Notes from the Solar Underground: 2015, Out with the Old, In with the New

2015 is swiftly exiting and it’s time to take a look back and see if anyone learned anything that might help avoid something dire in 2016.

2015 was the year of the Solar YieldCo and maybe the year of the Solar YieldGo – Lesson: YieldCos are probably great funding instruments for industries with sufficient margins, maybe not so much for capital intensive industries struggling along on low margins.

2015 was the year that SunEdison basically bought everything from a wind development firm to residential solar lease firm Vivant, bottomed out and now seems to be struggling back. Lesson: When expanding into capital intensive, low margin industries, tread carefully.

2015 was the year that Spain-based renewable energy developer Abengoa toppled into bankruptcy as investors lost their appetite for the massive debt financing required to continue funding ongoing operations. Creditors have provided the company with 100-million Euros that will help it survive the year, but an additional 350-million Euros or more will be needed to help Abengoa make it through another three months. Lesson: Again, capacity intensive industries require buckets of money to continue building and if the assets do not perform as expected or take longer to build (CSP) than expected, costs rise and profits fall.

2015 was the year that potential of future profits for residential solar lease providers began to finally seem possible. Though in Q3 SolarCity reported an operating loss of $191.1-million and a net loss of $234.3-million, the company had a gross margin of 46% for its lease business and a negative gross margin of -48% on system and component sales.

The company’s gross margin on total revenues was 22%. Lesson: The older leases are now turning profitable and SolarCity probably doesn’t want to continue selling systems. The real lesson, however, is that SolarCity still has time to make adjustments to the lease model and offer an instrument that is both profitable and fair to lessees. Specifically, the escalation charge, based on an assumed annual increase in utility rates, has nothing to do with the associated costs of PV installations. Bottom line; make the lease instrument fair before fairness is thrust upon you.

2015 was the year that PV cell and module poor quality began to be a problem as modules as young as two years in the field began failing. Lesson: Poor quality predates Chinese entry into the market for PV cells and modules and is now entering crisis mode straining warranty obligations and threatening the reputation of the global PV industry.

The PV industry began down this slippery slope in 2004 when the EU FiTs drove demand to gigawatt levels and it accelerated with the designation of Tier 1, 2 and 3 manufacturers and grade A, B, C modules. Poor quality was accepted by buyers at a lower price by buyers. The lesson for the industry is this, ALL manufacturers should be Tier 1 and all cells and modules should be grade A or simply, the other energy technology choices will dominate and solar will not play a leading role in the switch to renewables worldwide from polluting fossil fuels.

2015 was the year that the U.S. finally stepped up to offer a domestic energy policy that recognized the need to curb carbon emissions with the EPA’s Clean Power Plan. In sum, under the CPP:

  • Nine states can increase mass CO2 emissions; examples are Virginia with a 2 percent increase and Idaho with a 133 percent increase
  • Six states have minimal decrease in emissions reductions; examples are Delaware at 1 percent and New York at 8 percent
  • 24 states have mandatory emissions reductions of between 20 percent and 27 percent while Montana, for example, has mandatory reductions of 47 percent

The CPP was released on August 3, 2015; important deadlines are:

  • September 6, 2016: States must file their initial submission with either an extension request or a final plan
  • September 6, 2018: States with extensions must file a final plan
  • Compliance stretches through 2030

There are three building blocks to the CPP. The energy efficiency building block, which included micro-grids, etc., was taken off the table as it was deemed impossible to legislate. The building blocks are:

  • Existing U.S. energy generating facilities must be made more efficient
  • There must be increased natural gas combined cycle requiring significant infrastructure building and upgrades
  • More renewable energy technologies and nuclear must be brought on line

Currently the CPP is in a legal gray area and it is the most litigated ruling in U.S. history. Twenty-seven states have filed lawsuits; eighteen states are in favor of the CPP and of the 27 states that have filed lawsuits, 18 are currently holding public listening sessions to explore planning.

Lesson: With pending litigation and potentially a change in administration in the U.S. following the presidential election in November 2016, the CPP’s future is about as clear as a smoggy day in Southern California or the air on any day in Beijing – best to make plans pragmatically – but, best to make plans.

2015 was the year that the U.S. solar industry realized that the ITC deadline loomed at the end of 2016 and began to panic or not panic, depending. Then, late in December a five-year extension of the wind PTC and the solar ITC was tacked onto a lifting of the U.S. decades-old ban on crude oil exports. The agreement is part of a spending and tax passages on Tuesday, December 15 and still has hurdles to clear before passage.

The Lesson: Though many have referred to the end of 2016 as the ITC cliff, the fact is that the U.S. solar industry has had several years to negotiate an extension or a step down plan. Also, when you know something is coming, it cannot be referred to as a cliff. As it happens, large developers have been continuing with development plans for utility-scale solar that included the change in the ITC at the end of 2016. These developers will be rewarded by this reasonably early extension. Panic over incentives has driven solar industry behavior for its entire history – it may be time to eschew panic, take advantage of climate change driven momentum and develop the business models that will carry the solar industry into its future.

2015 was a big year for utilities globally to realize that – whoa – solar is a variable resource and that there is sufficient momentum in solar deployment in the U.S. for utilities to see the hit on revenues and to try and curb net metering and add fees for PV system owners. Lesson: Solar has always been a variable resource so, come on, planning to ameliorate this should have begun several years ago. Storage is part of the solution, system design is part of the solution, demand response is part of the solution, stalling or attempting to reign in deployment is not part of the solution, nor is adding fees that penalize system owners part of the solution.

2015 was the year that a significant climate change agreement was announced indicating that globally, governments realize that time on the environmental decay gravy train has about run out. A goal of limiting warming to 3 degrees Celsius was set with provisions to revisit emission goals every five years. An aspirational goal of limiting warming to 1.5 degrees Celsius was set. Nations will set their own goals and develop their own plans to achieve the overall targets and to phase out fossil fuels while increasing the use of renewable technology. Though progress will be monitored the goals are not binding under international law.

Lesson: Fossil fuel energy beware, the trend is clear and there is momentum to change the way humanity sources its energy. It will not be easy. It will be expensive, though … the environmental disaster would be far more expensive. The point is that after years of delay reality has begun to set in and the switch to renewables will gain momentum and accelerate, and future generations will look at our dependence on fossil fuels from the standpoint of historic interest and disaster avoided.

Editor’s note: Renewable Energy World has recently formed an exclusive partnership with Paula Mints. Readers can now purchase her reports at reduced cost. Click here to read more.

Lead image: Year 2016. Credit: Shutterstock.

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SPV Market Research is a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry. Areas of expertise include PV technologies, markets and applications. Specifically: capacity, production, shipments, inventory, costs and prices for photovoltaic crystalline and thin film cells and modules as well as global market analysis including applications, system costs and prices, component costs and prices, market growth, history and forecasting and research into consumer attitudes about solar as well as the consumer buying experience. All Solar All of the Time Blog:

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