Is the trend for solar power M&A set to continue?
A new report from Bloomberg has revealed that solar power mergers and acquisitions broke records in 2011 – but is the trend set to continue?
The new report from Bloomberg New Energy Finance, entitled the ‘Solar Portfolio Hunters: Focus on Acquisition and Valuation of Solar Assets’, found that a total of 3.9MW in solar energy projects changed hands last year. The amount of solar capacity bought last year increased on 2010 levels by 122 per cent.
The estimated value of these deals was a record-breaking $10.8 billion, while the top five deals in terms of their capacity took part in the US. This is despite much of the activity taking place in Europe, where governments have been trying to stem the increased flow of new solar projects coming on line.
Bloomberg’s report concluded that there were several factors prompting the increase in M&A deals within the solar power industry. The attempts made by European government to slow down solar development are certainly a factor that has led to growing M&A interest in the market. This has come about at the same time as natural consolidation that occurs after entrepreneurs have been holding onto an asset for a while.
Banks are also less willing to lend to start-ups looking to invest in the development of a solar energy project from scratch, but are more willing to help fund an M&A deal. This has all led to a general market trend for mergers and buyouts simply because there is less opportunity to start a brand new solar energy project.
Throughout 2011, investors found that solar photo-voltaic cell projects offered good returns on investment, if found at the right price. As a result, they have been actively acquiring them. A total of 2.8GW of the 3.9GW of solar energy projects bought during the period were already in operation or were under construction.
Buying up a photo-voltaic cell project that is either already in operation, is under construction or already permitted for development, is a low-risk strategy – particularly in light of the fact that the prices of solar projects have fallen by 44 per cent from their peak four years ago.
Bloomberg's new Energy Finance’s solar analyst, Pietro Radoia, attributed the lower prices to a combination of factors. He said, “The subsidies for the average operating plant have become less generous, and therefore the potential revenues are reduced. Second, the financial crisis has pushed up the cost of debt and equity.”
As the price of buying solar projects comes down, so does the price of the energy they produce, making it a more realistic option for many domestic users. In turn, this has led to an increase in investment from venture-capitalists and investment funds, according to a report published by Mercom Capital group. The report found that in the second quarter of 2012 alone, some $3.2 billion has been invested by funds in solar-focused and cleantech projects.
Although investment in solar project M&A seems to have slowed slightly in 2012, there are still plenty of opportunities for investors who do want to try their hand at making money from solar energy. Raj Pabhu, a managing partner at Mercom, said, “Most of the M&A activity [in Q2 2012] were small strategic transactions. In some cases acquisitions were of ‘sick’ companies getting rid of non-strategic business assets.”
With limited opportunity for new solar projects and a large number of firms looking to offload projects that they can no longer afford without subsidies, investing in solar power is expected to remain popular for some time.