Dive Brief:
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Solar companies announced $12.2 billion in debt financing during the first half of 2024 — the largest total for the first half of a year in a decade, according to Mercom Capital Group.
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Total solar corporate funding reached $16.8 billion for the first half of the year, down 10% from the first half of 2023, the consulting firm said Tuesday. Funding from venture capital is down 29% year-over-year, while project acquisitions dropped to 18.5 GW from 25.5 GW.
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Solar companies have likely turned to debt to finance growth while investors wait out several industry wild cards — including high interest rates, the renewed push for tariffs on Chinese imports and the U.S. presidential election, according to Raj Prabhu, CEO of Mercom.
Dive Insight:
Demand for solar energy remains high, but investors are wary of putting their funds into solar companies and projects, according to analysis from Mercom.
Good deals still get done, Prabhu said. In fact, the total number of closed financing deals rose 9% in the first half of the year to 87, according to Mercom. But the size of the deals is smaller than the industry has seen in the recent past, and the pace of mergers and project acquisitions has slowed.
Mercom's data covers financing by solar companies throughout the world but excludes activity in China. U.S. companies accounted for $8.6 billion of the $16.8 billion raised globally in the first half of the year, including $6 billion in new debt financing.
No U.S. company secured new public market funding during the second quarter of 2024, according to Mercom.
Publicly traded companies represent a small portion of the U.S. solar industry, but public markets are especially difficult for solar right now, with solar stocks generally underperforming relative to the larger market, Prabhu said. Raising funds in the market has become relatively expensive for solar companies as investors have grown more cautious, he said. That, in turn, is likely pushing more companies to turn to debt financing instead, he said.
Merger and acquisition activity has also slowed as solar project timelines have grown longer and less certain on account of growing interconnection backlogs, labor shortages and equipment shortages, Prabhu said. Investors like definitive timelines regarding financial returns, he said, and solar has struggled on this front in recent months.
The question of U.S. policy support for the industry has likely also spooked investors. Although most analysts agree it would be difficult to undo the incentives created by the Inflation Reduction Act, Prabhu said the U.S. election still looms large in the eyes of investors.
“Everyone wants to know what the long-term policies look like, but until the elections get done it's just one-upping when it comes to announcements about who will be tougher on China in terms of tariffs,” Prabhu said. “That's good for the election cycle but not for investors.”
There may be one bright spot on the horizon, Prabhu said: recent U.S. inflation numbers suggest it is cooling faster than expected, and the Federal Reserve has signaled that it is considering cutting rates later this year. That could prompt greater investor interest in solar, which has been particularly hard-hit by high interest rates, Prabhu said.
