Solar Power Investment Falling in 2016, but Venture Capitalists Staying on the Sunny Side

The sun business is sending us mixed signals so far in 2016.

Solar power investment, which set a blistering pace as costs declined and favorable tax credits held sway for more than a decade, could finally see a downturn this year, according to several industry observers.  Yet cutting-edge investors are still keen on the technology and its promises.

Corporate funding declined, several reports show. Meanwhile, several publicly traded companies in the solar sector, like their counterparts in the oil plays, are finding that hope doesn’t always spring eternal when the boom slows.

Consulting firm Mercom Capital Group’s Q2 2016 Solar Funding and M&A Fact Sheet indicated that total corporate funding for global solar investments slowed to $1.7 billion in 32 deals over those three months. This was less than a third of the $5.9 billion reported over 50 deals during the same period of 2015.

“The solar industry continues to experience weakness in terms of financing activity, and corporate funding in Q2 2016 was at its lowest level in three years,” Raj Prabhu, CEO and Co-founder of Mercom Capital Group, said in response to questions from Electric Light & Power. “Most solar public companies continue to underperform. This is especially surprising as the Federal Investment Tax Credit (ITC) extension, which was touted as a cure-all, was expected to propel the sector to new heights.”

Yet venture capital funding shined, adding up to $174 million in 16 deals over the quarter, according to Mercom. This is $32 million over 2015’s second quarter, which was spread out over 24 deals. The top venture capital-funded solar deals in Q2 included Silicon Ranch raising $100 million from Partners Group.

Bloomberg New Energy Finance reported last month that global investment in renewable energy dropped by 23 percent in the first half of this year. Overall investment in small solar projects fell 32 percent to $19.5 billion from January through June. Both Japan and China pulled way back on renewables compared to the previous year.

“Demand in China is softening after a feed-in-tariff (FiT) change in June,” Prabhu said. “Slow Chinese demand is causing module prices to decline, inventory buildup, and an oversupply situation, all of which is negatively affecting manufacturers.”

Then again, 2015 was a banner year for solar and wind, the Bloomberg project noted. Overall investment exploded past $140 billion last year, according to reports. So some observers have argued that 2016 can only pale in comparison.

Mercom Capital Group’s report counted $25.3 billion in total corporate funding for solar in 2015, but 2016’s first half only shows $4.5 billion thus far, a fall of more than 50 percent from the same pace last year. Venture capital funding for solar topped $1.1 billion, by Mercom’s account, and is on pace to top that with $1.16 billion this year, double the first-half VC investment of $580 million.

The first half of 2016 has seen good headlines and bad for the solar industry. Tesla’s bid to buy SolarCity garnered a lot of attention. SunEdison’s bankruptcy, however, shocked many solar investors as its shares collapsed to a penny stock on the OTC markets.

 

 

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