Q3 solar investment figures hint at recovery


With investment behavior being turned on its head this year, investors' willingness to bet their dimes on solar improved in the three months of July to September, where investments had reached $3.2 billion. That marks an 8% increase over the same reporting period in 2019. Despite the increased corporate finance activity in the third quarter, this year's investment figures, year to date, stand at $7.9 billion and, thus, in the shadow of the $9 billion spent in the same period in 2019 — a 13% decrease.

Mercom Capital Group, a global clean energy communications and consulting firm, released a report on funding and merger and acquisition (M&A) activity for the solar sector in the third quarter and the first nine months of 2020.

Global corporate funding for the solar sector in venture capital, private equity, public market and debt financing is recovering from a weak second quarter. Over the last three months, corporate lenders have invested $3.2 billion in solar power, up from $2.3 billion in the previous quarter, marking a 43% bump.

“After declining in Q2, financing activity was up across the board, whether it was VC, private equity, public market, or debt financing, a clear sign the market is bouncing back after a prolonged shutdown,” said Raj Prabhu, CEO of Mercom Capital Group. “Transactions in the works that could not make progress in Q1 and Q2 were getting closed in Q3, resulting in a funding surge. Project acquisition activity – an important indicator of the financial health in the solar sector, bounced back strongly in Q3.”

Stock's flying high

The market dynamic was also reflected in the stock market performance of the 24 solar-specific stocks Mercom tracks, the chief executive added. Reportedly, half the stocks have doubled in value compared to the start of the year.

Around $182 million was spent in 15 deals over the last three months, up from the $65 million that changed hands for five transactions the three months before that — marking a considerable 182% quarter-on-quarter (QoQ)  growth. In the third quarter of 2019, corporate lenders raised $208 million in 11 deals — 12% more than this year.

Venture capital funding was impacted even harder. The first nine months of 2019 saw $1 billion being raised, 61% more than the $394 million achieved compared to this year. Mercom highlights the top venture capital deals of 2020 – listing the $72 million raised by Sunseap Group, $50 million raised by Zero Mass Water, $40 million by Ecoppia, $37 million in an additional Sunseap Group deal, and $35 million by Lumos.

Meanwhile, public market financing raised $1.3 billion in just four deals over the last quarter, a 75% QoQ increase, with just $737 million of such financing being raised in five sales in the period of April to June. The year-over-year (YoY) comparison of the third quarter demonstrates that public market financing was nearly stagnant with just a 2% increase this year. Year to date, public market financing reached $2.1 billion in 10 deals, trailing 9% behind the $2.3 billion raised in 13 deals over the same period last year.

Lending more for solar

Debt financing, meanwhile, came in at $1.8 billion in 16 transactions, up by 20% QoQ from $1.5 billion across nine deals. That increase similarly showed in the YoY performance for Q3, which was also up 16%. However, the nine months debt financing volume was 6% lower this year than in 2019, with lenders giving away $5.4 billion across 32 deals.

On top of that comes six solar securitization deals which have funneled almost $1.6 billion into the solar industry since January. Three residential and commercial solar funds with a cumulative value of $400 million were announced in the last quarter.

Through September 2020, 42 solar mergers and acquisition (M&A) deals have closed, of which 11 disclosed their value – reaching a cumulative fiber of $7 billion. In the same period last year, there were 57 M&A deals. The largest deal of that sort this year was Sunrun's acquisition of Vivint Solar in an all-stock transaction for $3.2 billion. Of the 17 M&As carried out from July to September, a whopping 13 related to downstream companies, with just two deals pertaining to manufacturing business; the remaining two were balance-of-system (BoS) and materials companies.

Meanwhile, project acquisitions have continued largely unimpressed with Covid-19, with the activity in this segment being measured 52% higher year-to-date when compared to last year. This year 24.3 GW worth of solar projects changed owners, compared to just 16 GW in the same period the previous year. However, that can be attributed to the recovery being felt across the industry over the last three months. While only 2.8 GW of solar assets were sold between April and June, there was a 244% increase from July to September, with 9.5 GW of assets being sold.  Last quarter's figure also looks good compared to the previous year's performance of that period, where just 4.4 GW were sold — a 119% increase.

Mercom also tracked down the buyers of the solar assets, reporting that solar projects remain an attractive asset class. Of the 9.5 GW sold in Q3, some 4.2GW went to investment firms, with project developers and independent power producers taking up 3.8 GW of the sold assets. Utilities treated themselves to 912 MW of solar assets, and oil and gas majors acquired 514 MW.

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