Palmetto’s push beyond solar
Palmetto is one of the better-known names in the software-for-solar space. And in climate tech software in general. Last year, it raised a splashy $375M Series C. This week, the firm raised another $150M from TPG Rise Climate. Those two raises proved enough to catapult it into the top-25 top funded climate tech startups in the U.S. (in terms of total equity fundraising):
To date, Palmetto has focused on making it easier for people to put solar panels on their roofs. And since it started operating in 2009, streamlining processes and lowering costs for homeowners to add solar has been a good business. The company didn’t do serious equity fundraising until a $6M Series A in 2018. Since, it has grown significantly and raised $565M in total equity funding.
A similar story holds for other solar-focused software firms in the top 25 chart above. Aurora Solar, which helps design solar systems and manage ‘soft costs’ associated with their installation, struggled to find equity backing until 2018, too. Before that, as noted by an early Aurora investor in a recent podcast he and I recorded, the ghosts of cleantech 1.0 still loomed large.
Fast forward five years, and things couldn’t be much more different. The fundraising climate for investing in successful climate tech software firms is rapacious in comparison.
Now, however, a new question arises. In 2018, equity funding woefully lagged the opportunity (that firms like Aurora and Palmetto harnessed) to build software to support deployment. In 2023, is that still true? Or is equity funding getting a bit rich compared to the rooftop solar opportunity?
Whether or not Palmetto sees rooftop solar growth slowing, the firm is keen on diversifying its business. With new equity funding from TPG, the firm will focus on expanding its marketplace to include all the other services and products associated with electrification. The IRA is chock-full of credits for things like home electrification upgrades, whether for heat pumps or insulation upgrades. It makes sense that Palmetto wants to capture some of those transactions.
There are, frankly, also a lot of software-for-solar companies at this point. Many of them have seen the success of Arcadia and Palmetto since 2018 and have hoped to emulate it and carve out a little niche for themselves. The space may be a bit saturated at this point.
There’s a similar rush happening in home electrification post-IRA. People see the opportunity to build marketplace and software solutions to facilitate the next wave of electrification. There are important services to be provided here, to be sure. There is room for software that makes things easier for contractors and consumers and reduces costs and time spent. I reckon companies like Palmetto, flush with cash, with experience scaling rooftop solar, and with name-brand recognition, will throw their weight around and get their slice of the pie. Potentially crowding out other, newer entrants.
Now, back to the question I posed earlier. Rooftop solar is at an interesting inflection point. It has been for some time. Watching companies like Palmetto that ‘grew up’ on solar expand their horizons hits this home. As early as 2015, policymakers in Hawaii’s state utility curtailed grid connections for rooftop solar because solar arrays on homes were producing more energy during the day than the grid needed or could use. Similar challenges and controversy about how to handle them are now quite active elsewhere in the country, too.
Adding energy storage systems to pair with rooftop solar (another type of transaction Palmetto might get into the business of facilitating) should help consumers and utilities alike make the most out of rooftop solar’s energy production. But the fact remains that rooftop solar is more expensive and harder to deploy than utility-scale solar projects. Deploying tens of thousands of panels in the desert is more straightforward than getting an installation team onto thousands of different roofs to deploy ten panels on each.
The big question for me is whether the right amount of capital is flowing to solutions like Palmetto’s. Whether in carbon markets or now in things like home electrification, we’re starting to see a lot of concentration at the center of the market. I.e., more people are building carbon marketplace companies than developing credible, scalable carbon projects. You don’t see big dollar signs flashing for the small contractors across the country, many of whom are aging out of their businesses, who actually install the heat pump and do the work to upgrade insulation. Food for thought!