OPINION: Commercial solar matters

Close your eyes and picture a PV system. Chances are you either conjured up an image of desert sands covered with a sea of gleaming modules, or a pretty little house somewhere with panels on the rooftop.

Yet between these two ends of the spectrum is the hugely important — if less photogenic — commercial rooftop solar market, encompassing factories, malls, churches and hotels.

Non-residential solar has lost momentum in the US compared with other segments, going from the largest sector only a few years ago to the smallest in the first quarter of 2014.

Partly this shift is due to growth in other sectors; much of the incredible financial innovation in the US solar industry over the past year or so has happened in the residential rooftop sector. But other issues are specific to the non-residential sector.

Thankfully, some companies have not lost sight of the enormous potential the commercial rooftop sector still holds, and are taking steps to help the market regain its mojo.

A few years back, much of the US commercial market was tilted towards very large companies — Walmart, Apple, Ikea — that held the prospect of multi-installation deals.

As you would expect, nailing down such deals takes vastly longer than signing a solar lease or power-purchase agreement (PPA) with a homeowner. Big companies are more sophisticated than homeowners, not to mention more bureaucratic. It also takes a lot longer to design a PV system for a hotel than for a house. But the magnitude of such deals generally made the extra time and effort worthwhile.

The trouble is, a limited number of big companies in the US are interested in signing long-term PPAs for solar energy, says Ben Peters, director of solar finance and policy at California-based REC Solar (not to be confused with the identically named Singapore PV manufacturer). This year, his company sold its residential rooftop business to focus on the commercial sector.

“Trust me, all of those [big] companies have already been marketed to,” says Peters. “The ones that wanted to go solar already have.”

Much of the future opportunity, then, lies with smaller firms. But they present unique challenges.

One of the biggest is financing. Because solar systems require a lot of money upfront, competitive financing is the industry’s lifeblood. And the key to cheap financing is creditworthiness.

The financial wizardry seen recently in the residential rooftop sector has been made possible by the fact that nearly every American adult has a credit score, enabling high-credit homeowners to get good deals on PV systems. Likewise, financing commercial rooftop projects for huge companies — the Apples of the world — is no problem, given their obvious creditworthiness.

But most small and medium-sized companies have no credit score, being below the radar of the ratings agencies. That leaves solar installers having to pore over corporate financial information to determine whether a potential customer is a safe bet — a process that eats up time and leads to higher financing costs.

And companies, particularly big industrial firms, typically pay less for electricity than homeowners do, making solar a trickier value proposition. Companies also typically have a shorter time horizon than homeowners, many of whose rooftop PV systems will be producing electricity until the day they die.

But companies such as REC Solar are beginning to demolish many of the structural challenges for commercial solar — challenges that have become more glaring as other PV markets boomed.

The number of financing options available to commercial solar customers is beginning to multiply, in recognition that one size does not fit all. And the sector is taking pains to convince financial markets that some of the onerous credit-review demands are overly cautious.

Meanwhile, new technology is allowing the sector to streamline the sales, system design and installation processes, as it has done in the residential segment, dragging down costs and widening the market.

REC recently adopted new design software that allows it to toggle instantly through different design alternatives for a given PV system. Zep Solar, owned by SolarCity, has launched a mounting system that allows up to 50% more modules to be installed on a warehouse roof.

The commercial rooftop sector may never achieve the “one-call close” that salesmen at residential solar providers aspire to. But, Peters says, there is no reason it cannot winnow the sales process for big commercial projects from six to nine months to something like one or two months.

A PV system on a supermarket may not fire up the imagination in the same way as a sea of panels in the desert or a solar-powered smart home. But it is every bit as important to the energy transition.

Karl-Erik Stromsta is Recharge’s North America managing editor