It’s the beginning of 2017, and the solar market already looks a lot different than it did just one year ago. Last year, the extension of the investment tax credit (ITC) pushed the residential solar market to new heights, marking Q3 of 2016 the US solar market’s biggest quarter in history. Adding more than 4GW of capacity, growth reached nearly 200% from Q3 of 2015. Now, residential solar installations are slowing down partly due to net metering battles in multiple states, and investors are looking to the commercial sector to foster the continued growth of the solar market. With strong corporate support, limited dependence on state incentives and infrastructure availability, the time for growth in commercial solar is now.
Policy debates stall residential installations
The residential solar sector is stagnating with installations expected to grow only 0.3 % in 2017 – compared to 21% growth in 2016. One of the main causes is utilities pushing back against mandates to buy electricity, causing fierce net metering policy debates in many states. The attacks on net metering programs in Nevada and Florida this past year are examples of the intense pressure utilities are feeling to ensure grid stability and remain profitable. The rapid solar growth in Q3 triggered 117 policy actions, with the most common being fixed charge increases – 44 utilities in 25 states were involved in proposing a fee hike of at least 10 percent. Solar policy debates are set to continue, with net metering decisions in Massachusetts and New Hampshire in the pipeline.
Commercial sector gains traction
As the residential sector deals with growing pains, the commercial solar sector gains traction. Major US corporations – including Target, Walmart and Apple – have installed nearly 1,100 megawatts (MW) of solar capacity as of October 2016. With nearly half of Fortune 500 and 60% of Fortune 100 companies setting aggressive sustainability goals, corporations are leading the charge for the growth of the commercial solar sector. Contributing to this upward trend is the fact that most commercial solar properties use their energy at the time of generation. This means that corporations have less dependence on the outcomes of net metering policy debates than the residential sector because they don’t have to worry about selling excess power back to the grid. However, challenges remain for small- to mid-sized commercial properties interested in following the lead of these big box stores but do not have capital as readily available as these larger players. Innovative financing solutions are unlocking capital for smaller companies to contribute to the growth of the commercial solar market, too.
The small- to mid-sized commercial solar market has huge potential for growth. The Northeast alone offers an attractive $67.5 billion opportunity for commercial solar installations because of three key market conditions: available roof space, high electricity prices and state incentive programs. Smaller companies are not taking advantage of this incredible opportunity because they lack access to the capital needed to set these solar installations in motion. The infrastructure is there, with many companies ready, willing and able to install, and market conditions are favorable, but developers need the know-how and innovative financing solutions to successfully sell solar to commercial customers.
Complicated financing options
The cumbersome development process has also derailed many potential commercial and industrial projects. The current process of finding funding is complicated, costly and time-consuming. Streamlining the application process through automation and standardizing documentation are two simple ways to increase the flow of capital to the commercial market and ensure transparency and clarity between all parties involved. 2016 brought many solar financing solutions to market that cut transaction costs along with the time it takes to close a loan. These innovations, complemented by an increase in commercial solar financing education, will create the perfect environment for commercial solar to grow in 2017.
A lot still remains unclear in our current political climate; however, we’re going to remain bullish about the state of solar. 2017 is going to be the year that drives commercial solar growth, and we believe that access to the untapped small- to mid-sized commercial market will bring it over the edge.
Written by Graham Smith, CEO of Open Energy