GTM Research’s Cory Honeyman illuminates the issues that are
keeping solar executives up at night.
The following is an excerpt from GTM Research's latest U.S.
Solar Market Insight report.
While 2016 is expected to eclipse the 10-gigawatt annual
mark for the first time ever, and by a wide margin, three trends are expected
to shape the near-term U.S. solar market outlook. Looking ahead to 2017, each
of these trends raises challenging questions that will shape to the extent to
which utility, non-residential, and residential solar will grow (or fall) over
the next few years.
Despite dirt-cheap PPA pricing, the utility PV segment is
struggling to reboot procurement
Despite PPA pricing consistently ranging between $35 and $60
per megawatt-hour, the uptick in new utility offtakers has only partly
countered the demand rollback from utilities that over-procured in the past
couple of years. Most notably, California’s investor-owned utilities have
already procured enough renewables to meet their RPS obligations through the
end of this decade.
In turn, new development has increasingly focused on
distinct sub-segments, for example, utilities with viable contracts offered via
the Public Utility Regulatory Policies Act (PURPA). Another segment to watch is
retail customers seeking offsite wholesale PPAs. Corporate customers have
already procured more than 1.5 gigawatts (DC) of offsite wholesale solar for
post-2016 installation dates. And in California, community-choice aggregation
is gaining momentum, with an addressable market of more than 3 gigawatts (DC)
through 2020 based on current and announced CCA programs.
Commercial solar's still struggling to scale onsite
development, so demand is pivoting to offsite solutions
*Offsite includes community solar, virtual NEM, and offsite wholesale projects.
Since offsite wholesale projects sell power directly into a wholesale
electricity market, or to a utility and which then resells it via a green
tariff, the percentages calculated in this figure include installations
classified as utility PV.
As mentioned, large corporate customers have ramped up
procurement of offsite wholesale solar projects, which are currently accounted
for in the utility PV segment. This demand has largely come from Fortune 500
customers with large industrial loads or aggressive, near-term renewable energy
procurement targets. By year’s end, GTM Research expects more than 800
megawatts (DC) of offsite wholesale solar to come on-line, growing fourfold
over 2015.
On top of that, investment-grade commercial and municipal
customers continue to serve as anchor subscribers to most community solar
installations. Altogether, community solar is expected to add more than 200
megawatts (DC) on an annual basis in 2016, growing fourfold over last year. In
turn, for the first time ever, more than half of annual solar PV capacity
involving non-residential customers will come from offsite projects (i.e., virtual
NEM, community solar and wholesale solar).
However, onsite development is expected to resume its
position as the primary driver of development, given demand pull-in for offsite
wholesale PPAs prior to the federal ITC extension. In the long term, large
corporate customers’ demand for solar-plus-storage versus offsite wholesale
PPAs will play a critical role in shaping the breakdown between onsite and
offsite development.
As customer adoption ramps up in major state markets, it’s
becoming harder and costlier to scale residential solar
In a number of major state markets, residential solar growth
rates are slowing down. The reasons behind this slowdown all center on one
question: How does residential solar scale when early-adopter customers begin
to deplete?
Most notably, this question is being tested in residential
solar’s largest state market, California. Conversations with installers confirm
that it’s becoming harder and costlier to land new leads and to convert those
leads into sales. As the funnel of early-adopter leads reduces, three trends
within the competitive landscape compound this market fundamentals challenge.
First, a phenomenon termed “customer fatigue” has come up as
a challenge in neighborhoods where homeowners are flooded with door-to-door
sales pitches. Second, demand for cash sales and loans over leases and PPAs has
picked up more quickly than expected, and portions of the installer landscape are
still playing catchup in serving this change in demand. Third, publicly traded
residential solar companies have struggled to continue growing while
simultaneously seeking to become profitable.
To be clear, GTM Research does not expect all of the above
trends to be permanent problems; rather, they are signs of a segment figuring
out how to grow in a maturing customer environment. Over the remainder of this
decade, continued cost reductions will position nearly all states in the U.S.
to move past grid parity for residential solar under current policy conditions.
But scaling that demand in major and emerging state markets will not only hinge
on the policy outlook (i.e., NEM and rate reform outcomes). Equally important,
a reboot in growth rates will rely on evolving sales strategies that lower the
cost of customer acquisition, and continued proliferation of consumer loans to
serve the change in customer demand.
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