Navigant Research Blog

The Future of U.S. Solar Energy Companies – Part 4

— July 22, 2015

Note:  This blog is the fourth in a four-part series examining the evolution of U.S. solar companies.

In the final part of my series focused on the future of U.S. solar companies, I will cover yieldcos and community solar.

Yieldcos

The solar market has seen a dramatic increase in the number of yieldcos during the past 2 years. My colleague, Roberto Rodriguez Labastida, recently blogged on the topic, explaining that the idea behind yieldcos involves the creation of a company to buy and retain operational infrastructure projects and pass the majority of cash flows from those assets to investors in the form of dividends. Structurally, yieldcos are similar to real estate investment trusts. They are also almost ideal for renewable energy projects, including wind farms.

In July 2014, SunEdison established a yieldco, called TerraForm Power Inc., which raised approximately $500 million through a successful initial public offering. In March 2014, First Solar and SunPower combined forces to offer a joint yieldco called 8point3, the amount of time, in minutes, it takes for light to travel from the sun to earth. The joint yieldco will include 87% utility-scale power plants and 13% rooftop, with installations in the United States, Chile, and Japan. There are also more than 15 other yieldcos from other large renewable energy providers, including NRG Yield, NextEra Energy Partners, Abengoa Yield, Pattern Energy Group, and Transalta Renewables.

Community Solar

To facilitate the rollout of community solar, U.S. states are expanding policies for virtual net metering, allowing multiple customers to participate in the same metering system and share the output from a single solar facility. Whether or not they are required to be physically connected to the system varies by policy. Here is a selection of historical and current shared solar programs:

  • California: Virtual net metering for multi-tenant buildings is required for investor-owned utilities (IOUs), and Senate Bill 43: Green Tariff Shared Renewables Program established a future clean electricity rate for all customers.
  • Colorado: Through the Community Solar Gardens Act, IOUs were required to accept 6 MW per year from community solar gardens for 2011 through 2013 (2 MW project limit, minimum of 10 participants, restricted to same municipality or county as the garden).
  • Delaware: Through community net metering, full retail credit is given for participants on the same distribution feeder as the community energy facility (subject to a net energy metering cap, minimum of two participants).
  • Minnesota: Through the solar Energy Jobs Act, Xcel Energy is required to credit community solar gardens at the retail rate (1 MW size limit, at least five participants, subscriptions for 25 years). The Minnesota Public Utility Commission recently provided further clarification that expanded the system size limit to 5 MW alternating current (AC).

Pure-play community solar companies, such as Clean Energy Collective and SunShare, are now being joined by major players, including SunRun and SolarCity. SolarCity stated that it will partner with Minnesota-based developer Sunrise Energy Ventures to develop up to 100 1 MW (AC) community solar installations. While this market is expected to require time to develop, as each public utility commission sets the rules in each state, the opportunities and pipelines of projects are growing.

Looking back, and ahead, at the trends covered in this four-part blog series, U.S. solar PV companies have done a remarkable job adapting to the changing landscape. Moving beyond the expiration of the 30% Investment Tax Credit (ITC) at the end of 2016 is just another one of those evolutions.

 

The Future of U.S. Solar Energy Companies – Part 3

— July 13, 2015

Note:  This blog is the third in a four-part series examining the evolution of U.S. solar companies.

In this blog, part of a series highlighting key trends among U.S. solar PV companies that offer a glimpse of what a post-30% Investment Tax Credit (ITC) world will look like, I will discuss storage and utilities.

Storage

Energy storage, primarily in the form of batteries, has been on the horizon for a number of years, but U.S. solar companies are now moving forward with strategic partnerships and storage offerings in certain market segments.

SunEdison will use more than 1,000 flow batteries from Imergy Power Systems for its solar microgrid projects in India. In March, The company announced it was acquiring the project development team, four existing projects, and a reported 100 MW of projects in the pipeline of Solar Grid Storage. Solar Grid Storage is a Pennsylvania-based startup that packages lithium-ion batteries and inverters to provide demand reduction, backup services, peak shaving, and grid stabilization services such as frequency regulation. Similarly, SunPower and Sunverge announced an exclusive agreement to provide solar and storage solutions available in the residential and utility segments in the United States and Australia. SolarCity and Tesla have also announced a strategic energy storage partnership for residential, commercial, and government customers in the United States and in remote communities around the world. It is expected that there will be many more announcements to come.

Due to increasing competition and the expiration of the U.S. federal ITC at the end of 2016, U.S. solar companies will need to continue to evolve their offerings. SunEdison, SolarCity, First Solar, SunPower, and others have all demonstrated a commitment to continuous innovation of their technology and business models, which will result in sustained growth for these and other U.S. solar companies in the future.

Utilities

One of the most critical issues in the U.S. market today, and after the expiration of the ITC, is how net metering policies will be adjusted within each utility service territory. Here, there is no one-size fits all answer. It will be a fight that will continue to play out differently in each region. Thus far, Arizona has been ground zero for net metering policy fights, with neighboring New Mexico following suit, and California expected to release an update soon. Utilities are increasingly proposing fixed fees on solar PV customers, ranging from $5 to $50 per month, significantly affecting the value proposition to residential solar PV customers. In addition to this, many utilities are also considering providing distributed solar as a service themselves. In some cases, such as APS, they are doing both at the same time.

Solar Electric Power Association put together a great map of where utilities are offering solar PV programs of their own. The map illustrates the variety or business models being employed–ranging from pure utility ownership, to financing, to energy purchases, and other customer programs. Clearly, the concern among U.S. solar PV companies is that monopolies have an unfair advantage due to their status, but utilities also have a point that they enable solar PV to be utilized in such great volume because of the stabilizing and backup role they will play now and increasingly in the future. That is why more than a dozen value-of-solar analyses are being conducted across the country and U.S. solar companies will need to continue to adapt.

For more information on the most recent regulatory updates affecting distributed solar PV, check out North Carolina State University’s recent report on the topic.

 

The Future of U.S. Solar Energy Companies – Part 2

— July 6, 2015

Note:  This blog is the second in a four-part series examining the evolution of U.S. solar companies.

Continuing on my previous blog, outlining some of the most important trends that have shaped the U.S. solar PV landscape and offering a glimpse into the post-30% Investment Tax Credit (ITC) future, this blog looks at how U.S. companies have made inroads overseas, with a particular focus on emerging markets, microgrids, and hybrid energy solutions.

Emerging Markets: Utility Scale

Developing countries are becoming a growing opportunity for U.S. solar companies looking to leverage their expertise in regions and applications with very high electricity costs or weak grid systems. In many ways, developing countries are the next frontier, but they offer unique challenges along the way. Markets such as South Africa, India, Chile, and China have rapidly been turning into high-growth markets that could drive sales in the latter half of this decade in utility-scale installations down through remote microgrids.

Notably, SunEdison has been operating in India for a number of years, but in 2015, the company has made numerous high-profile announcements, including reportedly signing agreements for up to 15 GW of solar and wind projects in the country. The company also announced a $4 billion deal to manufacture solar panels in India. Another company in this field, First Solar, has also made significant announcements for the Indian market, including a target of 5 GW by 2020. In addition, this company has installed the largest solar PV plant in South America in Chile at 141 MW.

At the utility scale, the leading country in Africa for renewable energy deployment is South Africa, where the government’s integrated resource plan may result in nearly 10 GW of solar PV installed by 2030.  With nearly 1.5 GW of solar PV and 2 GW of wind currently installed or in development, following four well-administered auctions, the country is making strong progress. SunPower has completed 33 MW of projects in South Africa in addition to being appointed as the preferred energy performance contractor (EPC) and operations and maintenance (O&M) contractor for an 86 MW project by the MULILO-TOTAL consortium. SunPower also announced at the end of 2014 that it is moving forward with at 160 MW module manufacturing plant in Cape Town, South Africa to meet growing demand.

Emerging Markets: Microgrids/Hybrid Energy Solutions

Remote microgrids and hybrid solar-diesel or wind-diesel systems are already common, with more than 600 identified  in Navigant Research’s Microgrid Deployment Tracker. To put that number in perspective, SunEdison has set a target of developing 5,000 microgrids in India by 2020, with many including storage. Since 2014, First Solar has been pursuing build, operate, and own (BOO) fuel-replacement projects, which include the prospect of displacing diesel in mining and other heavy industrial operations.  First Solar can provide a levelized cost of energy at between $0.07-$0.15/kWh, making it comparable, or cheaper, than conventional power plants—but also far less expensive than diesel, which generates electricity upwards of $.70/kWh.

In 2015, First Solar and CAT announced a strategic partnership to develop an integrated PV solar solution for microgrid applications. Under the agreement, First Solar will design and manufacture a pre-engineered turnkey package for use in remote microgrid applications, such as small communities and mine sites. The package will feature CAT-branded solar panels manufactured by First Solar and will include balance of system components. CAT will exclusively sell and support the integrated solution through its worldwide dealer network, along with its current offerings of generator sets and energy storage. Many other companies are expected to soon be offering similar solutions.

In the next installment of this four-part blog series, I’ll cover energy storage and the role of utilities in distributed solar.

 

The Future of U.S. Solar Energy Companies – Part 1

— June 30, 2015

Note:  This blog is the first in a four-part series examining the evolution of U.S. solar companies.

There is good reason for the concern that the expiration of the 30% Investment Tax Credit (ITC) will have a major (negative) impact on the U.S. solar PV market in 2017, and there is precedent. The on-again-off-again production tax credit for wind power enabled the U.S. market to surge to as high as 12 GW in a single year and then drop to 1 GW the following. In addition, when key solar incentives in Germany, Spain, and the Czech Republic were removed or limited, similar reductions in deployment ensued.

However, the overall U.S. solar PV market, while expected to take a 60% hit in 2017, is projected to prove to be particularly resilient. New business models, international expansion, and continued cost reductions are expected to enable U.S. companies to compete in a post-30% ITC world.

In this four-part blog series, I will be taking stock of key trends in the U.S. solar PV industry that highlight the continued evolution of American solar PV companies and offer a glimpse of what to expect in the future.  Taken together, the key trends will provide a snapshot of what future U.S. solar and energy service companies are expected to look like. The blog topics will include financing, vertical integration, international expansion, microgrids, energy storage, and community solar. Two of these are covered below.

Financing

Marking one of the most important evolutions of the solar PV industry in the United States, in 2003, SunEdison pioneered a business model where the company would install, finance, own, operate, and maintain solar PV systems. This would enable customers to purchase the power from solar PV systems on their own roofs without putting any money down. SolarCity took this model to scale in the residential market, and now other companies, such as SunRun, Clean Power Finance, Vivint, SunPower, and Sungevity, are offering everything from leases, to power purchase agreements, to loans, in addition to direct sales. These financing schemes set the stage, in part, for the U.S. solar boom that reached 6.2 GW in 2014. This development is also representative of the way in which solar PV companies have adapted their business models to meet the needs of customers and increase investment in the sector as a whole.

Vertical Integration

Intense competition among hardware suppliers in particular has compressed margins and prompted companies to focus on more profitable downstream activities. SunEdison, for example, was one of the first to move toward vertical integration due to its 2009 acquisition by MEMC, a wafer manufacturer with a global presence and a deep balance sheet.

SolarCity has made strategic acquisitions including Silevo (modules) and ZepSolar (racking). SunRun, which started as a finance company, acquired an installer (RECSolar’s residential division), distribution company (AEE Solar), and mounting company (SnapNrack). Successful vertical integration has enabled solar companies to maximize cost reductions throughout the value chain–and also provide the best opportunity for sustained profitability, an elusive goal for solar component manufacturers and installers during a time of growing competition and market expansion.

In my next blog, I’ll take a look at the key trends of emerging markets and microgrids.

 

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