By Michael Wallander, Special To Solar Power World
Are you one of the few providers left with the stamina to pursue commercial solar deals?
For experienced providers, commercial solar has been like a mirage in the desert: enticing, spacious, flat rooftops inviting you ever onward, ever closer to signing a lucrative project. Maybe you’ve even convinced a property owner to entertain a deal — only to see it disappear before your eyes when the discussion turns to credit requirements.
How many times have the words “corporate guarantee” killed your deal? How much time and resources have you wasted just to get to that point? This has probably happened enough that you’ve even considered exiting the commercial sector entirely.
If you haven’t given up on commercial yet your patience may pay off soon: What if it were possible for you to determine, in seconds, if a potential customer represented a bankable deal, knowing nothing more than the customer’s property address?
Solving Customer Offtaker Credit Will Unlock Commercial Solar
To find a viable commercial deal today, solar providers must find that truly rare customer who has a good roof, is located in the right utility territory, with the right utility tariff that translates to high energy (as opposed to demand) costs — and one who has good credit that he is willing to bring to the deal.
Even in the residential sector, which is scaling, solar providers spend almost as much on costs of customer acquisition as they do on panels being installed. Residential customer credit can be evaluated using a credit score. This is not so with small and medium commercial property owners. This sector remains largely ignored because it is not possible to easily assess credit risk.
Yet commercial solar represents a significant and untapped market opportunity.
According to the U.S. Energy Information Administration (EIA), commercial and industrial property accounts for 60% of all electricity use in the United States, compared to only 37% used in residential.
Small buildings less than 50,000 sq. ft. in size dominate the commercial real-estate sector, which consumes the lion’s share of U.S. electricity. In fact, more than 90% are smaller than 50,000 sq. ft., and 73% are smaller than 10,000 sq. ft. According to a survey conducted by the U.S. EIA, there are 4.6 million small buildings that altogether consume more than 40% of electricity used in U.S. commercial buildings.
These small commercial properties are typically non-investment grade, owned in special purpose entities and highly leveraged. For these reasons, the sector has failed to scale.
But if there was a solution to assessing and mitigating these customers’ credit risk, this would position the sector to become the next big market for solar.
Soon, credit and the insurmountable costs of customer acquisition will no longer be an obstacle to commercial solar scalability.
A Solution Right Under Our Noses
PACE — which stands for property assessed clean energy — has been around for a few years now and is slowly beginning to scale. PACE has generally been thought of as a way for a commercial property owner to borrow funds through a local government program that are used to purchase a solar installation (with payments paid as a property tax assessment).
In fact, PACE can also be used to provide credit enhancement to solar leases and PPAs with the lease payments (as compared to loan payments) similarly secured by a first lien on property that is co-equal to taxes and senior to a mortgage.
Why is this significant and a game-changer for the commercial sector?
When you combine PACE with tax-efficient finance structures, like the PPA or solar lease, this enables a total-cost solution to be offered to commercial customers. This means that any commercial property with sufficient equity in their property is a bankable customer.
Seize The Day
To be eligible for financing, commercial property owners must be located within an active PACE jurisdiction, have available equity in their property and be current on payment of their property tax bills with no recent history of foreclosure or bankruptcy.
More than 30 states and counting have passed PACE enabling legislation. Programs are active throughout California, the nation’s largest solar market. Attractive markets also include Connecticut, Washington, D.C., and Minnesota, with New Jersey, Florida and Texas coming online in the near future.
Combining PACE with third-party ownership makes it possible to sell commercial solar repeatedly with a uniform financing product. This will help you make 2014 the Year of commercial solar.
Michael Wallander is the Founder and President of Demeter Power Group. Demeter is a solar company and 2013 DOE SunShot Award winner that finances commercial solar projects for contractors in PACE markets across the country. More information can be found on demeterpower.com.
Tell Us What You Think!