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Significant growth potential in US commercial solar market despite challenges: speakers

Highlights

Could be 145 GW of total capacity

Less risk than utility-scale market

US bans materials from China's Xinjiang; cites forced labor

The untapped US commercial solar power market could be as large as 145 GW, and although challenges exist around market entry and financing, it is less competitive than the utility-scale solar market and there is significant growth potential, participants at a solar industry event said June 24.

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There is a large and untapped addressable market for commercial solar power in the US, Michelle Davis, principal analyst at Wood Mackenzie power and renewables, said during the Solar Energy Industry Association's Finance and Tax Seminar held in New York and virtually.

Overall, 70% of US commercial buildings with at least 10,000 square feet of roof space do not have solar installations which adds up to over 600,000 sites and 145 GW of total capacity, Davis said.

"As costs continue to decline the addressable market will continue to grow ... and there is a lot of financier and investor interest in this space," she said.

However, there are considerable financing and project development barriers, including the fact that many commercial businesses do not own their buildings, there is a lack of standardization for credit worthiness and tax equity providers tend to favor larger transaction sizes and standardized project types, according to Davis' presentation.

In near term, commercial solar market growth is expected in 2021 with extension of the federal investment tax credit and community solar programs ramping up in Maine, New York and Massachusetts, but longer term, growth could dip in 2024 as the ITC phases down, she said.

S&P Global Platts Analytics tracks commercial solar along with residential solar installation capacity and expects steady growth in the two segments out to 2030.

Solar power market challenges

The US solar power industry, which was hit with project delays related to the coronavirus pandemic, hit another potential snag June 24 when the Biden administration took enforcement action on solar products from China's Xinjiang region due to concerns about the use of forced labor. The US has accused China of genocide against Uyghurs and other Muslim minorities in Xinjiang.

The White House said US Customs and Border Protection ordered officers to immediately detain shipments containing silica-based products from Hoshine Silicon Industry Co. and its subsidiaries. Hoshine is the world's top producer of metallurgical-grade silicon, or silicon metal, according to the Critical Raw Materials Alliance. Silicon metal is a key ingredient in polysilicon, which, in turn, is an essential feedstock in most solar panels.

"The fact is, we do not have transparency into supply chains in the Xinjiang region, and there is too much risk in operating there," John Smirnow, general counsel and vice president of market strategy at SEIA, said in a statement.

"For that reason, in October, we began calling on solar companies to leave the region and we provided them a traceability protocol to help ensure there is not forced labor in the supply chain," Smirnow said.

Philip Shen, a senior research analyst at Roth Capital Partners, said the import restriction could have "a significant negative impact on the whole US solar industry."

Experts optimistic

Supply chain issues aside, companies are finding ways to finance commercial and industrial solar projects in the US.

For example, power generator and project developer Engie bundles a year's worth of commercial solar projects together as a fund and uses that structure to get financing which cuts down on transaction costs, Camelia Miu, acquisitions, investments and financial advisory specialist at Engie, said during the SEIA Tax and Finance Seminar.

The utility-scale solar market "has a huge amount of risk" with hub-settled power purchase agreements that might last only 12 years which leaves 30 years of merchant risk, Ryan Donnelly, vice president of structured finance and strategy at EDF Renewables, said during the SEIA event.

There are some challenges to scaling up the commercial market, "but if you can make it work the revenue streams are incredibly safe compared to grid-scale assets," Donnelly said.

"It has the potential to be an incredibly huge market ... there are a lot of investment-grade offtakers, a lot of good portfolios of projects that developers are bundling up and it's less competitive than the utility-scale market so you can find some really good deals," Miu said.