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VC Funding in Solar Sector Down 50 Percent in 2012, According to New Mercom Capital Group Report

Report Reveals Investment Trends -- Solar Lease Companies Shine; Funding for Thin-Film Companies Drops

AUSTIN, TX -- (Marketwire) -- 01/14/13 -- Global venture capital (VC) investments plunged nearly 50 percent to $992M (million) in 103 deals in 2012 compared to $1.9B (billion) raised in 108 deals the previous year. The 2012 total represents the lowest amount since 2007.

VC funding in Q4 2012 came in at $220M in 27 deals compared to just $72M in 14 deals in Q3. Twenty-five investors participated in the 27 deals in Q4, and no investor was involved in multiple deals. The leading VC deal this quarter was concentrating solar thermal company BrightSource Energy with $83.6M.

Figure: Solar VC Funding 2007-2012 (http://mercomcapital.com/assets/images/2012Q4PRImage1.jpg)

Mercom Capital Group published an 89 page report on funding and merger and acquisition (M&A) activity for the solar sector during 2012. The report provides detailed financial transactions, including active investors, examines VC investments broken down by type and technology, and also provides comprehensive information on solar M&A transactions, debt transactions, transaction details on announced large-scale project funding, and project M&A. This report also includes information on solar bankruptcies, downsizings and restructurings.

"The slowdown in VC funding can be attributed to the grim prospects for thin-film, concentrating solar and concentrating PV technologies," commented Raj Prabhu, managing partner of Mercom Capital Group. "With the drastic fall in crystalline-silicon PV prices over the last two years, most other technologies have struggled to compete."

Thin-film companies saw the largest amount of VC funding in 2012, although the total fell 47 percent to $314M compared to almost $600M in 2011. Within thin-film, the copper indium gallium (di) selenide (CIGS) sub-category received 85 percent, or $274M, of the total in 2012. Over the past three years, thin-film companies have received the most VC funding with almost $1.5B, of which, CIGS has received more than $1B. The solar sector's drop in VC investments is directly related to the struggles of thin-film companies, especially CIGS, noted Prabhu.

On the other hand, solar downstream companies, especially solar lease companies, have benefitted from low module prices. VCs invested $269M in 25 deals in solar downstream companies. The Top 5 VC funding deals in 2012 were BrightSource Energy, a CSP company, for $83.6M, SolarCity, a solar lease firm, for $81M, CIGS company Nanosolar for $70M, solar lease company Sunrun for $60M, and MiaSolé, a CIGS company, for $55M.

Figure: Solar Top 5 VC Deals in 2012 (http://mercomcapital.com/assets/images/2012Q4PRImage2.jpg)

"The diminished funding activity is not a true reflection of the health of the solar sector because the demand side of global solar installations has continued to grow," said Raj Prabhu. "Global solar installations look set to grow by around 10-12 percent this year."

More than 140 investors participated in 2012. The most active investors in terms of deal numbers were New Enterprise Associates with four, followed by Black Coral Capital, Firelake Capital Management, Kleiner Perkins Caufield & Byers, and SunPower, who participated in three deals each.

Corporate M&A activity in solar amounted to $6.7B in 52 transactions compared to $4B in 65 transactions in 2011. The two largest M&A transactions in 2012 were Eastman Chemical's acquisition of Solutia for $4.7B, and 3M Group's $860M purchase of Ceradyne. Other notable M&A transactions were Korean conglomerate Hanwha Group's acquisition of German PV manufacturer Q-Cells for $322M, and the $275M acquisition of Oerlikon Solar by Tokyo Electron.

"It was a buyer's market in 2012 -- acquirers were targeting distressed companies with the goal of buying technology or equipment on the cheap," commented Prabhu. "More than half the 52 M&A deals in 2012 involved solar manufacturers and equipment makers."

There were 12 corporate M&A transactions in Q4 2012 totaling $953M, with only six transaction amounts disclosed.

Figure: Solar VC Deals by Country 2012 (http://mercomcapital.com/assets/images/2012Q4PRImage3.jpg)

Mercom's report also includes announced large-scale project funding transactions. Active project investors in 2012 included The Development Bank of Southern Africa, HSH Nordbank, International Finance Corporation (IFC), Export Import Bank of the U.S., KfW Entwicklungsbank, and Union Bank. Some of the active acquirers of projects in 2012 were investment funds including the likes of The Carlyle Group, BNP Paribas Clean Energy Partners, ForVEI, and Capital Dynamics. Other active investor groups were project developers, utilities, independent power producers, and insurance companies.

The largest debt deal in 2012 was the $1.6B credit facility by China Development Bank, received by Sky Solar, a Chinese developer of solar projects. Loans, credit facilities and framework agreements announced by Chinese banks to Chinese solar companies have reached $52.6B since 2010.

Initial Public Offerings

In a sector devoid of successful exits, SolarCity's IPO was one of the few bright spots in 2012. SolarCity, a venture-funded company, raised about $95M in net proceeds. The other notable U.S. VC-backed solar IPO was Enphase Energy, whose debut at the end of March marked the first solar IPO in the United States since 2010.

To learn more about the report, visit: http://store.mercom.mercomcapital.com/?wpsc-product=solar-annual-q4-2012-report

About Mercom Capital Group

Mercom Capital Group, llc, is a global communications, research and consulting firm focused exclusively on clean energy and financial communications. Mercom's consulting division advises cleantech companies on new market entry, custom market intelligence and overall strategic decision making, delivering highly respected industry market intelligence reports, covering Solar Energy, Wind Energy and Smart Grid. Our reports provide timely industry happenings and ahead-of-the-curve analysis specifically for C-level decision making. Mercom's communications division helps clean energy companies and financial institutions build powerful relationships with media, analysts, government decision makers, local communities, and strategic partners. Visit: http://www.mercomcapital.com. To get a copy of Mercom's market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php.

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