Mercom Capital: Solar Funding of All Types Up in Q3 ‘13

Venture funding to the solar sector is experiencing a boost of late, with third-quarter figures showing an improvement over the previous quarter, according to a new Mercom report. Mercom’s research reveals that this pattern extends more broadly, too: In the first three quarters of 2013, large-scale project funding and third-party financing were already more extensive than they’d been for the whole of 2012.

Venture capital funding in the solar space went up between the second and third quarters of this year, to $207 million in the third quarter from $189 million in the second. And though more VC investors participated in solar deals in the third quarter than in the second—35 investors versus 27, respectively—average deal size was down to $7.4 million in Q3 from $9.9 million in Q2.

Raj Prabhu, CEO and founder or Mercom, noted in an email a few of the quarter’s technology trends: “Some technologies funded this quarter include – PV (SiO2 passivation, high efficiency monocrystalline cells, nano-metric silver dispersion technology), thin film (dye-sensitized solar cells, CIGS, GaAs nanowires, Gas barrier thin film technology), CSP (Heliostat, parabolic trough, tower and high vacuum flat solar thermal).”

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The number of large-scale project funding deals among solar companies (106) is already considerably higher, in the first nine months of 2013, than it was in the whole of 2012 (84). Topping out as the three biggest large-scale project funding deals in the third quarter were the $300 million term loan raised by ACWA Power International, the $272 million pulled in by AGL Energy, and Abengoa’s $270 million raise.

Capital raises by solar third-party finance companies also gathered strength in 2013: in the first three quarters of the year, funding for residential and commercial solar projects reached $2.4 billion, up from $2 billion in 2012.

Merger and acquisition activity, too, is up in the world of solar; in fact, it’s at its highest-ever levels, with 30 transactions in the third quarter of this year. The largest project acquisition in those three months (by megawatt) was First Solar’s purchase of the 1,500 MW project pipeline of Element Power. The biggest acquisition by dollars was far and away the $9.4 billion acquisition of Tokyo Electron by Applied Materials.

“Large-scale project acquisitions of about 3,000 MW is impressive,” Prabhu notes. “The majority of these were acquired by investment funds which shows how far solar has come as an investment.”

Non-hardware soft costs are gaining more visibility as an investment opportunity, as solar installers look to streamline customer acquisition and financing costs. A recent report by National Renewable Energy Laboratory (NREL) states that soft costs accounted for more than 50 percent of total installed residential solar costs and more than 40 percent of commercial solar costs.

“Soft costs are basically customer acquisition, licensing and permitting, labor and financing costs,” Prabhu says. “The Paramount Solar acquisition by SolarCity and the Gen110 acquisition by Solar Universe are targeting the customer acquisition areas through these M&A deals.”

Public solar companies also had a strong quarter, with equity financings for the space totaling $437 million.

The solar sector has seen a rash of venture capital investment activity over the past few weeks, including:

- eSolar, a Burbank, Calif.-based builder of power-tower solar thermal technology, raised $22 million on Sept. 17 led by Oak Investment Partners to aid eSolar’s expansion into the MENA region. Existing investors include Idealab, GE Energy and Google.org. The company has raised almost $200 million since it’s founding in 2007 and is now pursuing enhanced oil recovery applications, rather than power generation.

- NovoPolymers, a Belgium-based PV encapsulant materials developer, raised capital on Oct. 8 from Capital-E, Gimv, Capricorn Cleantech Fund, and Federale Participatie- en Investeringsmaatschappij (SFPI-FPIM). So far, the company has raised over $13mm total in Series B funding.

- Sol Voltaics, a Swedish startup which claims its gallium-arsenide (GaAs) nanowires can boost a 17-percent-efficient solar module to 22 percent, received $9.4 million on Sept. 17 from Umoe, Industrifonden, Nano Future Invest, and Foundation Asset Management to add to its $6.2 million loan from the Swedish Energy Agency.

- Nines Photovoltaics, an Irish silicon solar-cell technology startup, won $475,000 in funding on Sept. 13 from Kernel Capital and Business Venture Partners. The firm designs silicon-wafer processing equipment with improved reflection properties and “a dry atmospheric etching process.”

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