Total corporate funding, including venture capital (VC), public market activity, and debt financing for the solar sector, reached $22.3 billion in the first nine months (9M) of 2024, a 23% decrease from the $28.9 billion raised during the same period in 2023.

The number of deals also dropped by 6% year-over-year, with 117 deals in 9M 2024 compared to 124 in the same period in 2023, according to the recently released report 9M and Q3 2024 Solar Funding and M&A Report by Mercom Capital Group.

Raj Prabhu, CEO of Mercom Capital Group, said, “One of the main reasons why the industry is down right now is obviously interest rates and higher costs of capital, which we’ve been mentioning for the past year or so. These factors remain critical. A lot of trade barriers are coming up, and they’re unpredictable. Markets don’t know what policies are coming next. We see this in the U.S., India, and the EU, which is affecting supply chains and prices.”

“In the U.S., IRA is a big catalyst for the solar and renewable sector, but there are still uncertainties. For example, companies and the industry aren’t very clear about certain provisions like 45X manufacturing. The government is issuing guidance bit by bit, which has slowed down the sector. The upcoming U.S. elections add to the uncertainty. The Biden administration implemented the IRA, but the market is unsure what happens if a Trump administration comes to power,” he said.

“While Trump could introduce changes, I don’t believe the IRA will be repealed, as that would be extremely difficult to do. It has benefitted Republican-controlled states significantly, and there’s almost bipartisan support because both parties have seen advantages from it,” Prabhu said.

In the first nine months (9M) of 2024, venture capital (VC) funding dropped 39% year-over-year, with $3.5 billion raised across 39 deals, compared to $5.7 billion raised in 51 deals during 9M 2023.

Solar downstream companies led the financing activity, securing $3.3 billion in 32 deals during the same period.

Prabhu explained, “Solar is a mature market now. If you look back 8-10 years, most of the funding was going to technology companies because the market wasn’t fully developed, and no one had won the technology battle. But now, solar is largely commoditized, and the focus of investments has shifted from new technology to building projects. That’s why we’re seeing a lot more investment in solar downstream companies today.”

The top VC deals in 9M of 2024 were led by Pine Gate Renewables, which raised $650 million, followed by Nexamp with $520 million, BrightNight with $440 million, Doral Renewables with $400 million, and MN8 Energy with $325 million. In total, 118 VC investors participated in solar funding during this period.

Public market financing for solar in 9M 2024 amounted to $2.1 billion across ten deals, a significant 71% drop compared to $7.2 billion raised through 19 deals in 9M 2023.

Meanwhile, announced solar debt financing activity reached $16.7 billion in 68 deals, a 4% increase from the $16 billion raised in 54 deals during the same period in 2023.

“In this high-interest rate environment, companies are finding that debt is currently the cheapest available option. The industry got some good news last month when the Federal Reserve cut interest rates by half a point after a year of hikes. While the impact will take time to materialize, and the cut isn’t large enough to drive significant changes, it signals a shift from rate hikes to potential cuts in the future. If the Fed provides clearer guidance on further rate cuts in the coming months, the market will gain better visibility, which could lead to increased activity as investors get a clearer picture of what’s ahead,” according to Prabhu.

In 9M of 2024, there were 62 solar mergers and acquisition (M&A) transactions, down from 75 in the same period in 2023.

The largest deal in the third quarter was executed by Macquarie Asset Management, which agreed to acquire a minority stake in D.E. Shaw Renewable Investments, a renewable energy project developer, through several of its managed funds.

There were 166 project acquisitions totaling 28.3 GW, a decrease compared to the same period in 2023, which saw 166 project acquisitions totaling 31.6 GW.

Prabhu said, “Project acquisitions have not rebounded since the Fed began raising interest rates, and several issues beyond the cost of capital and high rates are at play. In the U.S., delays are rampant due to supply chain issues and the scarcity of certain components, like transformers and power equipment, which are currently hard to acquire. This shortage is adding to delays.”

“Additionally, there are interconnection delays, with renewable projects waiting in the queue. For investors looking to purchase these projects, uncertainty about completion timelines leads to hesitation, especially for early-stage developments that carry higher risks. However, projects in later stages of development tend to perform better in this environment.”

Investment firms emerged as the most active acquirers of solar projects in Q3 2024, acquiring 4.3 GW, followed by project developers and independent power producers (IPPs) with 3.4 GW.

Utilities acquired 1.2 GW of solar projects, while other companies—including insurance providers, pension funds, energy trading companies, industrial conglomerates, and IT firms—acquired 882 megawatts (MW).

The report covers 247 companies and investors, spans 95 pages, and includes 80 charts and tables.

To learn more about the report, visit: https://mercomcapital.com/product/9m-and-q3-2024-solar-funding-and-ma-report/