Defying Expectations, Solar Lures $34.3B in Corporate Funding in 2023

Higher interest rates and inflation may have challenged the solar sector, but more than $34 billion in corporate funding shows investors are still bullish on companies behind one of the world’s fastest growing renewable energy sources.

That is according to Austin-based Mercom Capital Group’s latest report on solar funding and M&A activity. Though the number of solar energy sector deals dropped in 2023 compared to the year earlier, the amount of funding from sources such as venture capital, the public market and debt financing increased 42%, up from $24.1 billion in 2022, the firm reported Jan. 18.

The deal count dropped to 160, down from 175, during the same time period.

Mercom Capital Group CEO Raj Prabhu said solar investments continue to “defy expectations.”

“Despite high-interest rates and challenging market conditions, corporate funding in the sector was the highest in a decade,” said Prabhu. “Debt financing also hit a decade high, and venture capital investments and public market financing recorded the second-highest amounts since 2010.”

The amount marked the most raised since 2011 when disclosed funding totaled about $23 billion. It sank to a low of less than $10 billion in 2012.

For 2023, the report showed global venture capital and private equity funding amounted to $6.9 billion, only 1% lower than the prior year’s $7 billion raise.

Public market financing added up to $7.4 billion, up 45%, while debt financing jumped 67% to $20 billion.

“Driven by the Inflation Reduction Act [IRA], the global focus on energy security and favorable policies worldwide, solar continues to attract significant investments,” Prabhu added.

The IRA, signed into law in 2022, fueled a clean energy boom in the U.S. as it offered up billions of dollars in clean energy incentives. The law ushered in attractive tax breaks that lured both domestic and foreign investors, while setting the pace for other countries to step up efforts to combat climate change.

Companies that landed the most VC funding, according to Mercom, were 1KOMMA5, $471 million; Enfinity Global, $428 million; Silicon Ranch, $375 million; CleanMax Solar, $360 million; and Juniper Green Energy, $350 million.

As for M&A activity, Mercom reported a 25% year-on-year drop in activity. There were 96 corporate M&A transactions in 2023, compared to 128.

Brookfield Renewable’s acquisition of Duke Energy’s utility-scale commercial renewables business in the U.S. for $2.8 billion was the largest transaction of 2023.

The sale included more than 3.4 gigawatts (GW) of utility-scale solar, wind and battery storage across the U.S.

Large-scale solar project acquisitions last year totaled 231, the report showed, down from 268 in 2022. The acquisitions ended the year with a smaller combined capacity at nearly 45.4 GW, compared to 66 GW in 2022, according to the report.

“While funding activity has been strong, macroeconomic and geopolitical uncertainties, recession worries and elevated interest rates have significantly slowed down both corporate and project M&A activity in 2023,” Prabhu said. “Higher borrowing costs have put a damper on M&A transactions, with cautious investors biding their time for more favorable valuations.”

Adding to concerns, he said, are unpredictable project completion timelines due to interconnection delays, labor shortages and scarce solar materials.