Navigant Research Blog

Sunrun: The Large Solar Provider Dilemma

— September 19, 2017

On August 24, Sunrun—the last of the large independent US solar providers—announced an agreement with Comcast, a leading cable provider in the country. The two companies plan to launch a strategic partnership to offer Sunrun’s services to Comcast’s clients.

Sunrun was founded in 2007 and found success innovating new ways to finance residential solar installations such as solar leases and power purchase agreements (PPAs). It created the solar as a service (SOaaS) business model, which became the foundation for the growth of the sector between 2010 and 2015. Until 2014, it seemed that solar leases and PPAs—grouped as third-party ownership in California’s Interconnection Applications Data Set—were going to be the winning business model in the SOaaS industry. These leases allowed large players to both increase the market size and displace local installers.

Changing Solar Market

In 2015, the market share of solar leases and PPAs in California—which itself represents around 60% of the US market—plunged to under 50% from 75% in 2013. Data for 1H 2017 shows third-party ownership at close to 30%.

Third-Party Ownership Market Share, California: 2005-1H 2017

(Sources: Navigant Research; California Distributed Generation Statistics)

The collapse of third-party ownership has weakened large solar providers compared to local installers. Large solar providers relied on their access to cheaper capital backed by significant margins in their leases to run large business development teams and finance the installations. As residential solar customers moved into cash or loan buys, local installers became competitive again, reducing the profit margin per installation in the industry. This left large solar providers like Sunrun with high customer acquisition costs relative to profit per installation.

Under these circumstances, it is not surprising that Sunrun is looking for new and cheaper ways to attract customers. Even if this partnership with Comcast costs Sunrun its independent status, it may be worthwhile if the strategy is successful.

What Is in It for Comcast?

Comcast has shown interest in the energy sector in the past, and its Xfinity Home service includes a smart thermostat as one of the offerings. However, scaling it into a full-fledged energy solution would be costly, as Comcast would need to build a new team from the ground.

For Comcast, this partnership offers a relatively cheap entry into the solar and energy markets in which it can rely on its core skills (customer acquisition and management) without having to invest significantly in a new product. If successful, Comcast can push a more aggressive strategy into the energy sector either through Sunrun or with its own product.

Benefits and Potential

Customers of Comcast and Sunrun could also benefit from this partnership. The companies can put together a convincing solution for home automation by tapping on their offerings on the two main services around home automation—security and energy.

The success of this partnership will depend of Comcast’s ability to cross-sell energy services to its current customer base. Comcast operates in a market with limited competition and high barriers to entry, which is different from the solar market. The sales process of solar is also different from that of cable. Solar is a long-term investment (even leases and PPAs require long-term contracts). Therefore, customers take long before making a final decision and, in some cases, it will require home visits before the deal is closed. This means that Comcast cannot simply add solar to its bundles. It will have to invest in training its sales force if it wants to sell solar services effectively. It won’t be easy, but if Comcast succeeds, it may signal a new era for energy.


For the First Time, Solar Surpasses Wind

— June 20, 2017

2016 was a record year for solar with 76.6 GW installed—50% year-over-year growth from the 51.2 GW installed the year before. This brings solar to over 300 GW installed globally, just after exceeding the 200 GW mark in 2015, according to SolarPower Europe. This is great news for the broader renewables industries and for anyone concerned about climate change. However, it may raise some concerns within the wind energy industry, which for many years has vastly exceeded the installation rates of solar.

Since wind installed 54.3 GW (cumulative wind capacity stands at 484 GW), 2016 marks a turning point: the first time solar has exceeded wind energy’s annual installation rates. Solar only recently has been considered a serious competitor to wind, as solar PV module prices have fallen and installation rates have skyrocketed. This has led some notable developers (such as US-based Pattern Energy and Tri Global) to diversify from wind into solar, and turbine manufacturers Gamesa (now Siemens Gamesa Renewable Energy [SGRE]) and Suzlon to diversify into solar. SGRE landed a deal to build 130 GW of solar projects in India using inverters manufactured by Gamesa from factory capacity previously intended only for wind turbine power converters. Pattern is involved in a number of solar projects, including its first solar foray with 120 MW in Chile.

Wind continues to attack costs. It has decreased its cost of energy by 66% over the past 7 years (while solar decreased 85%), and its higher capacity factor of around 40% versus solar means wind will continue to maintain an edge in total megawatt-hours produced with the same nameplate capacity as solar. However, there are some key detractions to wind power that can’t easily be overcome. Two major impediments stand out: resource constraints and aesthetic impact.

Resource Constraints

Wind power is increasingly cost competitive in areas where there are good wind resources. In the United States, for example, the clear majority of wind capacity is installed in the vast central interior corridor spanning through Texas, Kansas, Oklahoma, Colorado, Iowa, Nebraska, Iowa, Minnesota, and the Dakotas. The consistent, low turbulence wind makes new wind plants cheaper than fossil fuel generation in those parts of the country.

While some of those states boast significant populations, the majority of the US population is located along the coasts where much less wind power is being developed because the resources are not as good (except for offshore—an entirely different topic). Solar doesn’t have the same challenge, as areas with strong solar resources are more likely to be colocated with population centers.

The Aesthetic Challenge

Wind turbines have increased their efficiency by evolving taller towers and longer blades. While this results in fewer turbines needed at a given project, it still results in a major visual change to the horizon. There are many people around the world that do not welcome such obstructions. Solar is arguably less visually obtrusive, as it takes up space on roofs in the residential setting or large fields in commercial settings.

Wind development has largely plateaued and global installations above 50 GW are expected annually for the next 10 years. Whether solar will begin to consistently eclipse those figures as it maximizes its core strengths is the big question.

Best of Both Worlds?

Regardless, one factor that will help the two technologies remain (to some degree) complementary instead of direct competitors is the different and complementary resource profiles. In most parts of the world, sunny months tend to be less windy and windy months tend to be less sunny. Analysis by the Fraunhofer Institute of Germany’s grid shows greater value and system stability with both wind and solar operating versus only one of the two technologies operating.


Eclipsing Solar Generation: Lessons Learned from the 2015 European Eclipse

— June 8, 2017

The United States will experience a solar eclipse at 10 a.m. PST on August 21, 2017. This will be the first total solar eclipse in 26 years—and the first since the solar PV industry expanded and PV became a meaningful source of electricity in certain US markets (especially in the California Independent System Operator, or CAISO, territory). The eclipse’s route is expected to skirt the states with the most solar installations, influencing generation in states such as California and North Carolina.

Globally, this will be the second time a region faces this challenge. On March 20, 2015, a total solar eclipse passed through Northern Europe (and partially in the southern part of the continent) between 9:40 a.m. and 12:00 p.m. CET. My colleagues at Ecofys did a presentation at the time to explain the effects the eclipse could have on the German grid. Back then, Germany had a total generation capacity of about 190 GW, 39 GW (20.5%) of which were solar.

At the time, the Ecofys team projected that PV power generation could drop by up to 13 GW for more than 1 hour in Germany and by up to 34 GW across Europe for a few minutes. That would represent 2-3 times the magnitude of variation due to other natural events like sudden storms.

Projected Trajectories of the 2017 and 2024 Total Solar Eclipses

(Source: Xavier M. Jubier)

Prior Knowledge Maps the Way

The nature of solar resources means that the effects can vary significantly depending on the local weather. The day of the 2015 event had cloudier weather conditions than originally forecast, which led to a less severe reduction in PV generation. Those areas that did have clear skies were affected significantly, but European energy markets managed to cope. Some of lessons from the eclipse included:

  • The hourly day-ahead market was mostly unaffected by the eclipse. German transmission system operators (TSOs) successfully marketed the PV in a first step at the hourly market and in a second step at the quarter-hour market.
  • In case of high demand or supply, there is a de facto quarter-hour market (over-the-counter and power exchange) in Germany, Austria, and Switzerland that can provide significant contributions for intra-quarter-hourly compensation. This solution is a fine-tune balancing done by the TSO.
  • The quarter-hour market showed big spreads. A European coupling of quarter-hour markets should contribute to increased liquidity of the market and reduce these spreads. At the same time, the quarter-hour trading should be combined with the hourly market.

The main challenge is how to balance the power system against this dynamically changing generation backdrop. This requires flexibility in the power fleet and significant amounts of reserve control over a short period of time. To tackle this challenge, the European Network of Transmission System Operators for Electricity (ENTSO-E) put in place the framework below to reduce the effects of future eclipses that the US regional transmission organizations/independent system operators (RTOs/ISOs) can use as a guideline:

  • Develop a plan to disconnect part of the installed utility-scale PV generation in advance of the eclipse and establish the amount and timeframe for disconnection and reconnection.
  • Detail the steps necessary to reconnect PV systems to the grid.
  • Add backup generation and/or interconnectors to allow transfers to fulfill load in the absence of PV generation.
  • Establish a clear description of the installed PV capacity and its capabilities to improve the accuracy of forecast studies.
  • Enable real-time measurement of distributed PV generation so operational strategy can be adapted in real-time.

The Effect of the 2015 European Solar Eclipse in the German Market

(Source: Energy Charts)


Are Inverter Players and Data Loggers the Gatekeepers of Future Residential Solar Services?

— April 5, 2017

Inverter and data logger companies, the little cousins of the solar OEM world, are sometimes seen as playing a secondary role in the industry. The cost of inverters is usually a fraction of module costs and an even smaller fraction of the total installed cost of a residential solar installation. But their location in an installation—between the solar modules and the grid connection—gives their manufacturers an opportunity to play an important role in a distributed energy as a service world.

Who Owns the Client Relationship?

In my Solar as a Service (SOaaS) report, I argue that large SOaaS player like SolarCity, Sunrun, and Vivint Solar need to evolve their offerings to offer advanced energy services. Their hold on the client relationship gives them an advantage against external players offering this type of service. But despite grabbing most of the headlines in the solar industry, the truth is that there are only a handful of large SOaaS players. All of them are active in one market—the United States—and combined manage only between 50% and 60% of all distributed solar installations in the country.

Globally, there is simply no large installer or SOaaS provider with a significant hold on the market. This opens the question of who can own the client relationship in this fragmented world, especially for small installations.

Inverter and Data Logger OEM Providers

It is difficult to see small local installers investing heavily in this type of service, but their OEM providers could. While module manufacturers take the lion’s share of the hardware cost of an installation, their product is essentially dumb. On the other hand, inverter and data logger OEMs do offer relatively smart products.

Inverters and data loggers with monitoring software have been part of distributed solar installations since at least the late 2000s, when distributed solar gained popularity, and in virtually all installations after 2012. Data loggers (external or as part of inverters) and monitoring tools have been used by installers and inverter companies as differentiators in an otherwise very competitive market. While there aren’t any public figures on active users, there are some examples of the penetration in the market. SMA—a leading inverter OEM—has put its user figure at around 250,000 residential end users. Using an average of 5 kW per installation, each company is monitoring around 1,250 GW. Solar-Log has a similar number of data loggers in the field, providing monitoring and other services to around 11.6 GW of installed capacity (including large installations). Other inverter companies like SolarEdge and Enphase have also integrated monitoring services into small-scale products.

Most of the smart monitoring tools have been developed and run at a loss by inverter and data logger OEMs. By doing this, they have inserted themselves in the routines of solar installation owners, as the monitoring tools are the interface between the solar system and the installation owner.

Ideal Candidates

Monitoring tools can become the seed of more interesting energy services if the OEMs keep building the products offered through their tools. Most of them already allow for battery installations along with solar, and some companies are already adding ways to monitor loads and become home/building energy management tools. They could even open the platform to allow third-party service providers through an app store to add other services like generation forecasting, artificial intelligence-based load management, etc. The interface role that inverter and data logger OEMs play in solar installations, combined with their large user base, makes them ideal candidates to provide advanced energy services.


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