GreenTech's PPA Report -- Key Insight on Leased Buildings

GreenTech Media just published a report by Jon Guice & John King entitled Solar Power Services: How PPAs are Changing the PV Value Chain, one of the first reports I've seen that tries to describe the current state of solar PPAs in the industry. A key observation that comes through in the report is just how the "rise of the PPA" has become a major dynamic driving the US commercial solar market.

Among the reports key points that correlate with what we're seeing in the market at Recurrent Energy are:

• In 2009, PPAs will be established as the standard way that American businesses pay for on-site green power, bringing solar to commercial rooftops of mainstream America with yearly additional growth of 30-50%.
• In 2008 the clear majority of new commercial installations will be third-party
  managed, with 65-75% of the market.
• In 2007, of the national commercial and institutional solar market, an estimated
  50% was developed under PPAs, up from 10% in 2006.
• The PPA segment has not only outstripped conventional commercial PV sales, it has also expanded the market — acquiring new customers that would not have purchased solar hardware.
• PPA companies will continue to drive down costs with innovations across the entire
  value chain.

There were two things I was somewhat disappointed with in the report. First, I think what almost any reader would want is an in-depth analysis of the companies competing for position in solar services. The report provides a fairly high level description of the major players and summary stats on financing and fund status. Recurrent Energy compares well on those metrics as we were one of the earliest of the venture-financed market entrants--and we have the largest open-ended solar project fund at $200MM. But I would have liked to see a more critical look at how the various companies differentiate themselves (or don't) in the market

The second issue I have with the report is that it captures the current state-of-the-art in PPA solar finance, but neglects to explore how companies like ours are extending and enhancing solar service offerings. For example, the report states that PPAs work best for customers that "own their building or have a long term lease" and "customers who have good credit." Indeed, these have been the criteria for most "plain vanilla" PPA financings because they represent the easiest combination to finance with a bank or tax equity investor.   

It is precisely the industry focus on these easy financings that explain the rush to big box retail and corporate campus solar projects--and why solar has achieved almost zero penetration in the leased properties market segment. Yet leased buildings easily represent 60% or more of the solar friendly rooftops in the US! Owner-occupied buildings are the minority.

The key to opening up the market substantially is to solve the "lease barrier"--and that's exactly what Recurrent Energy has done with it's approach. Our key innovations enable us to offer our service to owners and tenants of leased buildings where leases and even ownership terms are  shorter than the typical PPA finance term. These breakthroughs mean that we can address the largest market segment in a way that differentiates our offering on features other than price.

All in all, for anyone in the industry, I think the report is a must read. I look forward to the next report from the authors that will hopefully shed more light on the players and innovations in service offering that are also driving the industry forward. 

Comments

[Jack]

I applause Recurrent for trying to tackle the age old problem of misaligned incentives between a landlord and their tenants and the poor energy management that comes along with them. Leased property is certainly a gigantic market, one that has traditionally put up large barriers for solar. The rise of the PPA of course is the key to this lock, and it is becoming abundantly clear that this agreement will be the future of solar. My question is: what value, if any, does Recurrent bring to the table?

As the panel and ultimately poly glut sets in, we will see a consolidation across the industry as winners and losers arise. But this will not just be across manufacturers. Vertical integration of the supply chain will be the trend as lost margin upstream will try to be captured through downstream acquisitions. Meanwhile the PPA will become the industry standard and act as the floor for the demand story.

Where does Recurrent fit into this likely scenario and how does it stay competitive with a completely vertically integrated company? I see Recurrent's model based around a strong knowledge of the PPA and what seem to be some strong connections in the REIT sector. But the learning curve for these PPAs is moderate and a lower cost per watt will ultimately supersede connections. The learning curve for supply chain logistics, design, and especially installations however is very steep. After all, each solar system is a custom job. Is $200 million enough to buy this knowledge and leave a bunch left over to lockup for the lifetime of these projects? If not, then how does Recurrent convince debt, tax equity, or venture that their systems are more production reliable than the other established players?

[Lee]

Great insite. How do i get a list of PPA finance companies

[Lee]

Great insite. How do i get a list of PPA finance companies

renewableenergycorp@aol.com