Last week, Greentech Media's sixth annual Solar Summit kicked off with a session entitled "Thriving Amidst the Chaos," and after two days of deep and sometimes heated discussions on the seemingly muddled state of the industry, analysts and audience members alike gained access to a mountain of new information and perspectives. With the first quarter of 2013 in the rearview mirror and an increasingly hazy back-end to 2013, GTM Research’s analyst team highlights key takeaways from the conference.
Of course, high-level issues, including the composition and impact of EU tariffs on the Chinese supply chain and downstream European markets, the effect of consolidation all along the PV value chain, and the nature of the emergence of grid parity markets, will continue to dominate the industry headlines.
However, we look beyond these to identify the following important, but not necessarily obvious, new battlegrounds and industry opportunities.
1) The Net Metering and Rate Structure Debate
No other topic was brought up more frequently than the threat that solar PV poses to current utility business models. In our discussion on a post-subsidy solar industry, we noted that utilities are taking different tactics to address the growing role of PV, but many utilities have a mortal concern driven by distributed generation. In North America, net metering is the next major battleground in the industry and the rhetoric surrounding the debate has become highly charged. A more significant cause for concern is the prospect of utilities using rate design as another mechanism to constrain the growth of distributed generation. It's more subversive, but just as impactful.
2) Storage and Advanced Grid Integration Technology
In addition to concerns about the economic impact of PV, there have also been concerns about the perceived technical impacts of PV on the grid. In our "From Grid-Tied to Grid-Integrated PV" session, panelists from leading PV inverter companies highlighted the slow and inconsistent development of grid integration standards, which can result in higher testing and operating costs. Quickly learning from painful lessons in Germany and Italy, inverter manufacturers are shipping product with advanced grid interactive features like ride-through, remote on/off, and reactive power latent in expectation of forthcoming requirements and standards. In the most stringent regimes like Puerto Rico, significant amounts ofstoragehave been required. However, the overall outlook for storage-based distributed PV systems appears to be mixed, with inverter manufacturers expressing reservations about the growth in storage and commercial PV developers indicating various non-traditional storage applications to secure old and capture new revenue streams.
3) Bottlenecks for Utility-Scale Solar
With slow standards development partly to blame, utility project developers have indicated that the primary bottlenecks for large-scale PV in the U.S. are actually related to interconnection rather than project finance. This is a good sign, as the next wave of utility procurement will come in states where installations are driven by project economics, rather than legislated renewable obligations. Timelines will vary, but expect non-RPS utility projects before the ITC expiry. As a result, project developers are targeting individual utilities where economics may be favorable rather than looking toward state RPS programs.
4) Third-Party Versus Direct Ownership in U.S. Residential Markets
On the other side of the power spectrum, GTM Research VP Shayle Kann moderated a lively debate over third-party versus direct ownership, with each perspective represented by David Field of OneRoof Energy and Sara Ross of Sungage, respectively. At a high level, the conversation always came back to the debate over which is the most analogous market for solar: television, cars, satellite TV, or a power plant. In our pre-conference discussion on the Arizona market, panelist Sean Seitz of American Solar Electric indicated an expected reversal in third-party-owned residential systems as recovering home equity enabled more families to realize federal and local incentives. More specifically, Ross added that the cost of tax equity represented a hidden cost to the industry and ultimately to the consumer. Field agreed that while the “math is correct,” solar is ultimately a service industry and most are better served by third-party-ownership models.
5) Customer Acquisition and the Importance of Solar Marketing
Regardless of the nature of ownership, GTM Research analysts noted the increasing maturity on the industry marketing front. In the words of Kann, “Customer acquisition costs and strategies are about to get sexy.” While our panel on solar marketing debated the value of direct-to-consumer advertisements by module manufacturers, all seemed to agree that service providers need to add much more value beyond the panel to compete within the industry and with other purchases.
Our panel on module reliability, however, indicated that one place where solar marketing may overstep is in perpetuating “tiers” of module manufacturing. According to kWh Analytics CEO Richard Matsui, “If the industry could do away with [the idea of tiers], we would be better off. When we look at our dataset across systems, we find only a very loose correlation between the performance and tiers.”
6) Product Innovation as a Cost Driver
Of course, marketing solar as a service becomes simpler as the cost of solar energy declines, and that will be the result of product innovations that drive lower prices and increased reliability. Our Day 1 afternoon track on inverters and balance-of-systems markets pointed to numerous cost-saving avenues, including representatives from major North American inverter suppliers discussing the merits and limitations of decentralized architectures. On the EPC and Balance-of-Systems discussion tracks, panelists indicated the need for more integrated designs and components that shift labor from the field to the computer and factory. With BOS costs in the crosshairs of the industry, savings of even a few cents per watt can strongly influence project viability.
7) Temperance in New PV Markets
The declining cost of solar has opened new unincentivized markets, although our panelists and analysts alike noted that the cost-competitiveness of solar with the existing electricity supply does not mean that solar, both large-scale and distributed, will start appearing everywhere. Not only are there technical hurdles to overcome, especially in developing countries, but the creditworthiness of offtakers is often subpar. In this case, developers are looking to regional banks for financing, but the regional banks are unfamiliar with solar. It's a catch-22. Furthermore, panelists from OPIC and IFC noted that local content mandates in regions like Saudi Arabia and India may pose obstacles to near-term end-market growth, as most emerging markets do not have a robust supply chain, which could raise bankability issues.
8) Challenges Operating in Asian Growth Markets
Speakers repeatedly emphasized the importance of local knowledge and partnerships. As one panelist commented, otherwise successful American and European companies are “dead on arrival” when they try to enter new markets without a true understanding of the local business and regulatory environment. In some countries, like China, even operating between provinces is challenging. Moreover, while the growth of the Chinese market looks promising, operating in the market is less exciting. Andrew Klump of Clean Energy Associates noted that those partnering with state-owned entities in China should "expect a much lower margin. And the payment terms are horrific. There are competitors out there willing to not take any payment for two years, and sometimes it is four years before they get 100 percent of the payment." A discussion on the Indian market yielded related comments about rampant corruption.
Despite numerous headwinds throughout the industry, Solar Summit attendees were remarkably upbeat about opportunities in the market. The business models and technology alike are still evolving and maturing, but a path toward a global post-subsidy reality (or at least subsidies on par with competing industries) is quickly emerging.
Watch recorded sessions from Solar Summit 2013 at http://www.ustream.tv/channel/greentech-media. Here's the most viewed video: