Solar has entered the mainstream: there are now over 20 gigawatts of cumulative solar capacity operating in the U.S., and that figure is expected to double over the next two years. Growth in 2014 was led by the utility-scale sector, which grew 38 percent over 2013 to reach nearly 4 gigawatts, and the residential sector, which crossed the 1-gigawatt barrier for the first time, growing 51 percent over 2013. Commercial solar was the only sector that did not see growth in this time period, instead decreasing by 6 percent.

One of the main obstacles to growth in the commercial industry is limited access to capital. Commercial solar financing faces a lack of standardization (disjointed applications for finance, no clear communication on financing terms, different legal contracts) and high transaction costs relative to deal sizes. These factors translate into challenging due-diligence processes and complex finance negotiations, which wind up costing a great deal of time and money. Furthermore, this is all done offline, against the backdrop of a world where borrowers can apply for almost any loan/finance online (think credit cards, SME business loans, mortgages). Commercial solar financing is further affected when monetizing the ITC through a tax equity partner, which increases legal fees because of an added layer of due diligence and finance negotiations.

These hurdles are specific to the commercial and industrial market. By contrast, the residential market is highly standardized, and residential borrowers are more homogeneous because they can be differentiated and segmented by FICO score; the risk value is the same across the nation, whether the homeowner is located in New York or California. Residential solar borrowers also have online borrowing sources available. At the large scale end of the spectrum, the utility-scale projects also lack standardization but project sizes are large enough to support high transaction costs, which are small relative to the capital involved.

The lack of consistency and homogeneity in the commercial sector has left most of the market unable to afford going solar, or even knowing where to go to access finance. This is a significant obstacle, as the mid-sized commercial and industrial sector is a huge potential market for solar -- 75 percent of the 5.6 million commercial buildings in the U.S. are 10,000 square feet or less.

With greater understanding of the sources of finance for the commercial market and where to find them, we can increase capital flow and grow the market to meet its potential.

First, streamlining the finance application process is critical. Applying for a credit card takes five minutes -- why isn't it the same for a solar project loan? Currently, the bureaucratic, offline hassle to apply for loans and PPAs is a major deterrent for some of the smaller commercial and industrial installations. The process now in place is complicated, costly and time-consuming. Developers and installers come into the process not knowing what to expect and unprepared for the large amount of documentation they are required to produce. Streamlining the process and putting it online, in a familiar step-by-step format, will help both financiers and developers make financing simple, efficient, and lower-cost, ensuring transparency and clarity between all parties involved. Financiers will always need supporting documentation to show that an investment is viable and holds potential for success, but simplifying and making that process predictable and known upfront will not only help businesses drive down costs, but in many cases, will also make going solar possible altogether.

Standardizing documentation (financing contracts, which includes a loan and servicing of the loan) is a second major change that needs to take place to drive down costs and expedite the process of going solar. By setting an industry standard, contracts will not need to be drafted from scratch for every new project, saving both time and money. While it is unlikely that the commercial market will ever be as homogeneous as the residential market, setting up a basic skeleton process that can then be customized would be incredibly valuable in driving down costs.

The commercial market is poised to grow by 21 percent in 2015. This growth will only happen, however, when the industry starts looking at solutions that address and alleviate these glaring problems. Streamlining the application process, presenting it in an intuitive, online format and standardizing documentation are three simple ways that we can work to increase the flow of capital going into the commercial market. With innovative, technology-enabled solutions that simplify the financing process, the commercial market will reach its full potential.


Graham Smith is the founder and CEO of Open Energy, an online solar debt finance firm.