This is an excerpt from the March 2018 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.
With an average annual growth rate of 59% over the last decade according to SEIA, the U.S. solar market has begun to establish itself as a lasting market. Despite trends of overall growth, different states have varying levels of maturity. There are early mover markets like New Jersey, Massachusetts, and California which were quick to put in place renewable energy standards and incentives to encourage the deployment of solar. Many of these early-mover states have become more saturated with solar development (and companies), and their customer base has become more sophisticated.
There is another subset of states, aside from the established. They are the new and emerging markets. As solar costs have continued to decrease and compete with other fuel sources, more states are beginning to adopt legislation to promote the technology. For example, Illinois will soon become a top market with the passage of the Future Energy Jobs Act. Illinois is accompanied by other states like Minnesota with its community solar program leading the way and New York with its updated Megawatt Block program.
While prospective solar customers in established markets have precedent, resources, or even peers to call for advice about pursuing solar, those in new markets may not have as many references to turn to when deciding whether or not to go solar. Regardless, whether a market is mature or in its early days, education is still necessary for ensuring potential customers understand their investment options. We’re here to give a crash course.
Solar 101 – Solar Is Not Expensive
Many myths exist about going solar (remember when a North Carolina resident was quoted saying that solar would take up the sun needed to grow crops?). A little research busts most solar myths, but one remains persistent each time a new market opens and customers are approached for the first time. “Solar is expensive and requires a large upfront deployment of capital.”
This isn’t true. First off, the price of solar has been continuously decreasing. According to SunShot, from 2010-2017, modeled system prices fell 15–26% per year. In addition to decreasing prices, there are also several options available to customers looking to bring solar into their day-to-day electricity production that don’t require a large amount of money upfront. Cash deals – or buying a system outright - are an option, but customers also have the option to sign power purchase agreements or site leases.
With the latter two options, customers can commit to clean energy without a large upfront capital expenditure. With a power purchase agreement (PPA), customers have the option to lock into a stable electricity purchase price for a solar facility’s production over a term as long as 25 years; the rate one pays for solar is often lower than the existing electricity bill. This can be done for facilities both on the customer’s property itself (i.e. on the roof, on vacant land, or over a parking lot as a canopy structure), or offsite on another piece of land. Leases work similarly, but rather than paying for the electricity, the customer is paid a set amount for the use of their space to build a solar facility. This is a model we are seeing more in states like Massachusetts, where the new Solar Massachusetts Renewable Tariff program allows developers to sell energy from a project directly to the local utility while offering a site lease to the customer. For a refresher on whether a system purchase or third-party financing arrangement is best for you, check out an earlier edition of SOURCE where we compare the pros and cons of each.
Solar 201 – Is Going Local Always Best?
In looking at who can bring a project to fruition, customers should consider several factors when looking at developers to ensure that the project will actually be built. The strength of the engineering team, financing capabilities, past track record, and overall reputation should all be considered.
In emerging markets, local players may be newer with less experience, while an out-of-state player may have a lot of experience and proven track record. For projects in emerging solar markets, perhaps consider working with an out-of-state company as they may be the best fit to seeing your project through. There is also space to do work with both regional and non-regional parties through working with local installers and perhaps more sophisticated, non-regional financiers. In either case, always consider the counterparty’s execution capability, and we suggest buyers request a summary of any and all projects that weren’t completed.
Solar 301 – Do You Know as Much as You Think?
Established markets have their own set of challenges regarding customer knowledge base. With these markets, as mentioned earlier, the potential customer is likely more sophisticated in their base knowledge of their state’s market. (For example, in Massachusetts you can be driving around, and you’ll sometimes see an ad for a solar installation company. How often does that happen in other states?) If these mature-market customers haven’t already adopted solar, they likely have at least been pitched solar and have some expectations in their head about the financials. If these were pitches were made in the earlier days of a solar program expectations may be unrealistic. Often as programs mature, solar incentives decline as the technology becomes more cost competitive. This can lead to expectations that are based on earlier, higher incentives that are currently unrealistic. Unfortunately, there is also high competition in these states, which can mean a race to the bottom in terms of earlier-quoted pricing that also set sets an unrealistic expectation for customers involved.
As markets become saturated, customers need to keep this in mind. Incentive structures do change. Several states have seen changes to their markets recently. New Jersey and Pennsylvania have seen potential changes to their renewable portfolio standard and Massachusetts is transitioning to its Solar Massachusetts Renewable Target Program (SMART). Shifting state policy is important for customers to be aware of and can either make previous numbers quoted too low or too high if policy became more favorable. What incentives exist and what they look like are key things for a potential solar customer to be aware of regarding their investment and ability to identify realistic numbers.
Similarly, as programs become more saturated so does the grid. As more solar comes onto the grid, more enhancements need to be made and this can lead to a different outcome than a customer’s original price expectations. Sometimes the costs for necessary interconnection upgrades can fall on the project and increase the price of an investment.
Always do your Homework
Whether you are a potential solar customer in a market that is new to solar or where solar has an established presence, always do your homework. State governments that oversee the programs are a good place to start in terms of knowing what incentives exist and what your options are. There are also databases out there like DSIRE which help aggregate information on incentives available or non-profits like Solar United Neighbors to help potential customers navigate the choice to go solar. In all markets, it is important to find a developer partner you trust to answer your questions. Whatever stage market you are in, we're happy to help guide you through the process. You can contact us at info@solsystems.com.
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Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last nine years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.