Energy – Solar

The year 2020 was a record-setting year for the solar industry, and it will not be the last. The fourth quarter exceeded the prior quarterly record set in Q4 2016 by 22%, with just over 8 gigawatts-direct current (GW) of solar photovoltaic (PV) capacity installed. The year ended with a total of 19.2 GW installed, an astonishing 43% more than capacity added in 2019 – all amidthe COVID-19 pandemic. Exhibit 1 shows the Energy – Solar sector’s performance since 2016 relative to the overall economy, comparing sector revenue change to GDP growth from 2016-3Q2020.

Solar PV accounted for 43% of all new electricity-generating capacity additions in 2020, the largest share in the industry’s history and the second consecutive year that solar ranked first among all generation technologies. Solar and wind made up 81% of new capacity in 2020, far more than the prior record of 68% in 2015. Finally, geographic diversity also continued to increase in 2020 with 27 states each adding more than 100 MW.

The two-year extension of the ITC results in more than 11 GW of additional capacity. The year-end extension of the ITC came as welcome news, allowing the industry to continue the momentum from a record-breaking second half of 2020. From 2021 to 2025(the last year that projects must be completed to qualify for ITC levels above 10%), our outlooks have increased by 25% for residential, 15% for non-residential, and 15% for utility scale. Overall, the 5-year outlook increased by 17.7 GW or 17%.

The next decade will see the total operating solar fleet more than quadruple but growth in the U.S. solar market is only partially driven by the ITC extension. Residential solar sales continue to exceed expectations as loan providers roll out attractive products, interest in home improvement surges, and customers suffering through power outages from extreme weather events seek energy resilience. Utility solar pipelines continue to grow, driven by a proliferation of decarbonization targets from a variety of off takers. While non-residential solar growth is expected to moderate after an initial surge in 2021, long-term growth will accelerate as costs decline and financing options become more widely available. In total, the operating solar fleet is expected to quadruple from nearly 100 GW of capacity installed today to more than 400 GW installed by 2030.

Deal activity within the renewables sector has been a bright spot for energy M&A in 2020. Despite being hit hard by the COVID-19 pandemic, M&A targeting the energy sector has remained resilient in 2020. The sector saw M&A value rise 6% year on year to a total of US$93.4 billion in the first three quarters of 2020. While volume dropped 16% to 442 transactions, the sector delivered a far more robust performance than overall global M&A, which dropped 27% by volume and 28% by value over the same period.

While traditional energy firms have seen profits decrease in 2020, dealmakers have shifted their focus to renewable assets. The ongoing transition to a low carbon energy framework has proven a catalyst for deal making within the renewables sector attracting landmark deals over the course of the year. Exhibits 2 show the trends in activity from 2015-2020.

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