There are now more than 100 gigawatts of global annual demand for new solar installations, which represent 15x market growth over the last ten years. In the past two years, solar has become cost competitive to other forms of generation, which has made it the predominant choice for new power plants in the United States, even in natural gas strongholds. According to Wood MacKenzie, solar has grown immensely for the residential and utility segments of the U.S. market. Compared to 5 years ago, the annual U.S. residential and utility markets are about 3x and 4x larger, respectively. However, the commercial onsite market is only 1.5x larger with significant year-over-year volatility.
Many reasons exist for the historically slower onsite commercial market where economy of scale has proven difficult to achieve. Company CFOs think about the value of solar differently and prefer to use their own legal form and associated terms. Designs are not easily repeatable since rooftops, even from companies with multiple sites, often differ. Steady financing is scarce as banks seek larger deals associated with standalone utility projects or pooled cookie-cutter residential deals. The U.S. commercial real estate market is also dominated by leased facilities, with leases shorter than some power purchase agreement (PPA) terms. Although it is encouraging that many major corporations have committed to powering 100 percent of operations with renewables, many targets can be met by off-site solar farm PPAs. Policy differs by stateand has been fragmented, though in recent years policies have gradually trended toward a more uniformly positive approach, with new states modeling programs after successes of early adopters. Due to a few recent transitions in the solar industry, onsite commercial rooftop projects are becoming more viable.
"Solar panels are also becoming smarter and optimized for performance"
The first transition is in the foundation of the technology- from polycrsytalline (poly) to monocrystalline (mono) cells. Although early solar cells were high-efficiency mono, the single crystal structure made monocells expensive and difficult to produce. As the solar industry grew, poly became preferred due to low cost and ease of production. However, in the last two years, new advances in mono processing have resulted in efficiency gains at lower cost. In addition, manufacturers have enhanced mono with PERC (passivated emitter rear contact). This technology, which several manufacturers have recently deployed at scale, allows for more light absorption in the cell and makes mono PERC the most powerful choice. To further enhance power, manufacturers have sliced individual cells in half with a high-precision laser, which reduces internal resistance and increases power. The same size panel can now produce more power using half-cell mono PERC. This transition means generating more power on the same rooftop, quickening return on investment.
Solar panels are also becoming smarter and optimized for performance. In a regular panel, minor shade from environmental debris can negatively impact panel performance since the cells are in series. These days, manufacturers including JinkoSolar have embedded tiny optimizer chips into the architecture of the solar panel. These optimizers, developed by Silicon Valley based Maxim Integrated, Inc., instruct subgroups of cells to perform even in the presence of shade, which improves panel effectiveness and reduces lifetime maintenance costs. Another optimization includes a recent option superior to fixed tilt racks and more commonly seen in ground installations, which use heavy-duty trackers that help panels track the sun’s position. These trackers, first developed by PV Booster and co-marketed by JinkoSolar, have now been miniaturized to sit on a roof, so a whole system of mini trackers can track the sun. An Energy Tool base study shows that these trackers result in 30% more energy harvest overall and 56% more energy harvest during time-of-use peak rates. The additional performance with use of these technologies makes onsite commercial solar more profitable.
Commercial projects are also now more desirable with the integration of solar and battery storage, whose costs have decreased 40 percent over the last five years due to the emergence of electric vehicles. In many regions, utilities have high demand charges for electricity use in peak hours. Batteries that release stored electricity into peak hours reduce utility demand charges and help the utilities better manage load. Very recent state programs like Massachusetts SMART recognize the value of solar plus storage and offer financial incentives for these projects. In addition, onsite solar plus storage offers resiliency in the face of power interruptions from storms and uncontrollable events. The value of uninterrupted operations during a power outage is quantifiable for many companies, particularly manufacturers.
Finally, doing onsite commercial solar is now easier with recent financing offerings. One new financing is PACE (property assessed clean energy). Available in specific states, PACE is a loan owners repay through an addition to their property tax bill. Interest rates tend to be lower because of the high security attached to payment of the property tax bill. PACE reduces electricity costs for tenants and can thus help owners increase rent and attract high-quality tenants. Prominent commercial PACE providers include Ygrene and CleanFund. There is also an investor with a program named the Solar Power Fund, with readily accessible capital and strong tax appetite now targeting small and medium size projects for both for-profit and non-profit customers. Western and northeastern markets are ideal due to good incentives and high electricity rates. The Solar Power Fund is successful because it is tailored to commercial projects, rather than using metrics from other segments to define success. The Solar Power Fund offers 20-year PPAs at competitive rates, with attractive buyouts during the agreement; otherwise, the fund owns, operates, and maintains the systems for the term.