Countdown to California 2020, part III: Would you like solar with that?

solar panel food tray illustration

As we hit the halfway point in our Countdown to 2020, the residential solar market in the here and now is showing signs of stability. The residential solar market grew 7 percent in 2018 following a 15 percent market contraction in 2017, according to the U.S. Solar Market Insight 2018 Year-in-Review Report from Wood Mackenzie Power & Renewables and the Solar Energy Industries Association (SEIA). That’s five consecutive quarters of modest growth with Q4 2018 being the largest quarter for residential solar in two years.

Of course, California’s new build solar mandate that we are obsessing over in this six-part series plays a part in that — a stroke of government influence that guarantees “an additional gigawatt of residential demand from 2020-2024E.”

“With a pivot toward more efficient sales channels, both national and regional installers exceeded expectations in California and Nevada, which drove the lion’s share of residential growth in 2018,” states Austin Perea, senior solar analyst at Wood Mackenzie Power & Renewables.

Perea doesn’t see this as a random blip though, noting signs of structural market stability being built across the country, such as the diminishing influence of net metering. Up until now, any changes to NEM or rate structures would have created “demand pull-in,” but despite anticipated changes to incentives and NEM in 2019 to 2020, the major Northeast markets collectively saw no growth in installation volumes. As stated in the report:

“This suggests that while changes to NEM policy and other incentives have greatly impacted growth in years past, 2018 marks a year of market maturation. While strong NEM policy remains an essential foundation for rooftop solar adoption, future growth across legacy markets will require technology and business-model innovation to tap into new customer demographics.”

This is a great segue into Installment III of the Countdown to 2020, our year-long news series covering all the implications of the California Energy Commission’s solar mandate. We started by examining the language of the Building Energy Efficiency standards (Installment I). Then, we explored the direct impact of this rule on homebuilders and new home PV systems (Installment II). Now, we ripple out further to explore those “technology and business-model innovations” that could ride this wave beyond California’s borders.

The Roof is on Fire

In Installment II, we relied on results of the National Renewable Energy Laboratory’s “Cost-Reduction Roadmap for Residential Solar Photovoltaics, 2017-2030” technical report to understand new home PV pricing possibilities. The report pegged new home solar as the No. 1 pathway to the lowest cost residential PV at 5 cents per kWh. The No. 2 pathway was roof replacement, which NREL analysts pegged in a range from 8.1 cents per kWh to 5.5 cents per kWh. That most aggressive outcome is 0.5 cents per kWh more than the most aggressive new home solar pricing pathway, but what roof replacement PV loses on potential pricing per system, it gains back by not needing an entire new home to be built with it.

The potential for solar within the $30 billion residential roofing industry is mind-blowing. NREL estimates there will be 3.8 million roof replacements in California between 2017 and 2030, conservatively 1.21 GW of potential annual capacity (2.44 GW if you want to get aggressive). Here are some roof replacement + PV system pricing reduction ranges calculated by NREL:

  • Labor cost reduction of 28 to 50 percent in cents per Watt versus the Q1 2017 benchmark
  • Structural BOS cost reduction of 64 percent in cents per Watt versus the Q1 2017 benchmark
  • Customer acquisition cost reductions of 24 to 74 percent versus the Q1 2017 benchmark

Roofing companies have the potential to turn legacy customer lists and their steady roof replacement inquiries instantly into a pile of solid solar customer leads.

Clearly, if it was this easy for roofing companies to tack on solar installation services, they’d have done it by now. Solar technology isn’t exactly plug and play (although it is getting close), and the solar sales process is a different beast than roof replacement sales. There are obstacles to be sure, but heading into California’s 2020 world, roofing companies bundling solar installations into their product offering seems like a no-brainer. Do leaders in the segment agree? Are we headed down this pathway?

Would you like solar with that?

GAF Energy

GAF Energy rendering

GAF is one of the largest roofing suppliers in America, with over 6,000 GAF-certified roofers across the country — many of whom are already partnered with similarly sized homebuilders. The company debuted its own roof-integrated solar mounting system in 2017, DecoTech, and is now dramatically expanding its solar product and service offering via a new sister company, GAF Energy, to make a dent in supply chain, customer acquisition, labor and permitting costs.

“If you look at solar, soft costs are a greater percentage of the overall costs than the hardware,” says Martin DeBono, president of GAF Energy. “We determined that to get the scale to make a meaningful impact, we had to attack both, so at GAF Energy we have a full organization whose focus is to make every roof a solar roof. It’s not just about the product but the complete experience for the homeowner to get solar on a roof, commissioned and generating energy.”

The big production homebuilders operate at such scale that they need a complete solution for solar from the likes of Sunrun and SunPower. The GAFs of the world on the other hand are building out services for the mid-tier, long-tail contractors.

“The production builders have so much purchasing power, they drive our parts down really low in solar by placing large RFPs to start a pricing competition,” DeBono says. “But with the services we are now offering, we will be much more valuable to mid-market and smaller players. On the completion of install, we will provide electrical services and PTO services [permission to operate]. Contractors won’t want to deal with the utilities if they don’t have that expertise, so we will provide that.”

David Jenkins, director of development with Beacon Roofing, a $7 billion roofing and building supplier with more than 100,000 individual customer accounts across the United States and Canada, thinks roofing contractors already established in any market can meet and drive this demand much quicker than national solar installers (with the help of Beacon, of course).

“The pitch of Sunrun and SunPower is ‘hey builder, let us take all of the difficult solar stuff off your hands,’” says Jenkins, who sees Beacon making this business model possible for solar and roofing contractors of all sizes. “We kit the system for them and deliver it to the jobsite, and we help them drive down the cost of a standardized solar array that they can scale and keep consistent within a new construction community. We’re going to be the go-to solution for custom homebuilders and folks that want to have a say in how they specify the solar that’s going on their homes.”

These are the types of business model innovations NREL was factoring into its pricing outlook. Beacon launched its solar division back in 2008 to carry leading brands in solar products just as it does roofing and building supplies. The solar division is now primarily focused on long-tail residential installers and roofing companies, and Jenkins tells us they are expanding their service offerings like GAF Energy with stuff like logistics, just-in-time delivery, credit and cash flow support.

“Because of our scale and presence in these markets we can benefit when a new solar market gets stronger and suddenly starts growing rapidly whether it’s Florida or Illinois or any state with a new interest,” Jenkins says.

Both DeBono and Jenkins note that the solar sales disconnect is a very real barrier, but both Beacon and GAF Energy have built tools to simplify things. GAF Energy plans to remove that friction by appealing to homeowners at the same time they are getting a new roof with the help of a quick estimating and design tool for both homeowners and roofers.

“We’re going after people who want a new roof with a would-you-like-fries-with-that approach,” DeBono says. “We need to be sure our customers are prepared to have that conversation, and our roofing partners are ready to have that conversation, so that’s what we’re rolling out right now.”

Solar switcheroo?

petersendean

Solar installers should seriously explore making use of the roof replacement pathway too, either through channel partnerships or by offering in-house roof replacement services. Gary Liardon, president and COO at PetersenDean Roofing & Solar, tells us they are driving a blend of the two industries.

“We have invested in cross training that will provide for efficiencies in new construction installations where the roofer and PV installer will divide tasks,” he says.

In the State of California, PetersenDean employs its own install teams and self-performs the work, but on a national level it has a combination approach using both direct employees and preferred installation subcontractors.

Beacon’s new 3D+ platform, pitched as an “Amazon-like purchasing portal for B2B contractors” is a slick new tool for estimating a roof replacement job and could be a perfect entry point for solar installers looking to grow their customer list. Contractors can order and get delivery of the solar materials and roofing materials that they need at their warehouse or jobsite. With its Pro+ product, contractors can automate customized order workflows, get access to live pricing, send material orders directly to their Beacon Roofing Supply location and track deliveries from theirsmartphone.

“Having homeowner-facing salespeople is one of your highest costs in the solar business, and when you can increase your closing ratio by several percentage points and can sell a roof and not turn away those potential projects, that’s where you get the dramatic return on investment — at the contractor level,” Jenkins says. “We’ve got pros trained on how to coach installers to improve their roofing business, or if you’re in the trade and want to get into roofing, we have excellent people and tools to do that.”

DeBono also believes, no matter the tools used, customer interest in solar has hit a tipping point, which is really what’s causing all of these new divisions and software tools to launch in the first place.

“The big change I’ve seen among homeowners and consumers is the awareness of their impact on the environment and their desire to actually do something,” DeBono says. “As long as I’ve been in solar people have always been aware of the benefits of solar, but now we are seeing the expansion of that potential customer base.”

One other thing to consider as the years roll is the combination of more efficient homes and no sell-back shrinking the average residential solar system size right along with solar installer margins.

“With TOU rates, our analysis shows, for most customers in California, a smaller system provides a higher ROI,” DeBono says. “Contractors used to 7-kW systems will be selling 4 or 5 kW. I think they will need other offerings for their customers to maintain their same business.

“Think of it this way,” he continues. “All roofs will be this way in 20 years. So, there will be a conflict at some point because the largest roofing companies in the world will be doing this. Solar installers have the skills to do [roof replacements], and it could be an additional amount of business. If you’re only going to install solar, your life can be dictated by policy and tax code and things outside of your control. But if you have a business that’s both roofing and solar, it certainly mitigates the risk and there’s a hell of a lot more demand.”

****

New homes requiring solar. The largest roofing and building materials distribution companies launching whole new divisions to serve solar sales. Everyone we talk to says there will be plenty of solar business to keep everyone busy, but we can’t shake the feeling that the business of the retrofit solar installer in California will shift much more dramatically than people expect, dictated by the approach of long-established homebuilder and roofing channels.

One thing all of these new product procurement and installation service channels lack is a plan for dealing with PV systems post-installation. They can make a PV system as easy to install as a roof, but the PV itself, its combination with storage and its ever-growing importance within smart homes will require a much greater level of service throughout its lifetime.

Therein lies a key for today’s solar installers to stay an integral part of home energy in 2020 and beyond. We will explore the opportunity for storage, monitoring and smart home services in our next installments.

— Solar Builder magazine

Maine legislators seek to expand state’s solar industry via community solar in new bill

maine solar regulation net metering

Maine has lagged behind the other Northeastern states the last five years in solar energy adoption, mainly due to indecisive and regressive renewable energy policy. This is now starting to change. Earlier this year, the state’s new governor, Janet Mills, signed legislation to end the previous regime’s gross net metering policy, which penalized solar customers. Now, a new bipartisan bill (LD 1711) has been advanced that would add more than 400 MW of solar by reducing barriers to entry.

“Maine is embracing renewable energy and solar power, which can benefit our economy and create jobs in our state,” said the bill’s sponsor, Senate Minority Leader Senator Dana Dow (R-Lincoln). “Distributed generation puts the power where it needs to be, right where it is consumed; and that can reduce costly burdens on our electricity grid. With this proposal it is my hope to bring the benefits of solar to more Mainers, from businesses to families with more limited incomes.”

The bill seeks to change the solar industry in the state a few ways. Community solar would be a priority to help low- and moderate-income households, enable the development of larger-scale community solar farms that could power more than 45,000 homes and also lift an arbitrary nine-person limit that has been holding back new community solar projects across Maine.

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“Building out distributed generation assets around the state, owned by Maine businesses and employing Maine residents, means we are exporting fewer dollars out of our economy,” said John Egan, Chief Investment Officer, Coastal Enterprises, Inc. “Increased renewable and distributed capacity here means we are more resilient to damage caused by climate change.”

By modernizing Maine’s electricity policies to better capture the benefits of distributed solar technology, LD 1711 also helps to reduce barriers – especially for businesses and other large consumers to invest in their own power. The bill puts a premium on predictability and competitive markets, a move that would send a signal to businesses and financial institutions to invest in solar, and further encourage the solar industry to expand and create jobs here in Maine.

“With Maine’s high asthma rates and growing Lyme disease rates, this bill presents an opportunity for Maine to increase the use of clean energy and reduce greenhouse gases to help prevent illness and injury from the impacts of climate change,” said Karen D’Andrea, Executive Director, Physicians for Social Responsibility, Maine Chapter.

The solar bill is the result of five years of collaboration among a diverse range of interests, including conservation groups, municipalities, renewable energy businesses, public health advocates, and local businesses.

— Solar Builder magazine

South Carolina might finally have a bi-partisan compromise to expand solar energy adoption

south carolina solar net metering

South Carolina legislators have passed the Energy Freedom Act, House Bill 3659, which will keep solar energy growing across the state.

“The Energy Freedom Act is a big win for all South Carolina energy consumers,” said Lynn Jurich, CEO and co-founder of Sunrun. “Policymakers listened to the people and delivered a bipartisan solution that lifts arbitrary caps on local solar energy, grows the economy, and gives more individuals access to homegrown solar a way to safeguard against the highest energy bills in the country.”

The Energy Freedom Act will:

● Lift the net metering cap: South Carolina currently has a 2% cap on the number of solar energy systems that can qualify for net metering. House Bill 3659 lifts the cap and allows consumer demand to drive solar adoption, without restrictions from an arbitrary cap.

● Extend the retail rate for exports to at least June 1, 2021: Solar customers will be able to receive retail rate compensation for their contribution to the electric grid until June 2021. The PSC will determine the export rate after commissioning an in-depth and fair study that looks at the value of solar as a resource to all South Carolina ratepayers.

● Lift the cap on solar leasing: Solar energy leasing, such as Sunrun’s home solar service offering, expands access to homegrown energy by removing the upfront costs and associated maintenance requirements. South Carolina was one of two states that capped this type of financing option.

● Set out a process that allows industry leaders and policymakers to strengthen consumer protections together: House Bill 3659 directs the South Carolina Energy Office to work with the solar industry, look at disclosure requirements from other states, and implement consumer protection disclosure regulations.

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This comprehensive solar bill will sustain all segments of the vibrant solar market in the state. It eliminates caps on net metering thereby preserving value for customers with rooftop solar generation while eliminating cost shift/subsidization. The act also ensures fair market access for developers of utility-scale solar projects. Equally important, the bill asserts that it is “the intent of the General Assembly to expand the opportunity to support solar energy and support access to solar energy options for all South Carolinians.”

“We applaud the leadership in both the House and Senate,” said Bryan Jacob, Solar Program Director at Southern Alliance for Clean Energy. “Conservative leaders in South Carolina are demonstrating how bi-partisan legislation can preserve sustainable solar markets providing both economic and clean energy benefits for the state.”

SACE joined with other parties in months of engagement after a less comprehensive bill failed in 2018. This process, coordinated by the Office of Regulatory Staff, helped to inform appropriate policy elements ultimately enshrined in this legislation. Conservative leadership in both chambers was critical to assure the success of this bill and the end result is a testament to bi-partisan teamwork and agreement on many key tenets of the energy market. After previously passing unanimously in the House, the bill now returns for affirmation of amendments incorporated during the Senate deliberations and then will head to the Governor’s desk for signature.

— Solar Builder magazine

Ohio readies bill to dump more money into coal and nuclear plants, industry groups explain how misguided it is

Ohio utility solar

While Illinois and Minnesota are driving forward solar energy policy in the Midwest, Ohio, the home state of Solar Builder, continues to embarrass itself and cling to the past. There is a bill before the Ohio General Assembly (HB 6), aimed at rescuing FirstEnergy Solutions’ aging nuclear and coal-fired power plants and effectively eliminating its renewable energy standards (which is only set to top out at 12.5% by 2027 anyway). Analysis by the independent Ohio Legislative Service Commission explains that HB 6 would exempt Ohio ratepayers from bearing the cost of the state’s existing renewable and energy efficiency programs. This would ultimately reduce electric utilities’ requirements for these critical clean energy programs.

There is no gray area here: This is bad policy, both for the environment and for ratepayers. SEIA sent an email last week urging Ohioans to get in touch with their legislator to fight back, and a briefing note released by the Cleveland-based Institute for Energy Economics and Financial Analysis (IEEFA) shows how HB 6 may end up costing Ohio consumers and businesses more than $300 million per year “in perpetuity.”

“Proponents of this ill-advised bill are using misleading arguments to warn about nonexistent dangers to the electricity supply and rising energy costs,” said IEEFA director of resource planning analysis and author of the briefing note David Schlissel. “The data shows, to the contrary, that Ohio has ample energy supply and that retiring the plants in question would in no way undermine the reliability of the system or raise costs.”

The bill would keep open FirstEnergy Solutions’ Davis-Besse and Perry nuclear power plants and could also provide revenue for the Sammis coal-fired plant in Ohio. There is no evidence to suggest that extending their operational lifespans would benefit consumers.

IEEFA found that:

• FirstEnergy’s nuclear and coal plants are not needed to ensure electricity supply or reliability in Ohio.

• Taking the nuclear plants off the market would be unlikely to drive up electricity rates – but reducing energy efficiency and renewable energy would.

• Investing in solar and other renewables would make sense rather than subsidizing aging nuclear and coal-fired plants.

PJM, the operator of the regional electricity market, has concluded that the deactivation of FirstEnergy Solutions’ nuclear power plants in Ohio and Pennsylvania will have no effect on the reliability of the electric power grid. Ohio would have enough generating capacity even if Davis-Besse and Perry were retired as currently planned in 2020 and 2021.

For example, since 2017, more than 3,200 MW of new generating capacity has come online in Ohio. Another 7,800 MW of new generating capacity is in some stage of development, according to PJM.

As for the claim that retiring the nuclear plants will lead to increased electricity rates, it is apparently based on several studies done over the past two years for FirstEnergy Solutions and a group called “Nuclear Matters” by The Brattle Group, a consulting firm.

“Those studies by the Brattle Group were based on misleading assumptions about the cost of renewables and inflated notions about how much energy the nuclear plants were actually providing to the system,” said Schlissel. “This bill is clearly designed to benefit FirstEnergy Solutions and not Ohio ratepayers.”

Investments in renewables and energy efficiency actually reduce energy market prices by displacing more expensive generation from gas-fired and coal-fired generators, according to research done by First Energy itself in its 2017-2019 Energy Efficiency Plan. In it, FirstEnergy noted that while efficiency programs cost $323 million, they would
generate $988 million of customer savings over the course of the plan. AEP similarly calculated in its 2017-2019 plan that at a cost of $284 million, energy efficiency measures would save customers $2.2 billion over the lives of the measures.

IEEFA recommends that Ohio follow the lead of New York state and allocate resources to support the tax bases of school districts and communities undergoing economic transition caused by the closure of coal and nuclear plants.

The briefing note suggests that the state design a program to support workers who lose their jobs when coal and nuclear plants close. Such a program should also include thorough and timely clean-up and decommissioning of these facilities, with hiring preferences given to former plant employees, according to IEEFA.

— Solar Builder magazine

IEEFA: The solar investment tax credit should be extended for vulnerable coalfield areas

coalfield

The federal solar tax credit should be extended by at least four years in coalfield areas, like the ones around the Navajo Generating Station (NGS) and Kayenta Coal Mine in Arizona, according to a briefing note released by the Institute for Energy Economics and Financial Analysis (IEEFA).

“Scheduled curtailment of the tax credit comes at the worst possible moment for vulnerable communities that are facing impending closure of a power plant or a coal mine that provides revenues critical for government services,” said Tony Skrelunas, Navajo, MBA, lead author of the brief and a former director of economic development for the Navajo Nation.

As it stands, the tax credit, which was created in 2005 and renewed by Congress four years ago, will be stepped down annually — from 30% currently to 10% by 2022. The credit is seen as a crucial catalyst to the still-nascent solar industry, which has yet to arrive full force in most communities that are being hit hard by the rapid descent of the coal-fired electricity-generation sector.

A ‘modest policy change’ to restore lost tax revenue and create jobs

The briefing note — Extending the Full Federal Solar Tax Credit by Four Years (Through 2024) for Coalfield Communities — highlights that Hopi and Navajo communities will be sorely hurt by the closure this year of NGS. The Hopi tribal government will lose 80% of its revenue from the closure, and the Navajo government will lose about one-third of its revenue.

The IEEFA brief recommends accelerating efforts to build a regional utility-scale solar industry to help replace some of the lost tax revenue, a move that would be critical for creating jobs as well.
In addition, the brief emphasizes that the issue is not restricted to tribal lands. Many coalfield communities nationally — in Appalachia, the Powder River Basin of Montana and Wyoming, in New Mexico and elsewhere in Arizona — are also struggling as coal plants and mines are retired or shut down.

“Such an extension would support economic development in these areas, and it would be especially helpful if it were to give priority to communities that don’t have enough time to effectively respond to impending plant and/or mine closures,” Skrelunas said. “For tribal lands, we also recommend a special federal policy provision that that would allows tribes to partner with experienced developers in a way that maximizes monetization of the value of the tax credit. .”

Excerpts from the IEEFA brief:

“A four-year extension, through 2024, of the federal tax credit on Hopi and Navajo tribal lands — and across coalfield communities nationally — would likely bring local and regional benefits by driving new utility-scale solar projects on sites like NGS and its companion Kayenta Mine, both of which are to be closed this year. Utility-scale solar can help replace lost jobs, and the tax revenues it generates can help local economies during the transition.”

“Utility-scale solar projects do not exist yet in most of these areas, despite the surge in such project development across the U.S., in general. A tax-credit extension carve-out could help to bring solar industry expansion to the very communities that can benefit most from it.”

“An adequate carve-out would require a congressionally-approved extension that would keep the full federal solar tax credit in place longer for communities that are being economically devastated by shutdowns of coal-fired plants and coal mines. Hopi and Navajo tribal lands are a showcase example of where such an extension could help sustain a struggling local economy.”

— Solar Builder magazine