Author Conor McKenna, Managing Director, Reznick Capital Markets
From here, the future of solar financing looks pretty good.
By: Conor McKenna, Reznick Capital Markets
It’s no secret that 2013 was a good year for solar. The industry saw record growth in 2013 — with an increase of 41% of installed capacity — making it the fastest growing renewable energy source and second only to natural gas.
The United States saw the installation of more than 4.5 GW of solar power and a fourth quarter that was its biggest ever. Rhone Resch, president and CEO of the Solar Energy Industry Association (SEIA), noted that in the last 18 months, more solar capacity has been installed than the previous 30 years combined.
It’s safe to say that solar has finally hit primetime, but it begs the question will the good times keep rolling? As we take a step back to look at some of the trends in solar, it’s clear that there are going to be some challenges ahead as the markets begin to mature. Along with those challenges, however, will come new opportunities and continued growth potential for the industry.
Relative stability and a longer horizon for federal tax policy have helped to lay solid foundations for solar investment. But the real accelerators have been the state programs. California has continued its dominance, but states like Massachusetts, North Carolina and Georgia are emblematic of new markets that have seen explosive growth.
These state programs are now becoming victims of their own success in that a number of them have already reached or surpassed their preliminary goals. For example, Massachusetts has already exceeded its stated goal of 250 MW four years ahead of schedule. As a result, Governor Deval Patrick increased the goal to 1,600 MW, but the incentive program could change significantly as state regulators finalize new regulations related to the change.
As state RPSs are reaching their goals, two countercurrents have emerged in the debate. The first is from utilities who charge customers for transmission and distribution based on volumetric tariffs. Utilities argue that customers with solar energy systems are not paying their fair share for transmission and distribution, and are essentially “free riders” on the grid. Solar advocates argue that this is counterbalanced by the broader system benefits of reduced transmission and generation requirements as well as increased peak shaving capacity. However, as evidenced by Arizona’s implementation of a minimum distribution charge, regulators are beginning to listen to the utilities.
Photo by Stephen Chernin/Getty Images
The other oppositional argument is coming from large energy consumers, rate payer advocates and pro-business trade associations who argue that state solar programs are expensive and driving up energy costs. Solar supporters point out not only the broader system benefits, but also the substantial economic benefits of a growing solar energy industry.
Another important trend has contributed to the growth of solar is declining costs. We have seen some interesting developments — both encouraging and troubling. Soft costs will likely continue to decline as new and more efficient approaches to financing and risk management continue to develop. The more solar becomes a known commodity the more likely we are to see efficiencies in these areas. This will make financing easier.
Declining hard costs have been another success for the industry — but will this trend continue? It is likely that we will continue to see price efficiencies for many system components, as better design and manufacturing approaches drive down costs for racking systems, inverters and other system components.
While 2015 looks to be another good year for solar, there are several variables we need to watch that could have significant long-term effects on the industry on the financing side.
Despite these developing issues, 41% growth is an impressive number, and many industries would be happy with one quarter of that growth. As Yogi Berra might say, “The future ain’t what it used to be.” But from where we are standing, it still looks pretty good.
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