Solar Venture Capital Funding Dips To Lowest Levels Since 2008


Venture capital (VC) funding in the solar sector in the third quarter of 2012 (Q3'12) reached its lowest levels since 2008, according to a new report from Mercom Capital Group. VC funding totaled just $72 million in 14 deals, compared to $376 million in 32 deals in Q2'12.

Twenty-six investors participated in the 14 deals in Q3, and only New Enterprise Associates was involved in multiple deals. The leading VC deal this quarter involved concentrated photovoltaic (CPV) company SolFocus, with $15 million invested.

At the end of Q3, most of the year-to-date VC funding went to solar downstream companies ($258 million) and thin-film companies ($246 million).

‘This was the first sub-$100 million quarter for solar VC funding since 2008,’ says Raj Prabhu, managing partner at Mercom Capital Group. ‘It is a very challenging market, particularly for upstream companies – good exits have become rare, and mergers and acquisitions (M&A) deals are, more and more, resembling distress sales.’

Global solar installations have been growing remarkably, from just 7 GW in 2009 to a forecasted 29 GW by the end of 2012, Mercom notes. This has been aided by significant drops in prices of Chinese crystalline PV modules from about $3/W in 2009 to current prices of approximately $0.65/W to $0.70/W, as well as drops in polysilicon prices from around $200/kg in 2009 to approximately $19/kg currently.

In addition, loans, credit facilities and framework agreements of about $50 billion received by Chinese manufacturers from state-owned Chinese banks have led to chronic oversupply, leading to a further drop in prices. Meanwhile, billions of dollars in venture funding were going to thin-film companies, concentrating solar power (CSP) companies and CPV companies in several large deals.

More than $1 billion in VC funding has gone into thin-film companies alone since 2010. Although these deals may have made sense in years past, the quick fall in of c-Si prices has put crushing pressure on thin-film companies, as well as on CSP and CPV firms, Mercom says.

The bright spot in VC funding has been third-party finance firms, or solar lease firms. More than $1 billion in solar residential and commercial lease funds was raised just in Q3'12, and almost $2 billion has been raised in 2012 to date.

Some of the notable third-party finance firms include: SolarCity, SunRun, SunPower, Sungevity, OneRoof Energy, Clean Power Finance and Enfinity, among others. Active investors in these funds in 2012 include Credit Suisse, Rabobank, Wells Fargo, Citi and U.S. Bancorp. In a move that highlights this trend, SolarCity filed to raise more than $200 million in an IPO on Oct. 5.

Overall, 12 corporate M&A transactions occurred in Q3'12, totaling $393 million, with only four transactions disclosing amounts. Two of these transactions, Q.Cells' and MiaSole's acquisitions, were distressed sales.

German solar cell and module manufacturer Q.Cells was acquired by Korean conglomerate Hanwha Group for $322 million ($50 million plus $272 million debt assumption). Chinese vertically integrated manufacturer JA Solar acquired a 65% stake in Hebei Ningjin Songgong Semiconductor Co., a wholly owned subsidiary of Japanese polysilicon and wafer manufacturer M.Setek, for $39 million. Thin-film company MiaSole was acquired by the Chinese renewables company Hanergy for $30 million.

An additional notable transaction this quarter was the acquisition of Vivint by Blackstone Group for $2 billion. Included in the transaction was the Vivint Solar division, a third-party solar finance lease firm. The valuation of Vivint Solar on its own is unknown, the report says.

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