US: PV installers emerge as "favorable" investment area

According to California-based investment bank, Peachtree Capital AdvisorsÂ’ 2012 mid-year greentech M&A review, while decreasing module prices signal long-term viability for photovoltaics, in the meantime, they are creating margin-starved companies and lower industry valuations. Add to the mix reduced subsidy support, bankruptcies and the "current direction (or lack thereof) of U.S. energy policy", and you have investors, who are cautious at best about injecting funds into the solar industry.

In the first half of 2012 (1H12), solar M&A (merger and acquisition) activity in the U.S. reaped a total of US$777 million – a 75 percent decrease on the same period in 2011, which pulled in $3.07 billion. Despite this, the actual number of transactions rose by 22 percent, to 44. Meanwhile, investors invested just $698 million in the solar industry in 1H12, compared to $1.6 billion in 1H11.

Furthermore, Peachtree found that, representing a shift away from funding rounds with photovoltaic developers and manufacturers, investor attention instead focused on the installers which, due to the rampant oversupply situation, are able to offer customers lower prices. "While most solar companies were reeling from the oversupply and subsequent price drop of solar panels, installers actually benefitted from this development and emerged as a favorable area of investment," it said.

Largest solar transactions in 2012

Buyer/investor

Seller

Deal type

Date

Price ($M)

Capital Riesgo Global

Solana Generating Station (Abengoa)

Capital raise

April

125

Silver Lake, Valor Equity Partners

SolarCity

Capital raise

February

81

PSEG Solar Source

Queen Creek Solar Farm (Juwi Solar)

Acquisition

January

75

OnPoint Technologies and 3 others

Nanosolar

Capital raise

June

70

Madrone Capital Partners

SunRun

Capital raise

May

60

Source: Peachtree Capital Advisors, Inc.

On a positive note, the area of energy storage reportedly grew in 1H12, compared to 1H11. Overall, Peachtree recorded a 36 percent increase in transaction volume, to 74 transactions, and a 78 percent growth in transaction value, from $231 million in 1H11, to $412 million in 1H12.

On the whole, however, the trend of higher transaction volumes against falling transaction value remained true for the U.S. greentech sector in 1H12, said the investment bank, with transactions increasing by 17 percent and values decreasing by 53 percent from 1H11. Focusing on renewable energies specifically, reported deal value was said to have declined by 48 percent. Overall, U.S. greentech M&A activity ended 1H12 with 205 transactions totaling a reported $9.4 billion.

However, while many venture investors have become more restrained compared to 2011, Peachtree believes that strategic or corporate investors have begun to pick up the slack. "Unconstrained by time horizon limitations, many corporate investors are willing to look past potential near-term headaches in hopes of capturing long-term value," it said, adding, "Corporate conglomerates including ABB, Hitachi, BASF, Itochu, Dow Chemical, and GE each participated in greentech deals in the first half and figure to remain active going forward."

In 2H12, Peachtree said the outlook for solar is "lukewarm". "Even if valuations make a recovery, weak investor sentiment and lingering effects of the current oversupply are likely to create downward pressure on M&A activity in the interim," it stated. Despite this, it believes that solar has strong long term prospects and that those which survive the current shakeout will "emerge stronger and better equipped for future challenges to come".