The future of solar is bright. The Solar Energy Industries Association (SEIA) reported that the U.S. installed a total of 1,992 megawatts of solar photovoltaic panels in the first three quarters of 2012. This amount surpassed the entire annual volume of installations in 2011. While utility-scale and residential solar installations grew, one key area of growth has been in the nonresidential distributed generation market, which SEIA said showed an increase of 24% in the third quarter of 2012 over the prior quarter, with an even stronger outlook for the fourth quarter (SEIA/GTM Research, 2012).
The nonresidential commercial segment of the market includes government, education, commercial retail and institutional facilities. Growth in this segment is significant because it shows that midsize to large organizations are showing more interest in solar, indicating that the benefits of solar are becoming more apparent.
The nonresidential customer
Customers in this market segment are characterized as companies or institutions with more than 500 employees looking to install anywhere from 250 kilowatts to 20 megawatts. They are enterprises that understand the implications of unstable or rising energy prices for their business and, more often than not, are committed to sustainability as a matter of principle. With volatile and rising energy costs eating into profits and operating budgets, sharing an understanding of how solar power can offer stable, long-term financial savings and a steady return on investment is a key factor. These same companies and institutions also recognize the social benefits of pursuing sustainability initiatives.
But, even when the intention to go solar is strong, for many companies, unfortunately, the decision is still not an easy one. First, they are concerned about the complexity the transaction, including upfront investment costs. Additionally, programs like the highly regarded U.S. Department of Treasury's Section 1603 cash-grant program, which had simplified project financing and stimulated a good deal of investment in renewable energy, have recently expired, leaving many executives in charge of sustainability decisions uncertain about the financial benefits in the short term.
Financing and monetizing solar projects
Financing and monetizing solar assets may be considered the most difficult aspects of solar project development. The financial structures are complex and require experienced investment partners, notably those who can monetize tax credits and depreciation benefits. Furthermore, trying to arrange financing from different third-party investment partners for each project is a cumbersome and inefficient process. Financing, however, is not the only issue faced by customers seeking options in solar.
Maintaining reputation by choosing the right partners
Another consideration in a decision to go solar is being able to find strong and reliable partners. Solar projects include at least four steps: 1) project development, 2) project financing, 3) project construction and installation (engineering, procurement and construction (EPC) services) and commissioning, and 4) project operation and maintenance. Companies may offer services for one or two of these steps, but these often include smaller companies with small balance sheets and limited operating histories. Chief sustainability officers may be leery or unwilling to stake their reputations on a large project with unproven partners. Instead, having a one-stop end-to-end solution provider – from preliminary design to maintenance – with a strong reputation may give them the confidence they need to execute a project.
The customer receives the benefits
Major companies are already seeing benefits from consolidated solutions from a single company provider. One of our customers, Macerich, a major self-managed real-estate investment trust, recently commissioned an end-to-end solar solution that includes the delivery of over 10.5 megawatts of solar PV systems across 12 regional shopping centers operated by Macerich. Panasonic co-developed the projects, arranged a financing solution and will provide construction period financing, as well as all EPC services. After commissioning, Panasonic will also provide operations and maintenance support throughout the life of each system.
In this example, Macerich benefits as the new solar systems add more credibility to its robust sustainability program, which focuses on energy efficiency, water conservation, sustainable real estate development and redevelopment, waste management and environmentally friendly operational practices and procurement. In addition, the company stands to save money and generate a financial return. While the solar portfolio hedges the company against rising electricity prices, it also provides a platform to connect with customers and enhance Macerich's corporate image.
Another customer, Sonoma Raceway, formerly known as Infineon Raceway, installed solar panels in 2011 and upgraded its practices to focus on sustainability. The installed system included 1,652 solar panels that produce up to 353 kilowatts of energy, covering around 41% of the racetrack's overall electricity use. The raceway's sustainability measures have also led to both cash and non-cash benefits and rewards. In addition to saving money on electricity, the racetrack has now become a magnet for green activities and events in the area.
Providing the customer with a streamlined solution makes pursuing solar a simplified and more efficient process with fewer risks to the customer. By combining a single end-to-end solution with a reputable provider, the barriers that once impeded projects are removed, bringing more solar projects to light.
Jamie Evans is a Managing Director and Head of U.S. Eco Solutions at Panasonic. For more information, please visit http://www.panasonic.com/ecosolutions.
Kann, S., Mehta, S., Shiao, M.J., Krulewitz, A., Campbell, C., Burger, S., … Rumery, S. (2012). U.S. Solar Market Insight: Third Quarter 2012. GTM Research and SEIA.