U.S. Solar Market Outlook - SunSpec...

U.S. Solar Market Outlook

Market Drivers and Competitive Landscape Trends Shaping U.S. Solar Demand

Cory Honeyman

Associate Director, U.S. Solar

[email protected]

July 2016

1 Honeyman - GTM Research

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Honeyman - GTM Research

U.S. Solar: Growing By Impressive Strides


Fifteen years of growth, and this decade U.S. solar has reached new heights…

4 11 23 45 58 79 105 160 298 385

852

1,925

3,372

4,761

6,247

7,451

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

PV

Inst

alla

tio

ns

(MW

dc)

Residential Non-Residential Utility

95% of U.S. solar PV installations have come online this decade

Source: GTM Research/SEIA U.S. Solar Market Insight


Solar ranked as the 2nd largest source of electric generating capacity additions in 2015

24%

4%

36%

32%

4%

39%

29.6% 28.6%

0.01% 3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Wind Solar Natural Gas Coal Other

Shar

e o

f N

ew C

apac

ity

(%)

2010 2015

In 2015, solar added more generating capacity than natural gas on annual basis for the first time ever



Module prices have dropped ~80% over the past

decade

Heading into 2016, cost reduction efforts continue to

expand beyond the module…

• Rooftop solar: Focus is on reducing soft costs

◦ Soft costs, including customer acquisition, accounted

for 60% of average installed costs in 2015

• Utility scale solar: Focus is on reducing remaining

hardware costs

◦ The cost of inverters and remaining balance-of-

systems is collectively expected to drop at a faster

rate than the cost of modules between now and the

end of this decade

Steep cost reductions underpin U.S. solar market’s growth over the last decade

$3.65

$1.99

$0.68

$8.50

$6.71

$3.33

$6.20

$3.58

$1.36

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

2007 2008 2009 2010 2011 2012 2013 2014 2015

Ave

rage

Inst

alle

d C

ost

($

/Wat

t D

C)

Module Price ($/W)5 kW Rooftop PV: Average All-In Price Per Watt10 MW Utility Scale PV: Average All-In Price Per Watt


90% 89%

83% 84%

59%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2011 2012 2013 2014 2015

RP

S Driven

Installatio

ns (%

)

An

nu

al P

V In

stal

lati

on

s (M

Wd

c)

Utility Scale PV Installations (MWdc)

0

100

200

300

400

500

600

700

Q12011

Q42011

Q32012

Q22013

Q12014

Q42014

Q32015

PV

Inst

alla

tio

ns

(MW

dc)

Residential Non-Residential

State level drivers reveal distinct growth narratives across each market segment

As state incentive programs in major state markets declined, residential solar continued to grow while non-residential solar stalled.

Source: GTM Research/SEIA, U.S. Solar Market Insight

Utility Scale PV: Demand Emerging Beyond Renewable Portfolio Standards

Source: GTM Research/SEIA, U.S. Solar Market Insight

Distributed PV: Growth and Growing Pains Amidst State Incentive Downturns


What does the future hold for U.S. solar?

In a market where the 30% federal Investment Tax Credit has now

been extended…


Underneath the ITC extension, state level drivers

and risks move to the forefront

Utility scale solar:

• Majority of capacity additions will come from projects

procured outside of Renewable Portfolio Standard

obligations

Non-residential solar:

• Demand is emerging beyond rooftop solar solutions to

broader integrated energy management offerings

Residential solar:

• Growth amidst regional installers outpacing national

rooftop solar companies and an evolution in net

metering debates beyond fixed charges

Federal ITC Extension: Expected to spur $30 billion of additional investment through 2020

$43.3

$12.1

$26.5

$49.4

$15.2

$48.9

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

Residential PV Non-ResidentialPV

Utility PV

Tota

l Inv

estm

ent

($B

)

ITC Stepdown Scenario ITC Extension Scenario

Source: GTM Research


Utility Scale Solar Market Outlook

Emerging Beyond Renewable Portfolio Standards


10.6

12.1 12.6 11.7

12.5 13.5

14.5 14.3 14.9

16.6

18.7

20.1

21.5

8

10

12

14

16

18

20

22

Cap

acit

y (G

Wd

c)

44% Increase

Utility-Scale Solar Has Been On A Roll

Contracted Pipeline Growth (GWdc)

Source: GTM Research U.S. Utility PV Tracker


Dirt cheap solar PPA prices expand why and where utility scale PV is now being procured

$0

$25

$50

$75

$100

$125

$150

$175

$200

2008 2009 2010 2011 2012 2013 2014 2015

PPA

Pri

ce (

$/M

Wh

)

PPA Contract Execution Date

Source: U.S. Utility PV Market Tracker

Centralized PV PPA Prices by Contract Execution Date

Competitive PPA prices are being signed anywhere between $35 and $60/MWh


Voluntary Procurement – Utilities are voluntarily procuring

utility PV as an economically competitive resource to meet

peak power needs and replace aging coal fleets.

PURPA (Public Utility Regulatory Policies Act) – Federal

legislation that requires utilities to purchase power at or

below the cost of building new generating resources or

procuring power on the wholesale electricity market.

Offsite Corporate Procurement – A growing portion of the

non-RPS project pipeline stems from corporations

leveraging green tariffs, direct access legislation, or

synthetic PPA contracts. Such virtual or physical PPAs all

aim to offer corporates a hedge against natural gas price

volatility.

Utility PV Project Pipeline: Tapping into Emerging Market Drivers

50%

50%

22%

16% 12%

RPS Driven

VoluntaryProcurement

PURPAQualified Facilities

Offsite Corporate

Non RPS Driven


U.S. Utility PV Pipeline: RPS vs Non-RPS Driven Pipeline


Growth in utility PV stems from a crowded developer landscape

Develop and

Own

Pure Play Developer

Equipment

Supplier

Utility Affiliate Internal EPC



Project M&A outlook in utility scale solar will be increasingly

driven by unregulated IPP arms of utility holding companies

• To date: Majority of utility affiliate IPPs have bought projects

outside service territories of their counterpart regulated utility

arms

• The Southern Company Strategy: Pair its regulated utilities’ non-

RPS procurement of large scale solar with aggressive acquisition

of winning bids by unregulated IPP arm, Southern Power

Long Term Outlook: Regulated utility ownership of large scale solar

• Precedent setter in Virginia?...

◦ June 2016: Dominion’s Virginia Electric Power Co. received

approval to rate base ownership of large scale solar and

monetize the federal ITC benefits immediately, rather than

monetize over useful life of system

Unregulated IPP Arms of Utility Holding Companies: Leading Driver of Project M&A

7,353

1,588

934

4,700

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Uti

lity

PV

Op

erat

ing

Cap

acit

y (M

Wd

c)

Utility Holding Company:Unregulated IPP Affiliates

Utility Holding Company:YieldCo Affiliates

Utility Holding Company:Regulated Utility Affiliates

Non-Utility YieldCos and Other IPPs


Commercial customer demand is expanding beyond rooftop solar…


Across all project sizes, non-residential solar is struggling to scale amidst incentive volatility

0

100

200

300

400

500

600

<500 kW 500-1000 kW 1 MW+

An

nu

al P

V In

stal

lati

on

s (M

Wd

c)

2010 2011 2012 2013 2014 2015

Sub 1 MW development in particular is struggling to scale


1. When state incentive funding falls, rate design

exposes weak commercial solar economics

2. Customer sited solar is not always the best fit or

for medium and large commercial customers

4 Major Reasons Behind Non-Residential Solar’s Struggles

3. Project finance bottlenecks remain, especially for

small commercial customers

4. Customer origination remains time consuming

and complicated


Most notably due to weak state incentives and customer

origination bottlenecks, no single developer or group of

leading developers has a significant lead.

Landscape: Largely driven by regional installers…but why?

• Commercial customer acquisition requires deep

knowledge of the local market.

• National developers have had more success originating

large portfolios for large Fortune 1000 customers.

◦ But the long timeline associated with the

development of these projects has prohibited those

developers from scaling any more quickly than local

companies developing one project at a time.

The Result: A Fragmented, Regionalized Commercial Market

14%

7%

5%

4%

3% 2%

2% 2% 2% 1%

58%

SolarCity

SunPower

Borrego SolarSystems

SunEdison

GreenskiesRenewable Energy

All Others

Source: GTM Research, U.S. PV Leaderboard

Leading Non-Residential Installers, 2015


Offsite Corporate Solar Market: Set to take off in 2016

Offsite C&I Solar Market: Installations through 2015 vs. Project Pipeline

Emerging Class of Large Scale Offsite Procurement by Non-Residential Customers

Source: GTM Research, Utility PV Market Tracker

54

202

1,936

0

500

1,000

1,500

2,000

2,500

Pre 2015 2015 Project Pipeline

Off

site

Co

rpo

rate

So

lar

Inst

alla

tio

ns

(MW

dc)

More than 75% of the current pipeline

comes from CA,


To date: 40% of installations per year have been direct

cash sales simply because there was no alternative.

• Especially true for small non-investment grade C&I

segment that has been largely underserved

Looking ahead: Incremental rise in third party ownership’s

share of non-residential PV market

• Large C&I customers installing multi-site portfolios or

single 10+ MW projects will continue to be TPO-driven

• PACE: While becoming a major source of financing for

small commercial, it is often combined with a lease or

PPA, as in the case of SolarCity’s recently announced

small and medium-sized business segment.

Non-Residential PV Market Outlook: Reboot parallels uptick in TPO market share

57%

62% 65%

67% 70%

72% 74% 74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-

500

1,000

1,500

2,000

2,500

Share o

f No

n-R

esiden

tial Market

MW

dc

Third-Party Owned Customer Owned

Third-Party Ownership Share


Residential solar outlook in context…

What is the future of residential solar as regulators and policymakers

reevaluate rate design and net metering rules?


Residential Growth is Slowing – Because It Must

58% 45% 44% 43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016E

Shar

e o

f R

esid

enti

al M

arke

t

SolarCity Vivint Solar Sunrun Rest of Market

More than 50% annual growth rates for residential PV installations Sub 30% growth for U.S. residential PV market for first time since 2011


But regional market leaders are growing at a faster pace than national companies

101%

121%

38%

78%

101%

69%

0%

20%

40%

60%

80%

100%

120%

140%

Q1 2014 Q1 2015 Q1 2016

Year

ove

r ye

ar g

row

th (

%)

Top 3 Residential Installers Top 4 - 10 Residential Installers

Source: GTM Research U.S. PV Leaderboard


Amidst an evolving installer landscape, there are still 20 states at “grid parity” today

Year One Bill Impact From Solar (%)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

CA HI

AZ

NM DE

SC CT

MD RI

MN PA FL OR

GA

WI

TX AR

WY

OH TN KS MS

MT ID

WA

ND

20 States At Parity 14 States W/ >10% Bill Savings

Note: Grid parity metrics account for all NEM and rate reforms currently in effect for modeled utilities.


Absent Rate/NEM Reform, 42 States Will Be At Parity By 2020

Year One Bill Impact From Solar (%)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

CA

MA AZ HI

DE

CT

MD RI

CO PA

ME FL WI

AR

OH IL LA AL IA KS

NE ID OR

WV

OK

NV

42 States At Parity 28 States W/ >10% Bill Savings


In Reality, NEM/Rate Reform is Well Underway

States That Took Some Action on NEM, Rates, or Solar Ownership in 2015

Source: NC Clean Energy Center/Meister Consultants Group. Includes activity on NEM, Fixed Charges, Solar Charges, Significant Fixed Charges and TPO


Regardless of the Action, NEM/Rate Reform Defines Residential Solar Economics

Number of States at Grid Parity in 2016: Business-as-Usual NEM vs. NEM Reform Scenarios

20

15

2

14

8

19

13

0

5

10

15

20

25

Business AsUsual NEM

$10/Month $50/Month $5/kW $15/kW 10% ExportDiscount

50% ExportDiscount

Source: GTM Research Residential PV Economic Attractiveness Report

Fixed Charge Demand Charge Export Rate Discount


Where does community solar fit into the market outlook?


116.8

77.8 70.1

52.6

15.8

0.6 0

20

40

60

80

100

120

140

U.S.Households

…Occupied by Owner…

...In the 44 States With a Net Metering

Policy…

…With a FICO Score Over

680…

…With a Solar-Friendly Roof

…That Have Already Gone

Solar…

U.S

. Ho

mes

(M

illio

ns)

2015 Residential Customer Demographics by Rooftop Solar Constraints

…and have rooftops

suitable for solar

…in states where rooftop

solar can be sold back to the

grid

…who have sufficient

credit scores

Share of homes

owned by occupants

Community solar’s addressable market is more than 7 times larger than rooftop solar

Source: GTM Research, U.S. Community Solar Market Outlook: 2015-2020


Community Solar: A small but emerging growth opportunity

2 2

31

39 45

66

106

122

0

20

40

60

80

100

120

140

Pre 2010 2010 2011 2012 2013 2014 2015 Q1 2016

Co

mm

un

ity

Sola

r In

stal

lati

on

s (M

Wd

c)

Cumulative Installations (MWdc) Annual Installations (MWdc)

More than 60% of cumulative installed capacity has come online since 2014



Community solar remains as fragmented as the commercial solar market



In states without community solar legislation…

• Utilities need end-to-end services that extend beyond traditional

project development, and enable a transition from pilot projects

to megawatt-scale programs:

◦ Subscriber acquisition: Lead qualification and robust internal

salesforce

◦ Program administration: Billing software platforms to seamlessly

integrate community solar

◦ “Customer O&M”: Software platforms that allow utilities to use

community solar project as a vehicle for strengthening its

relationship with customers for other service offering

In states with community solar legislation…

• Increased role played by national rooftop PV companies, which

can leverage:

◦ Pre-existing salesforce in major state markets

◦ Vertically integrated business models

Breaking down the community solar outlook at the state level…

122

512

0

100

200

300

400

500

600

Operating Capacity(MWdc)

Capacity in Development(MWdc)

Co

mm

un

ity

Sola

r C

apac

ity

(MW

dc)



Putting it all together…

4 Trends That Will Shape The Future of U.S. Solar


1. National average installed costs for utility scale solar will fall below $1/Watt by 2020.

• The value proposition of large scale solar is expanding beyond meeting legislative or regulatory driven

mandates, and serving as a cost competitive hedge against natural gas price volatility.

2. Commercial customers are increasingly procuring rooftop solar as part of a broader energy

management solution.

•Offsite solar solutions: Economies of scale in system pricing + hedge against electricity price volatility

• Battery storage: Manage complex rate structures with peak demand charges and time-of-use pricing.

4 Trend Shaping The U.S. Solar Market Outlook


3. The rooftop solar policy landscape is in transition and expanding beyond fixed charge proposals.

•Mandatory time-of-use rates, minimum bills, and value of solar tariffs are the big three types of policy

reform that are gaining traction across both utilities and solar industry advocates.

4. The extension of the federal ITC will spur 50% additional growth between 2016 and 2020 and

accelerate U.S. solar’s timeline towards growth via geographic diversification.

4 Trends Shaping The U.S. Solar Market Outlook


By 2020, the majority of states in the U.S. will install 100 MWdc or more of solar per year

2,019 3,944

7,316 12,077

18,324

25,776

40,318

52,526

64,057

78,866

96,723

118,385

2 4

7 6

9

13

19 20

22 22

26

30

0

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10

15

20

25

30

35

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Nu

mb

er of 1

00

MW

dc A

nn

ual State M

arkets Cu

mu

lati

ve U

.S. P

V In

stal

lati

on

s (M

Wd

c)

Cumulative U.S. PV Installations (MWdc) 100 MWdc Annual State Markets



Between 2016 – 2021: $144 billion of total investment in U.S. solar market

$8.0

$2.4

$14.0

$9.1

$2.7

$9.0

$9.8

$2.9

$6.8

$10.8

$3.4

$8.7

$11.7

$3.9

$10.4

$13.1

$4.5

$13.3

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

Residential PV Non-Residential PV Utility PV

An

nu

al In

vest

men

t in

U.S

. So

lar

by

Segm

ent

($b

n)

2016E 2017E 2018E 2019E 2020E 2021E


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Thank you!

July 2016

U.S. Solar Market Outlook - SunSpec...

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