residential and commercial solar PV funds highlighted a
rebound in overall corporate renewable energy funding and mergers and
acquisitions (M&A) activity in 2015's first quarter, according to
Mercom Capital's “Solar Funding and M&A 2015 First Quarter” report.
Also fueling the rebound, solar and renewable energy yield companies, or “yieldcos,”
are on the hunt for and increasing acquisitions of solar PV projects
with high returns on investments (ROI) in anticipation of a ratcheting
down of the federal solar investment tax credit (ITC). The federal solar
ITC is scheduled to be reduced from a current 30 percent to 10 percent
in 2016.
Solar energy market participants — residential and commercial solar
PV finance-and-installation companies in particular — are increasingly
able to access funds at lower costs of capital by taking advantage of
financial instruments that for solar and renewable energy market
participants are new, Mercom Capital Group co-founder and CEO Raj Prabhu
noted in an interview. That's good news for consumers, climate change
mitigation plans and the environment, as well as renewable energy market
participants and the sector as a whole.
Lower Costs of Capital for Solar Companies
While venture capital (VC) solar sector funding
of residential and commercial solar PV funds dropped from $315 million
across 16 transactions in Q4'14 to $189 million in 26 transactions in
Q1'15, more mainstream investors poured a record amount of capital into
downstream solar PV tax equity funds in Q1, according to Mercom's latest
quarterly report.
Solar project debt financing also rose sharply quarter-over-quarter,
shooting up 233 percent. As compared to Q1'14's 14 total of $1.5
billion, Q1'15 saw about $5 billion raised via project debt finance
across 27 transactions.
“Overall, it was a pretty decent quarter, with about $6.4 billion
raised via corporate funding,” Prabhu told REW. “VC (venture capital)
funding was down a bit,” he pointed out, and “we didn't see the same
level of VC funding raised by third-party solar leasing companies, who
received a lot [in the way of VC funding] over the past couple of
years.”
Mercom's quarterly renewable energy and M&A reports encompasses
corporate funding of solar energy from venture capital (VC), public
markets and debt financing globally. Rather than relying on VC capital, leading solar energy market
participants are turning to more mainstream investors — insurance and
pension funds as well as private equity fund managers and individual
investors. Looking to raise more capital to finance expansion plans and
R&D, they're using what for the solar sector are new financing
vehicles — shares of yieldcos and to a lesser extent asset-backed
securities (ABS) — to do so.
Yieldcos and “Downstream” Solar Funds
Turning in their best quarterly performance in the five years
Mercom's been tracking corporate renewable energy funding and M&A,
residential and commercial solar energy funds raised nearly $2 billion
in 10 deals in Q1'15. That's nearly double that for Q4'14, in which they
raised $1 billion across eight deals.
These funds package the federal investment tax credits they acquire
in making residential and solar leases. These are then sold to
corporations who are producing profits and looking to reduce their
income taxes. In addition, solar energy companies raised $1.26 billion across 10
public market transactions in 2015's first quarter, according to Mercom.
A major contributor, a growing number of leading solar energy companies
are selling shares in yield companies, or “yieldcos” on public stock
exchanges, not only here in the U.S. but in Europe as well, Prabhu
pointed out.
Akin to the tax-advantaged master limited partnerships (MLPs) long
used by oil and gas pipeline companies and real estate developers to
raise less expensive capital, nearly all the income produced by solar
and renewable energy projects placed in yieldcos flows directly through
to investors who have bought shares in them.
Prabhu added that there are four yield-company IPOs pending SEC
review at present. They include a joint yieldco IPO by market leaders
First Solar and SunPower and a second yieldco IPO by SunEdison focused
on financing its expansion in emerging markets.
Diversifying the renewable energy project portfolio of its first yieldco, Terraform, SunEdison on April 1 announced
that the two publicly listed companies are acquiring 521 MW of wind
power plants from Atlantic Power. Terraform trades on NASDAQ under the
ticker symbol “TERP.”
Prabhu also highlighted the growing amount of funding going to
finance off-grid solar projects, products and services in emerging
markets, Africa in particular. Two such transactions made Mercom's top 5
list of solar sector corporate VC equity funding for Q1'15.
A manufacturer of pay-as-you-go mobile payment-enabled solar charging
systems to off-grid African communities, Fenix International, raised
$12.6 million from GDF Suez, Schneider Electric, Orange France Telecom,
clean tech entrepreneurs Tom Dinwoodie and Warner Philips, and other
investors.
Similarly, M-KOPA Solar, an asset financing company
that sells solar home systems to off-grid households on a mobile money
payment plan in Kenya, Tanzania and Uganda, raised $12.45 million from
LGT Venture Philanthropy, Lundin Foundation, Treehouse Investments and
Blue Haven Initiative, Mercom reports.
http://www.renewableenergyworld.com/rea/news/article/2015/04/downstream-solar-funds-and-debt-finance-highlight-solar-funding-rebound
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