Venture capitalists (VCs) invested half as much in the solar industry in 2012 as they did the year before, and the overall VC funding for solar reached its lowest point since 2007, according to a January report by clean energy communications and consulting firm Mercom Capital Group LLC.
Overall, venture capital investments dropped in 2012 to $992 million in 103 deals; in 2011, 108 deals raised $1.9 billion. More than 140 investors participated in 2012.
Fourth-quarter activity showed an increase over the third quarter, as 25 VCs invested $220 million in 27 deals in Q4 2012, compared with just $72 million in 14 deals in Q3.
Venture capital funding in the solar sector from 2007 to 2012, shown in USD millions.
“The slowdown in VC funding can be attributed to the grim prospects for thin-film, concentrating solar and concentrating PV [photovoltaic] technologies,” said Raj Prabhu, managing partner of Mercom Capital Group. “With the drastic fall in crystalline-silicon PV prices over the past two years, most other technologies have struggled to compete.”
Thin-film companies did reap the largest amount of VC funding in 2012, as they have over the past three years, but the total fell 47 percent to $314 million; in 2011, they brought in almost $600 million. The copper indium gallium (di) selenide (CIGS) subset took in $274 million, or 85 percent of the 2012 thin-film total.
Over the course of 2012, Mercom tracked 35 solar companies that filed for insolvency or bankruptcy protection. More than 70 percent were active in manufacturing; most were based in Europe and the US. Nearly 40 percent of the bankruptcies were thin-film manufacturers.
Solar lease companies – which rent solar panels to residential and other users – had the best funding results in 2012, thanks to low module prices; the solar lease category saw VC investments totaling $269 million in 25 deals.
“The diminished funding activity is not a true reflection of the health of the solar sector, because the demand side of global solar installations has continued to grow,” Prabhu said. “Global solar installations look set to grow by around 10 to 12 percent this year.”
Merger and acquisition (M&A) activity in the solar sector was up $2.7 billion, with a total of $6.7 billion in 52 deals compared with 2011’s $4 billion over 65 transactions. The fourth quarter alone saw 12 corporate M&A transactions totaling $953 million; only six disclosed amounts.
“It was a buyer’s market in 2012 – acquirers were targeting distressed companies with the goal of buying technology or equipment on the cheap,” Prabhu said. “More than half the 52 M&A deals in 2012 involved solar manufacturers and equipment makers.”