Solar Funding Plummets During First Quarter


Reflecting the dominant industry trends, solar funding during the first quarter of 2013 (Q1'13) favored project acquisitions and funding of downstream providers, as investors shied away from the struggling manufacturing segment.

In all, global venture capital (VC) investments in the solar sector fell dramatically, from $220 million in the fourth quarter of last year to just $126 million in Q1'13, according to a new report from Mercom Capital Group.

Raj Prabhu, CEO of Mercom Capital Group, says that because an overall downturn began in the third quarter of last year, this most recent slump was mostly in line with expectations – if a bit more severe than anticipated. Solar VC funding had not fallen to such low levels since 2008.

At least some of the recent decline can be attributed to major attrition among formerly hot startups representing a traditional VC favorite: thin-film solar manufacturers.

‘Thin-film companies received approximately $1.4 billion in VC funding the past three years – and [copper indium gallium diselenide (CIGS)] companies received a billion of that,’ Prabhu tells Solar Industry. ‘Most of these companies are either bankrupt or were part of a fire sale.’

Fourteen thin-film solar companies went bankrupt in 2012 alone, according to the report, and Prabhu describes current market conditions for any holdouts as ‘extremely tough.’

U.S. thin-film companies that have already been acquired by foreign firms – such as MiaSole, which was bought out by China-based Hanergy Holding Group – could have the best chances of success.

‘I would still keep an eye on all the thin-film CIGS companies that were bought by – or formed strategic partnerships with – large Chinese or Korean conglomerates,’ Prabhu says. ‘These conglomerates have a lot of resources, and if the intellectual property is strong, they have the ability to see [CIGS companies] through to commercialization.’

Biggest deals
Topping the list for the biggest VC deals in Q1'13 was a pair of U.S.-based residential solar firms. OneRoof Energy raised $30 million from well-known Korean conglomerate Hanwha Group, while Sungevity raised $28 million in Series D financing from a range of investors, including Brightpath Capital Partners, Lowe's and Craton Equity Partners.

Fueled by the glut of low-priced modules, downstream providers such as OneRoof and Sungevity were joined by several other companies – mostly leasing firms – in raising a total of $75 million in eight deals during Q1'13, according to Mercom Capital.

This sector of the market has faced scrutiny in recent months over finance arrangements that some believe are unfair to consumers. The U.S. Department of the Treasury is also currently probing several of the biggest rooftop PV providers over possible discrepancies in project valuations.

So far, however, the threat of any potential regulatory shake-up in this sector has failed to rattle investors, Prabhu reports.

‘Just from an investment and investor point of view, there seems to be little concern regarding this,’ he says. ‘Most of the VC funding this quarter went to lease firms, and these firms also raised about half a billion in residential and commercial project funds.’

Major project funds included a $100 million residential project deal between SunPower and U.S. Bancorp, as well as a $100 million fund for residential and commercial projects established by aleo solar.

Large-scale solar project development also enjoyed an active quarter. Mercom Capital Group found that disclosed project acquisitions reached $137 million in 20 transactions. Although this total represents a decline from $297 million in the previous quarter, the number of transactions rose. More than 1 GW of projects changed hands.

The report highlights several major deals, including MidAmerican Solar's purchase of SunPower's 579 MW Antelope Valley solar projects. Overall, investment funds, project developers and utilities all played a major role in acquiring projects during the quarter.

‘Both last year and this quarter, investment funds have been the most active acquirers of solar projects,’ Prabhu notes.

This positive trend demonstrates that solar assets have shifted in the eyes of the investment community, ‘from being considered a risky proposition a few years ago to their inclusion in institutional investor portfolios as a source of safe, steady, long-term returns,’ he adds.

Overall, although the big picture for solar VC may still seem dismal at the moment, Prabhu remains optimistic.

‘It is not all bad,’ he stresses. ‘Installations continued to grow, and there is a lot of positive activity on the project funding and acquisition side.’

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