The Big Deal: Sungevity

Sungevity helped to show the growing strength of the US rooftop solar market last Friday by raising a $70m equity round that saw US-based industrial conglomerate GE and Germany-based E.ON, both of which have invested substantially in large-scale solar, join the company’s investors.

The fundraising is representative both of how solar investment has switched from solar equipment manufacturing to installation and also of how solar power in the US is increasingly based around the rooftop sector rather than larger-scale projects.

Corporates invested heavily in the solar cell and module manufacturing sector during the cleantech boom a few years back but the public failure of companies such as thin-film module makers Solyndra and Abound Solar fuelled by the unexpected plummet in worldwide solar cell prices has led venture capital investors to be cautious about funding solar manufacturers, though it has also enabled Asian companies to acquire established US and European manufacturers such as MiaSole and Q-Cells for rock bottom prices.

However, the fall in module prices has conversely served to make the economics of solar installation more attractive, even as many European nations have cut or removed subsidies for solar projects. The US has retained subsidies for installation through the Investment Tax Credit (ITC) and installation increased 41% year on year in 2013, but its solar sector is increasingly shifting towards the small-scale side.

The reason for this is that the lower costs of solar have made it a much more inviting option for businesses and homeowners seeking to save money on their electricity bills. Rooftop solar has none of the siting or environmental issues that can delay larger projects, and a range of financing options offered by companies like Sungevity make installation financially easier.

GE, through its GE Energy Financial Services unit, has made equity investments in a number of solar projects in the US, Europe and Australia, while E.ON operates about 100 MW through its renewable energy subsidiary, E.ON Climate and Renewables. Neither company has invested in rooftop top solar before, but Sungevity, which doubled its US sales in 2013, is indicative of the growth in rooftop solar.

Companies like Sungevity and SolarCity, which formed a $280m project finance fund with Google in 2011, have traditionally used debt financing to pay for the raw costs of installing, because the systems are paid for by customers in instalments and the tax equity element of the ITC makes it a popular investment for institutional investors. Equity funding is generally used for business development, and Sungevity plans to use its latest capital to expand internationally, where the multinational presence of E.ON and GE will prove a great help.

Nor is Sungevity the only company in the sector to secure funding. OneRoof Energy closed a $31.5m round late last month that featured an unconfirmed investment by US-based power generation company NRG Energy around the same time as it purchased installer Roof Diagnostics Solar, which will form the basis of  NRG’s new residential solar division.

SolarCity has meanwhile been on an acquisition spree, buying two companies involved in the residential solar services industry for a combined $178m in 2013 as the sector enters a period of consolidation.

The emergence of strategic investments by corporates such as GE and E.ON, which have the capability to expand the businesses internationally, signals the next evolution of solar. Although retroactive taxes have made rooftop solar less attractive in some parts of Europe, the financing model that has worked in the US and Australia has the capacity to do the same in parts of Asia, Latin America and Africa where solar has reached grid parity, triggering huge growth in the process.