Shift in focus

In the first quarter of 2013 many solar companies, especially manufacturers, were either fighting to survive or had gone bankrupt due to overcapacity and record-low prices. The slump in Venture Capital (VC) funding began in Q3 2012 when Mercom Capital tracked just US$72 million in VC investments in 14 deals. While last quarter saw US$220 million in 27 deals and Q1 2013 totaled US$126 million in 26 deals, totals are still far below the US$320 to 658 million range prior to Q2 2012. In fact, this is the second lowest quarter for VC funding since 2008.
But it is not all bad news. Record low prices, which are a bane for manufacturers, have been a boon for downstream companies, and global installations have continued to grow. With final numbers still coming in, installations in 2012 are estimated to be in the 31 GW range and are forecast to grow about 15% in 2013.
Venture capitalists (VCs) had invested heavily in technologies that competed with crystalline silicon (c-Si) when panel prices were in the US$3 to 4/W range and polysilicon prices were touching US$400/kg. The rapid fall in polysilicon and c-Si prices disrupted the business models of these companies, eventually leading to many bankruptcies. VCs had invested heavily in thin film firms (US$1.4 billion since 2010) and in copper indium gallium diselenide (CIGS) companies in particular (US$1 billion since 2010). Most of these investments started to go bad in 2012, even after many VCs doubled down and continued to invest in these companies. VC investments in solar firms plummeted in Q3 2012 and the slump has continued into this quarter as VCs have become weary of making large technology bets in solar.
Even with panel prices stabilizing somewhat in the first quarter of 2013, the consolidation in solar manufacturing that started two years ago continues. As oversupply is likely to persist, it is expected that there will be many more casualties this year. With c-Si module prices falling by about 65% over the past two years, most thin film, concentrated solar power (CSP) and concentrated photovoltaics (CPV) companies have found it hard to compete and as a result are struggling to survive or have been shut down.

VC is moving downstream

In Q1 2013, VC investments began to shift focus; VCs are moving away from technology investments and into the solar downstream companies that are benefitting from the record low panel prices.
Solar downstream companies received the most VC funding this quarter with US$75 million in eight deals compared to US$7 million in five deals in Q4 2012. This is the first quarter that we have seen such a difference between solar downstream companies and other subcategories, particularly thin film. Thin film companies raised just US$25 million in six deals, compared to US$68 million in 11 deals last quarter. The average deal size in the solar sector was US$4.9 million for the quarter. The low average is reflective of declining VC funding in the overall sector, and includes small seed and partial funding rounds. Among downstream companies, the solar lease subcategory received US$58 million in VC fundingthis quarter. Third party finance/solar lease companies also raised US$463 million in disclosed residential and commercial project funds this quarter.
The top VC deal in Q1 2013 was the US$30 million raised by OneRoof Energy from Hanwha, followed by US$28 million raised by Sungevity from five investors that included Brightpath Capital Partners, Lowe’s, Vision Ridge Partners, Craton Equity Partners, and Eastern Sun Capital Partners. Rounding out the Top 5 were eSolar, a designer and developer of CSP solar projects now integrating molten salt storage technology, which raised US$12.8 million; crystalsol, a developer of flexible thin film technology, with US$11 million raised from Conor Venture Partners, Arax Capital Partners, and Energy Future Invest; Goal Zero, a provider of portable solar power systems, which raised US$7 million from Mercato Partners; and PsomasFMG, a solar system provider, which raised US$7 million from MTI Partners.
Mercom has tracked approximately US$5 billion in disclosed solar lease funds to date in 41 deals. Of that, US$4.8 billion were raised in the U.S. Popularity of the solar lease and third party financing models remains high, especially in the United States where high upfront costs can dampen installation growth among residential and commercial customers.

Mergers and acquisitions

Mergers and acquisitions (M&A) activity in solar this quarter amounted to US$306 million in 15 transactions, although half of those were undisclosed. M&A strategies this quarter fell into three categories: 1) acquisition of downstream players to acquire project pipelines or create a captive market for their products, 2) acquisition of technologies and IP, and 3) acquisition of distressed assets/companies.
Similar to last quarter, one large M&A transaction dominated the quarter while smaller transactions filled out the remaining list. Travis Perkins, a supplier to building and construction markets, acquired PV wholesaler and distributor Solfex Ltd. for US$12.5 million, while silicon ingot and wafer manufacturer Shunfeng Materials sold a 45.45% stake to Shunfeng Photovoltaic, a solar cell and product manufacturer, for US$12 million. Proton Power Systems PLC, a developer of hydrogen fuel cells and electric hybrid systems, acquired solar energy storage company SPower Holding GmbH for US$6.7 million. Cencorp Corporation, a provider of industrial automation solutions, purchased PV module manufacturer Sunweb Solar Energy Holding BV for approximately US$1.3 million.
Large-scale project funding deals announced in Q1 amounted to US$1.77 billion in 34 deals compared to almost US$4.7 billion in 34 deals in the previous quarter. Thirty-nine different investors participated in these transactions.
There were more than 1 GW of solar projects that changed hands in Q1 2013. Announced project acquisitions totaled just US$137 million in 19 transactions, most of which did not disclose transaction details. In comparison, project acquisitions totaled US$297 million in 17 transactions in the previous quarter.
The project acquisition category was dominated by the massive acquisition of SunPower’s 579 MW Antelope Valley Solar Projects by Warren Buffett’s MidAmerican Solar. This is MidAmerican Solar’s second largest solar project acquisition, following its US$2 billion acquisition of First Solar’s 550 MW Topaz Solar Project in Q4 of 2011. This is another endorsement by the world’s most famous investor, signaling solar is a safe and mainstream investment.