By: Evan Klisares
We just returned from the first renewable conference of the year, InterSolar, in San Diego. Booths at the conference were down from ~900 in 2023 to ~500 in 2024, and as one conference-goer noted to me on the floor, they should have renamed this conference the “Times-Are-Tough” show – a nod to the competitive pricing environment, a cloudy economic outlook, and shifting regulations. That being said, we would like to share some interesting themes emerging that will likely impact M&A in the solar and storage markets in the year to come.
Consolidation Coming to Residential Solar Market
The rooftop solar segment set a 4GW installation record last year. However, market maturation and policy changes will increasingly pressure small companies in the value chain. Components are becoming more commoditized, and the working capital needed to build battery inventory is starting to overwhelm less capitalized players. I heard on the floor, “there are 15+ players here this year, and it wouldn’t surprise me if there were less than five next year – we can’t keep operating like this.”
One theme related to this topic is California’s move from net metering to net billing, which will strain cash flows for installers less equipped to spread costs across broad portfolios. Interconnection backlogs and permitting delays also disadvantage undiversified regional companies; the byproduct will be roll-up plays aimed at acquiring customer bases and talent.
Finding Ways to Play the Energy Storage Market
Energy storage had a breakout year in 2023, with over 7 GW of grid-scale systems installed. Growth remained strong in smaller behind-the-meter systems as well. Storage deployments are being driven by renewable energy growth, reliability needs, and state policy support.
The growth outlook remains positive as well. Over 40 GW of grid-scale storage is expected to come online through 2028. After speaking with some Private Equity colleagues at the conference about the potential cloudy outlook on the renewable energy sector, Energy Storage remained a key investible theme in the industry. Look for consolidation in lithium processing and battery manufacturing, key components that sell into the value chain such as inverters and SCADA monitoring systems, and services such as design and engineering.
Despite the tongue-in-cheek comment about the “Times-Are-Tough” show, the US solar and storage industries have momentum heading into 2024. While risks are certainly present, long-term economics associated with solar and storage projects will likely help overcome near-term hurdles. Over the coming year, we’ll be monitoring consolidation within the ecosystem as US-based operators look to integrate capabilities and find new ways to play this mega-trend.