The slump in global venture capital (VC) investments in the solar sector, which started in third quarter of 2012, continued the declining trend in the first quarter of 2013. But, the solar downstream companies surged and this category attracted the most VC funding in the sector this quarter (Q1 2013).

According to Mercom Capital Group, llc, a global clean energy consulting firm report on ‘Q1 2013 Solar Funding and M&A Report’ the VC investments in the sector dropped to $126 million in 26 deals during the first quarter of 2013 compared to $220 million in 27 deals in the previous quarter (fourth quarter of 2012). This is the second lowest quarter for VC funding since 2008, it said.

After strong VC investments in the first two quarters of 2012, there has been a consistent decline in the last three quarters (third and fourth quarter of 2012 and first quarter of 2013) even though there was a slight uptick in fourth quarter 2012.

Solar lease companies

The report is a comprehensive breakdown of funding and M&A in the solar sector in the first quarter of 2013 and was released today. In total, downstream companies, mostly solar lease companies, raised $75 million in eight deals, followed by thin film with $25 million in six deals, it said.

Raj Prabhu, CEO of Mercom Capital Group, said that: "After being burned by solar technology investments, especially thin film, we are finally seeing VC investments shift away from technologies and towards downstream/lease companies that are benefitting from record low panel prices."

Indian transactions

The notable Indian transactions during the quarter were those by Welspun Energy, Sai Maithili Power, Simpa Networks, and HHV Solar.

Welspun Energy, a solar project developer got $161 million funding from Central Bank of India for its 130 MW project located in Mandsaur, Madhya Pradesh.

Sai Maithili Power, the solar project development company formed by power projects developer KSK Energy Ventures received $9 million in project funding from Export-Import Bank of the United States for its 11.6 MW solar project in Rajasthan.

Simpa Networks, a distributed energy solutions provider got $2 million in VC funding from Asian Development Bank.

HHV Solar, a manufacturer of solar photovoltaic panels, got $3.9 million in equity investment (categorised as other type of funding in Mercom report) from Swelect, a provider of solar products and project developer. Through this transaction Swelect gets 49 per cent stake in HHV Solar.

Top 5 deals

The top five VC funding deals in first quarter of 2013 included $30 million raised by OneRoof Energy from Hanwha followed by $28 million raised by Sungevity from five investors that included Brightpath Capital Partners, Lowe’s, Vision Ridge Partners, Craton Equity Partners, and Eastern Sun Capital Partners.

Third party finance/solar lease firms raised about half a billion dollars in residential and commercial project funds in the first quarter with three of the transactions of $100 million each. Most of these projects were in the US.

Mergers & Acquisitions

On the mergers & acquisitions front the first quarter amounted to $306 million in 15 transactions. Although half of them did not disclose details, M&A strategies fell into three categories: acquisitions of downstream players to acquire project pipelines or create captive markets for upstream products, acquisitions of key technologies and IP, and acquisitions of distressed assets/companies, said the report.

The largest disclosed M&A transaction by dollar amount in the first quarter was solar cell manufacturer Goldpoly New Energy Holdings’ acquisition of power plant developer China Merchants New Energy Holdings in a non-cash transaction valued at $273 million.

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