Despite the looming expiration of the federal income tax credit, the solar industry is booming, with utility-scale solar growing rapidly, and residential solar on the rise. But in between those two poles there's a largely untapped sweet spot: the small-commercial solar market. This sector is still largely unrealized, despite wide open potential for growth. By expanding into this market, there's significant opportunity to differentiate yourself from your competitors and grow your business.
Because this sector is largely unexplored, it might seem daunting to jump right in. Though small commercial development is similar to both utility-scale and residential solar, it is in a lot of ways a different beast, with its own set of challenges (and opportunities) to tackle. It's not just a question of going out and installing your first small commercial project--you need to consider financing options, project design and standardization, installation efficiency and affordability, reducing soft costs, and all the little details that bring them together in order to make your first project a success.
Luckily, there are experts in the field who know what it takes, and are willing to share some of their experience and insight to help you take the next step into the small commercial sector. We asked them three questions about small commercial solar--check out their thoughts below!
What are the biggest challenges you see in small commercial solar development?
Doug MacDonald, Project Engineer at AllEarth Renewables: Permitting challenges, which are defined by the state along with interconnection costs where there are too many requirements for additional protection or upgrades, ie. reclosers, scada requirements, reconductoring lines. Smaller projects will generally not require additional protection, and larger projects generally have the dollars to absorb the costs associated with costly line extensions or protection/interconnection upgrades.
Chris Fraga, Founder/CEO of SolarSense: The biggest challenges we see in the small C&I development space are:
1) The total soft costs, contracting costs, and financing costs, when done properly for due diligence and risk mitigation, are relatively high on a cost per watt basis. This puts pressure on both the EPC's install cost per watt, and on the customers' savings on small projects.
2) Thoroughly vetting host customer off-takers as financeable. A quick litmus test is: would you invest your personal, hard earned retirement savings in the company/entity? If the answer is no, astute financiers will not buy or invest in the solar project with them. The host-customer has to have a solid story: A strong operational track record with a mission/business model that is sustainable; Profitable (if for profit, or show stable "revenue" if a not for profit); And must have (3) three years of standard financial statements and tax returns indicative of a well run entity. Too many small C&I deals just don't fit the bill. Why would an investor invest in a project that you yourself would not touch?
Josh Baston, Project Supervisor at Revision Energy: The biggest challenges I see are getting clients to look beyond a 3-4 year ROI and see the value of reining in their energy costs. This is especially true in a state like Maine [where Revision Energy is located] where incentives are limited and long term relationship building is crucial to selling jobs.
Can you give an example of an interesting challenge you faced in a small commercial solar project (either development or installation)?
DM: To feed into the last question, a utility that wanted a small 150kW project to pay for a recloser and SCADA system that would have amounted to $75-100k of additional interconnection charges. The project was never built based on the high cost of interconnection. Other challenges would include building around wetlands, in forested areas, on prison grounds, long, single phase interconnections into fields.
CF: From a creativity / development perspective, we look at each project as unique in terms of how the design of the solar system produces maximum revenue (kWh PPA revenue and incentive revenue) to be financial optimized, versus, how many watts can fit on a rooftop. We have seen projects that just don't work based on designs that are not optimal to make the financial hurdles work for the investor, and the savings goals work for the host customer. As an example, one project we were introduced to in the mid-Atlantic was label non-financeable when we entered the picture. We salvaged the deal by re-designing the system to add 45% more kW capacity while increasing the kWh per kW yield by 21% based on product selection, racking design, and tilt, lowering the effective cost per watt fully developed, and increasing the project IRR based on enhanced kWh output per physical kW. But for these changes, the project was un-financeable. We implemented the changes, developed and constructed the system, and financed/own the project with what is now a reference-able customer.
JB: One challenge which comes to mind involves siting of six AllEarth Solar Trackers at Maine Audubon. The originally proposed install location in a secluded field fell apart at the last minute due to a no structures clause in a conservation easement on the land. We could have let the project fall apart at this point since it had been over a year of work to get everyone on board with this location. We persevered and it took almost another year to come to a consensus on a new and much more prominent location. Through this new location the project became much more meaningful both to the mission of Maine Audubon and of ReVision Energy when it was completed over two years after talks first began.
What do you see as the future of small commercial solar, and what are the untapped opportunities in this sector?
DM: I think, based on the continuation of the ITC at 10%, small commercial will be a strong market in the coming years. Many installers who have concentrated in the residential market will be moving towards the small commercial market to benefit from the ITC. Regarding untapped opportunities, I would say that this really depends on state net metering policy and how the financials models work. Lowering installation and design costs, permitting costs and having the energy valued slightly higher than the market rate will all help make these projects viable.
CF: Forgive the pun - but the future of small C&I solar is indeed bright. We are seeing a tremendous amount of innovation in the financing side that is driving down the ability and cost to underwrite projects with more scale. With the cost of capital (currently) at historic lows, with the fully installed cost of solar project declining, and with available federal and state incentives, the sector is ripe for exponential growth.
JB: I see nothing but growth in small commercial solar as financing opportunities become more available and small businesses see their carbon footprint (or lack thereof) as an opportunity to grow their business and showcase their role in a sustainable local economy.
Want to learn more about small commercial solar and find out how to grow your business in this untapped sector? Watch a recording of our webinar on Small Commercial Solar: How to Grow Your Business With This Untapped Sector.