Hard times in corporate funding for solar during Q1


Solar funding is an environment where there is never a dull moment. While the global solar market has grown every year, this simple metric has masked rapid shifts in geography and finance activity.

Q1 2016 was no exception, as detailed in Mercom Capital’s latest Solar Funding and M&A report, which came out today. Overall corporate funding in the sector fell more than 50% on both a quarter-over-quarter and year-over-year basis to $2.8 billion. Debt financing declined to its lowest level since Q4 2014 at only $2.3 billion.

More severe was the collapse in public market financing to only $94 million in four deals, a fraction of the money raised in previous quarters. During Q1 there were no initial public offerings (IPOs), compared to three during Q4 2015. This mirrors a fall in stock prices, which have been down since last spring and are hitting new lows.

“Solar public companies in general have had a difficult time raising capital at depressed market valuations,” notes Mercom CEO Raj Prabhu. “Yieldcos, which accounted for significant financial activity in the debt and public markets last year, have faded this quarter.”

A shadow over much of the industry has been the collapse and pending bankruptcy of SunEdison, the world’s largest renewable energy developer. And while analyst after analyst notes that this is due to the company’s own decisions and not the fundamentals of the solar market, casual observers appear to be missing this.

“SunEdison’s collapse, which began last July, has had a negative effect on the overall solar market,” observed Prabhu. “Yieldcos, which accounted for significant financial activity between the second half of 2014 and first half of 2015, having been especially hard hit.”

But while corporate funding was sluggish during the quarter, various forms of project finance continued to grow. During the quarter roughly $1 billion was raised by funds for residential and commercial projects under leases and power purchase agreements. Additionally three securitization deals raised $387 million, and have now grown to a cumulative total of US$1 billion.

Venture capital (VC) funding held relatively steady at US$407 million, however here the details are telling. Of the total Sunnova raised $300 million, and the company has an unusual structure in that it funds residential solar projects off its balance sheet – blurring the line between corporate funding and project funding. Were it not for the Sunnova deal, VC levels would be very low for the quarter.

Mercom also listed five large-scale project deals during the quarter, with the U.S. Government’s Overseas Private Investment Corporation (OPIC) lending $250 million to ReNew Power for projects in India as the biggest deal. The other four largest deals were for projects in California, France and Canada.

Of the projects on the market, fewer are being snatched up by yieldcos. During the quarter yieldcos acquired only 234 MW of projects, compared to 483 MW in the previous quarter. Project developers and investment firms instead made up 2/3 of all acquisitions during Q1.

Finally, Mercom reports that M&A transactions, both for solar companies and projects were at relatively stable levels during the quarter.

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