Solar Venture Capital Is Down But Still On The Make

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Written by Nora Caley
on March 05, 2014 No Comments
Categories : E-Features

Solar is attracting less venture capital than it once did. But don't panic.

According to Joel Serface, managing director of Brightman Energy LLC, much of the decrease in costs is due to the well-publicized decrease in module prices. Although that means companies need less money from investors, it also means there are new opportunities in other solar segments.

According to a recent report from Bloomberg New Energy Finance (BNEF), global investment in clean energy totaled $254 billion in 2013, down 11% from $286.2 billion in 2012. In the U.S., investment slipped 8.4% over the same period, from $53 billion to $48.4 billion.

Worldwide, solar investments decreased to $114.7 billion in 2013, from $142.9 billion in 2012. Meanwhile, installation of solar photovoltaic power capacity was projected to hit a new record of 36.7 GW in 2013. The lower costs per MW are translating into a lower overall dollar value of investment, the BNEF report concludes.
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‘If you are going to be investing in something today to bring that cost curve down further, it's not the silicon; it's the balance of system,’ Serface said, speaking to an audience at the Colorado Solar Energy Industries Association's (COSEIA) Solar Power Colorado conference in late February. ‘How do you squeeze costs out? You get better inverters, better electronics, lower cost of customer acquisition, and that means all these different opportunities.’

The COSEIA venture capital panel explored what portions of the solar sector and related cleantech industries are catching an investor's eye. While a lot of the low-hanging fruit in terms of silicon-based solar panels has been plucked, many investors see opportunity in other businesses benefiting from lower solar costs.

‘We have more solar than anything else,’ said Mark Perutz, partner at the venture capital firm DBL Investors, adding that the company has not added to its solar investments in the past two and a half years. ‘Other cleantech investors are in the same boat as us. They want to diversify their portfolios.’

Investors want very good returns, and diversifying can help.

‘We are looking for ten x or higher,’ said David Cornelius, director of portfolio development for TwoSeven Ventures. ‘With portfolio management, you will have failures, companies that lose money, and you make money on some companies, and you never know that exactly from the beginning.’

The private equity company is investing more in energy efficiency and smart building technologies. TwoSeven has invested in Amatis Controls, which engineers and manufactures metering and control technologies.

Perutz said investors are not looking for the shiny or very early-stage technologies. No one wants to be one who invested $10 million in a start-up that required $100 million and went out of business.

‘People in my position are even more leery of making those investments,’ he said. ‘But the innovation doesn't stop. Entrepreneurs keep finding new ways to do what venture capitalists are supposed to do.’

New mechanisms include yieldcos, which are subsidiaries that pay dividends. Another new way to finance is to securitize leases, something SolarCity had announced it had recently done. Solar leasing contracts run up to 20 years, so the company sold notes that pay interest and are backed by these leases.

‘That's going to be a way for them to bring in more cash to create more leases and get bigger,’ Perutz said.

Perutz said Mosaic crowd funding is another option. Mosaic is similar to other online investment vehicles, but the the investment opportunities are shares of solar projects.

Serface said one vehicle that might make sense is master limited partnerships, which are well known in oil and gas but not in renewables. They are publicly traded and have some similar qualities of real estate investment trusts, which he said the solar business is beginning to see.

The panelists agreed that there will be financing and solar will continue to grow.

‘Good ideas will win out,’ Cornelius said. ‘Solar has grown up a lot, and it will continue to get built. Fifteen years ago it wasn't clear that was going to happen.’

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