Say “residential solar” and people immediately think Solar City. That company, along with Vivint Solar and Sunrun, comprises 50 percent of the residential market. The commercial side of the solar industry, in contrast, has lacked a clear winner, with the top 10 developers making up only 42 percent of the market, according to the recent GTM Research report, US Commercial Solar Landscape 2016-2020.
There are many reasons for this discrepancy between the commercial and residential solar markets. Two of the biggest? Time and money, according to Nicole Litvak, GTM Research’s Senior Solar Analyst.
Whereas residential solar developers like Sunrun and Vivint Solar can sign up customers almost instantly, it can take months or even years on the commercial side. Bottlenecks in the customer origination process make it difficult for a commercial solar company to break out of the pack.
In addition, while there is a standard application process on the residential solar side, the commercial solar side requires customized contracts for each customer.
According to Litvak, financing is another issue, with commercial solar developers needing to join forces with another company or sell to another developer who has access to funding.
Commercial solar developers on the regional level have been more successful than their national counterparts, due to an understanding of local markets and regulations. But their own funding challenges have prevented them from catching up with the residential solar market.
So, clearly, there are challenges to deal with in expanding the U.S. commercial solar market. On a more positive note, the GTM report expects this market segment to increase 30% in 2016 to over 1.3 GW, and to 3 GW annually in 2020.
Litvak points to four factors fueling that growth:
- the extension of the federal solar Investment Tax Credit;
- the growing trend of direct corporate purchases of renewable energy by major U.S. corporations, such as Amazon, Google and Facebook;
- increasing access to capital to finance small commercial systems; and
- an increasing market for community solar
Of the four, Litvak singles out direct corporate purchasers as the biggest driver of the commercial market’s growth in coming years.
As the January 2016 Ceres and Bloomberg New Energy Finance report, “Mapping the Gap: The Road from Paris, laid out: “As clean energy continues to scale, the industry will expand the variety of equity and debt sources it taps.” Right now, large direct corporate purchasers like Google and Amazon, with great access to capital and high credit ratings, are facilitating the financing process and reducing the time from origination to signing and installation.
And signing a Fortune 500 company means signing up one large customer with multiple locations, rather than the time- and labor-intensive process of signing up multiple small companies over a period of months or years.
“As the worldwide agreement that came out of the Paris climate talks showed us, companies in the U.S. and globally want to make greater use of renewable energy to limit the rise in temperatures driving climate change, and because doing so makes good business sense,” says Tigercomm’s executive vice president, Mark Sokolove. “In this expanding market, competition is expected to heat up, but financing challenges remain. As these obstacles are overcome and the market grows, brand differentiation and partnerships will become increasingly important for players in various parts of the commercial solar value chain.”
