Navigant Research Blog

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

Dexter Gauntlett — 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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