In the first part of our series on commercial solar, we discussed the fundamental problem that is holding back the solar market for small, non-creditworthy businesses: the lack of developers selling to those clients and a lack of investors who want to own the assets. We also proposed a solution for bringing more of these players into the market.

It’s also worth restating that we are focused on this subject because, as the National Renewable Energy Laboratory noted earlier this year, rooftop solar has a technical potential of 1,118 gigawatts of capacity, with over half of this potential capacity coming from “small buildings.” 

In this article, we focus on the next challenge: bringing together projects and financing in an efficient way.

This is difficult because both sides of the equation are extremely fragmented. In the first half of 2016, the top 10 commercial developers installed just 35 percent of the market, compared to just three companies in the residential sector. What’s more, the largest developers are the ones doing business with national chains or public-sector credits that can be folded into existing financing vehicles.

As we discussed in our first article, SMB customers are more typically originated by the long tail of local developers. Meanwhile, there are many different potential project buyers, ranging from late-stage developers to private equity funds to YieldCos and more. 

FIGURE: Leading U.S. Non-Residential Solar Installers, H1 2016


Source: GTM Research U.S. PV Leaderboard

To get the right projects into the hands of the investors who want them, SMB financiers have to shift from being opportunistic to becoming true service providers. In the residential space, there are firms like Spruce, Sunnova, Sungage, Mosaic, and others that do this. But in the SMB space, financiers are largely brokers that have not invested in solid IT platforms to help the long tail of developers over the finish line.

Further, many of the financiers active in this space don’t have their own funds -- they are buying on behalf of other investors. This is problematic because the investor funds in question are rarely dedicated to small commercial. Moreover, many developers need construction capital, tax equity, sponsor equity, debt, and everything in between. Placing all of these products with different investors slows down the process and incurs burdensome legal costs.

The ideal financier would actually hold all of these projects to term. What you find is that in the SMB space, it is hard to imagine the entire portfolio making it the full 20 years without a significant level of non-performance. The financier would have to have a clear point of view on residuals, wholesale rates, future regulation, community solar, solar renewable energy credits, and other unknowns.  

Today, most financiers in the SMB space are learning by doing, meaning that good projects that deserve financing take months to process -- hardly responsive to customers. This slow process means that many salespeople cannot commit to customers expressing an interest and may be spending too much time on bad deals.  

The word “standardized” has often been used by debt providers and securitization agents. It is with this in mind that companies like beEdison, Sol Systems, Wunder Capital, Open Energy, and Wiser Capital have devised sophisticated platforms for accomplishing this goal of streamlining project due diligence. But many of them have struggled because developers couldn’t shift enough full-time sales staff to originating projects in the SMB space.

That’s not to say that there isn’t a place for these types of service providers. The reality is that there may never be enough of the “ideal financiers” described above. For many investors, a third-party platform may be the solution they need. But bringing more developers and investors into the market, as we discussed in our first article, is the crucial first step before these platforms have enough projects and capital to work with. You can’t standardize something that barely exists. And this market sector won’t reach scale without first having flexible investors dedicated to making this specific marketplace their focus.

There are enough roofs, customers and capital to take us far beyond the 5 gigawatts of commercial PV installed since 2012. The key to scaling this market will be for developers and financiers to use the current equipment cost reductions to increase margins for all participants to address the small commercial segment, and only then bring in platforms to standardize the financing process.

Despite all of the current market challenges, it’s clear that small commercial solar is too big of a market for anyone to pass up.


Read the first part of this series here.

Listen to our conversation on The Interchange podcast about how to scale the commercial solar market: 


Nicole Litvak is a senior analyst at GTM Research covering U.S. distributed solar. Jigar Shah is the president of, an investor in small and medium-sized rooftop solar projects.