Duke Energy just acquired a majority stake in commercialsolarinstaller REC Solar and is ready to invest up to $225 million in REC's solar projects.

Even in the context of a solar industry seeing plenty of consolidation and big deals, this is a pretty big deal.

REC Solar is the commercial unit remaining after Sunrun acquired the residential business early last year. Based in San Luis Obispo, Calif., REC Solar provides a sales and financing process for commercial-scale customers and has installed more than 440 U.S. commercial systems, with a total of more than 140 megawatts installed and under development. The company claims its process is "similar to that provided by residential solar companies."

Duke Energy Renewables has a commercial renewable portfolio totaling about 1,800 megawatts of solar and wind capacity.   

We spoke with REC Solar's CEO Al Bucknam on Friday evening.

"It's no secret that the industry is going through a consolidation -- and that's going to continue. As the ITC expires, your cost structure is going to matter a lot." 

"REC Solar's strategy is to expand from solar into broader energy services," said Bucknam. He would not be more specific, but said, "It won't be just solar." If an energy customer has a problem, "We have a number of solutions to truly and completely solve their problem." He adds that "REC Solar will be the entity that's doing the development work. Duke's role is to finance and sell the power or lease the project to the end user." 

He acknowledged that commercial solar "over the past years has been a difficult process," but said that REC is focused on simplified customer financing, including leases and power-purchase agreements. He suggested that the same business-process savings that residential solar has gone through are happening now in commercial, such as more standardized documentation and better business flow. He said, "Overall, this is about strengthening our capability set, giving REC Solar a bigger balance sheet, and making us a better customer to our suppliers."

"But what's important for us, first and foremost, is that we have a new approach for financing commercial solar," the CEO said. Bucknam described a dedicated source of financing with a fixed set of criteria, a credible, actionable value proposition with no necessity to shop the deal around, and a clear idea of how long a deal will take to get done.  

GTM Research's Cory Honeyman notes, "REC Solar benefits from Duke Energy Renewables' low cost of capital, while Duke gets to take a stab at the commercial solar market by leveraging REC Solar's longstanding experience at originating and developing smaller and mid-scale commercial projects."

Shayle Kann, VP of GTM Research, points out that in Q3 of last year, "REC was the eighth-largest commercial solar installer in the country. Meanwhile, Duke itself has already done some commercial project development."

"Duke Energy owns more than 500 megawatts of solar projects, most of which are in North Carolina and range from 1 megawatt to 85 megawatts, according to the GTM Utility Tracker," reported Honeyman.

Adam Browning of Vote Solar comments, “We’re really glad to see Duke Energy recognize the importance of competitive solar leasing and purchase agreements for energy users. Having endorsed this business model with a $225 million investment, we can only assume that Duke will support efforts to make make solar leases and PPAs legal in its home states and service territory." 

Recent utility moves into commercial solar include NextEra's acquisition of Smart Energy Capital, NRG's formation of Sunora Energy and Edison International's purchase of SoCore.

When asked why this deal wasn't a full-on acquisition, Marc Manly, executive vice president of Duke's commercial portfolio told GTM, "It made sense for both of us to have a remaining portion subject to subsequent acquisition so that Duke, existing shareholders and employees (who are owners and also have option grants) will be aligned with respect to growing the business."