After Big Oil’s waves of consolidations, Big Solar could be next

The wave of consolidation that swept through Big Oil in the last few months is expanding to Big Solar.

Large U.S. solar companies, hungry to buy commercial and utility-scale projects from their smaller peers, are finding a growing number of sellers who lack the patience and deep pockets needed to actually get a new solar farm built and connected to the grid, renewable energy experts told Semafor. That’s a reversal from 2023, when solar dealmaking largely dried up because of lingering uncertainties over Inflation Reduction Act tax credits and how they might influence a project’s valuation. The Biden administration has since offered more clarity on this point — but interest rates remain high and show no sign of falling, while electric grid operators are raising the rates they charge solar developers to keep their place in the dreaded, years-long “interconnection queue.” That’s forcing more early-stage solar projects onto the market.

Ben Pratt, CEO of project developer Nova Clean Energy, said he wants to double the number of solar and wind farms in the company’s construction pipeline mainly by buying incomplete projects from smaller competitors — and that there are suddenly a lot of good deals to be had.

“We’ve really seen the M&A market swing from a seller’s market to buyer’s market in a pretty phenomenally short amount of time,” he said.

ExxonMobil’s $60 billion acquisition of Pioneer Natural Resources in October, and the series of oil industry mega-mergers that followed, was motivated by uncertainty about the future oil market: As demand plateaus and prices flatten or fall, the most profitable companies will be those with the scale to achieve high efficiency and low operating costs. The solar consolidation Pratt sees building around the corner, by comparison, is a trickle of much smaller deals in the realm of tens of millions, not billions, of dollars, usually involving the sale of individual projects rather than a whole company, most of which are not even publicly announced and are unlikely to draw much concern from regulators.

But the solar consolidation is motivated by the same realization that in this uncertain period of the energy transition, scale is necessary for survival. And although solar is already repeatedly breaking annual installation records, if consolidation is needed to ensure more solar farms get built and send power to the grid, it could help further accelerate the decarbonization of the U.S. power sector.

It’s too early to have industry-wide data on whether solar acquisitions are heating up, after the total value of U.S. deals fell by more than half between 2022 and 2023, to about $1.7 billion, according to Enverus Intelligence Research. But between high borrowing costs, long interconnection delays, rising fees to hold a place in the connection queue, and shortages of solar farm hardware, it’s already clear that smaller project developers are running out of money and patience, said Vanessa Richelle Wilson, a clean energy attorney at Akin: “Because of those requirements, we’re seeing developers that maybe had an eye towards selling, now trying to sell a bit earlier. That’s a real opportunity for buyers from a price perspective.”

Pratt joined Nova in June from the Danish energy firm Orsted, which counts wind and solar farms in the U.S. among its assets. During his time at Orsted, he said, when interest rates were low and there were fewer clean energy projects waiting for a grid connection, just about anyone with a map could break into solar project development and be reasonably confident that if they could find a customer for the power, the project would work out. Pratt helped Orsted scout around for incomplete projects to buy, looking for those with a particularly nice, sunny chunk of real estate. “But there was a pretty big gap between what developers were willing to sell their projects for and what we’d be willing to pay,” he said.

That’s changing. There’s a huge amount of demand for utility-scale solar power. But it takes bigger companies to assume the costs and risks associated with project construction and interconnection, to have streamlined legal teams get mountains of paperwork in order, and to have better access to hardware, like power transformers, which are in short supply.

Now, it makes sense for small developers to use their local know-how and connections to line up the real estate for a solar project, but then flip it to a larger developer before the grid connection fees kick in. Pratt said he’s starting to get calls back from companies he talked to previously that were only interested in selling if they could make a deal for the entire company, but are now willing to offload individual projects. Nova completed one of its biggest acquisitions in June, snapping up a one-gigawatt combined solar and wind farm for an undisclosed price that Pratt thought was well-situated to be used for green hydrogen production. The company completed another two gigawatts worth of acquisitions in the last six months, and is looking at others, Pratt said.

Projects that come on the market with a bit of construction work done already, and a favorable spot in the connection queue, can still command a premium price, said Ron Erlichman, a senior energy attorney at Linklaters in New York. But “the market isn’t overflowing with high-quality, high-value projects,” he said. Any kind of geographical or bureaucratic encumbrance could force a seller to accept a big discount, he warned, unless borrowing gets cheaper and policymakers make more meaningful progress on permitting reform.

“It will be harder and harder for smaller developers to scale up, and we’ll definitely see consolidation as a result,” Erlichman said.

Even as the solar sector consolidates, big-ticket solar acquisitions may be drying up. The largest deals last year involved electric utilities selling off their renewable energy portfolios to energy companies or private equity firms, for example the $2.8 billion purchase of Duke Energy’s renewables business by Brookfield Renewable Partners in June. Con Edison and American Electric Power also sold off their renewables businesses, essentially choosing to prioritize their fossil fuel and nuclear assets over the cost and hassle of renewables. Now, there aren’t many utility-scale portfolios left to be sold, said Scott Wilmot, vice president at Enverus Intelligence Research.

The household rooftop solar industry is also contracting — at least 100 residential solar installers went bankrupt in 2023, and analysts expect more to follow this year. In order to offer home solar leases at competitive prices, solar companies operate with low margins and need to continually expand their customer base: Rising interest rates forced many to take on debt they couldn’t afford, or to sign leasing deals that the homeowners couldn’t afford, eventually leaving the companies to run out of cash.

A wave of acquisitions is also coming for purveyors of tiny consumer solar panels in Africa, the CEO of one of the continent’s leading solar companies told me last week. Only firms with scale can afford to distribute and maintain a network of pay-as-you-go panels in remote, off-grid locations.