Solar Companies Increasing Debt Amid Stagnant Investor Interest

Despite high demand for solar energy, investors remain hesitant to commit funds to solar companies and projects, according to analysis from Mercom. Prabhu from Mercom noted that good deals still happen, with the total number of closed financing deals rising 9% in the first half of the year to 87. However, the size of these deals has decreased, and the pace of mergers and project acquisitions has slowed.

Mercom’s data, excluding China, shows that 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 in the second quarter of 2024.

Publicly traded companies form a small part of the U.S. solar industry, but they face significant challenges. Solar stocks are underperforming relative to the larger market, making it more expensive for solar companies to raise funds in the market. This situation has likely pushed more companies towards debt financing.

Merger and acquisition activity has slowed due to extended and uncertain project timelines caused by interconnection backlogs, labor shortages, and equipment shortages. Investors prefer definitive timelines for financial returns, a struggle for the solar industry in recent months.

The uncertainty surrounding U.S. policy support for the industry has also deterred investors. Although undoing the incentives created by the Inflation Reduction Act would be challenging, the upcoming U.S. election looms large in investors’ minds.

“Everyone wants to know what the long-term policies look like, but until the elections are over, it’s just political posturing about who will be tougher on China regarding tariffs,” Prabhu said. “That’s good for the election cycle but not for investors.”

One potential positive is that recent U.S. inflation numbers suggest faster cooling than expected, with the Federal Reserve considering rate cuts later this year. This could boost investor interest in solar, which has been particularly affected by high interest rates.