US solar market shows increased M&A activity

Investment bank, Peachtree Capital Advisors, Inc. says the total U.S. greentech market notched up a record 371 mergers, acquisitions, and capital raises last year for a reported total of USD$14.7 billion – 55 percent higher than the $9.5 billion recorded in 2009. Additionally, it says cleantech funding rose 65 percent to $10.1 billion – up from $6.1 billion in 2009 – while aggregate M&A deal value also grew 37 percent to reach $4.6 billion.

However, the bank says that despite establishing new records for deal volume and deal value, last year’s U.S. greentech M&A landscape revealed both reasons for optimism and causes for concern. It states: "A stream of large corporate buyers jockeying for cleantech leadership positions rushed into the M&A scene this year – a welcome development for a nascent greentech market that has been big on making promises, but small on delivering exits. Even amidst a still-fragile economy, numerous energy-saving technologies pushed the energy efficiency and energy storage sectors accelerating forward into 2011.

"Economic woes, among other factors, proved severely more difficult for the renewable sector to overcome. Now three or four years into many of the big bets made on solar and biofuel – with little to show results-wise – greentech investors are wearing thin on patience for renewable energy."

Solar trumps

According to the report, the solar sector recorded 99 transactions in 2010, compared to 66 in 2009. This was the highest number of transactions reported out of any of the greentech sectors, apart from energy efficiency.

In terms of transaction value, solar came in second after the wind sector, with transactions amounting to $3.2 billion (2009: $1.8 billion). The 71 percent growth was achieved through a mixture of strategic acquisitions and prominent follow on investments, says Peachtree. Overall, solar accounted for 22 percent transaction value by sector in 2010.

While solar accounts for less than one percent of electricity in the U.S., the sector experienced another year of impressive growth, continues the bank, and in 2010 approached a gigawatt of installed capacity in the country. It adds that the sector raised 90 percent more capital than in 2009, jumping from $1.2 billion to $2.3 billion, as seven companies broke the $100 million barrier in funding rounds.

However, it says that while advanced-stage funding was a popular theme, new investments proved difficult to obtain. This, states Peachtree, was because "many solar investors – still waiting on results from portfolio companies in which they have invested and continue to invest significant capital – had little appetite to stomach additional solar plays.

"These investors were undoubtedly pleased to witness the sizable acquisitions of NextLight Renewable Power and Recurrent Energy. Following a developing trend of upstream players buying downstream, these two acquisitions offered hope of more M&A exits to come."

Potential obstacle

Peachtree also found that since U.S. natural gas reserves at their highest levels in 40 years, with prices poised to remain low, natural gas has become a potential obstacle to renewable energy development. "Despite being a fossil fuel, natural gas has been hailed as a logical ‘bridge fuel’ between coal and renewables, with many factors playing to its favor: it is considerably cleaner than coal; affordable and plentiful; and unlike renewable energy, already has infrastructure in place,” explains the investment bank. "For these reasons, natural gas looms as a formidable foe for the utility-scale solar and wind projects against which it will be competing for financing over the next few years."

Cleantech investments

The bank goes on to say that though the U.S. remains the worldwide leader in private sector cleantech investments, China has been pushing greentech innovation at a "dizzying" pace. It reports that last year, for the first time, the Asian country surpassed the U.S. in total cleantech investment, including government funding. The report continues: "As the race for global cleantech leadership intensifies, many G- 20 countries have effectively adopted energy and climate policies while uncertainty lingers within U.S. policy. The extension of the Section 1603 tax grant program – a key driver in recent U.S. renewable energy development – was a step in the right direction."

Click here to read the full Peachtree Capital Advisors report.