Commercial solar is something of an enigma. Falling between the better-known residential and utility-scale solar industry sectors, commercial solar—or C&I solar as it’s often called, referring to commercial and industrial scale—encompasses a wide variety of customer types, solar designs, and project sizes. It also differs from residential solar in some key ways.As Ian Clover, Manager Corporate Communications, Hanwha Q Cells explains, ”In the jargon-heavy world of solar-speak, C&I handily condenses Commercial and Industrial into a snackable sub-section of the PV industry. But as sub-sections go, the C&I space has perhaps the greatest scope for flexibility, offering a raft of possibilities from ground-mount through to ingenious use of rooftop space.”
For a variety of reasons we’ll touch upon in this article, commercial solar has been slow to take off but there are signs that this sector is poised for significant growth. And, for those who learn to navigate the complexity of these projects, the rewards can be big.
This article is the first in our Unlocking Commercial Solar series, in which we’ll delve into a variety of aspects of commercial solar to help solar professionals understand the dynamics of this unique sector.
In today’s article, we offer a brief primer on what commercial solar is, the scale of this sector and some of the factors that have constrained its expansion, as well as forecasts for future growth. In subsequent articles, we discuss the different players involved in commercial solar projects, how to sell a commercial solar project, and what financing for these projects may look like.
What Is Commercial Solar?
Commercial solar may seem straightforward—solar for businesses as opposed to residential solar for homes. However, commercial solar encompasses a variety of different types of customers and projects. In addition to businesses of different sizes, from large corporations to local small businesses, “commercial” solar customers can also include governments, schools and universities, and even nonprofits.
Commercial solar projects may take the form of rooftop arrays on buildings or ground mounts, and can range widely in size from kilowatts to megawatts. According to Joe Naroditsky, Director, Solar & Operations at the Community Purchasing Alliance (CPA), an organization that connects nonprofits with solar bids, the C&I solar projects his organization facilitates can range in size from 50 kW for small churches and synagogues to 300-400 kW for large schools.
And that’s just the tip of the iceberg.
Using Aurora, researchers at UC Davis have examined the real-world solar potential of some of the largest commercial buildings in the United States. Their review of the largest commercial building in the U.S., a Texas-based aerospace company with 770,000 square meters of rooftop, found that it could generate 88 million kilowatt hours of clean energy! As explained in the Washington Post, “That’s enough to power nearly 5,200 homes for a year, offset 47,800 metric tons of CO2, and spare up to 388 acres of land.”
Obviously, this is the extreme end of the spectrum where building rooftops rival the scale of utility-scale projects, and this site has not been developed with solar. However, but it serves to illustrate the extreme variation in potential project sizes in a sector where the buildings and customers differ widely.
Constraints on the Commercial Solar Market
As you begin to read up on the commercial solar sector, one of the common refrains you’ll see is that this market has not grown nearly as rapidly as residential or utility-scale solar. As noted in PV Magazine, “The commercial and industrial (C&I) solar markets have been a relative challenge for solar developers to exploit.”
There are a number of factors that have contributed to this. For one, lower commercial electricity prices have historically made the economics of solar on commercial properties trickier. “The C&I sector has trouble competing against an average 15% or more lower price per kilowatt-hour rate than residential electricity prices, according to the U.S. Energy Information Agency. There is less of a discount in installed costs between the residential average of $2.80 per watt-DC versus “non-residential” of $1.85/watt, or the much lower less than $1.03-1.11/watt for utility scale in the first half of 2017, according to the latest figures from National Renewable Energy Laboratory,” as Mark Berger explains in PV Magazine.
Another barrier relates to the fact that in many commercial buildings the occupant is not the building owner. This “split incentive” means that the building owners who would make the decision to install solar are often not the ones paying the utility bills, making solar energy savings less of an enticement for them.
Financing is also more complex in the C&I solar space, and according to some contractor’s we’ve spoken with, less accessible. That is beginning to change, however, as financing mechanisms for this space become better understood by financial actors and there are more successful projects for financiers to look to and assess risk.
As explained in Solar Power World, “The first major hurdle in any project is financial viability: Show me the money. Commercial solar and now community solar are advancing beyond bureaucratic budgetary boundaries by systemizing structures for the private sector, consumers and third parties to partner and invest in energy infrastructure assets.”
Other barriers include “contracting challenges, the mismatch in building lease and PV financing terms, and high transaction costs relative to project sizes,” according to a National Renewable Energy Laboratory (NREL) report.
Commercial Solar’s Current Scale
According to the Solar Energy Industries Association, as of April 2018, there were 2,562 megawatts (MW) of commercial solar projects in the U.S. including installations by more than 4,000 companies across nearly 7,400 locations.
This level of installed capacity trails behind the residential market, despite larger project sizes, and is far behind the utility-scale market. As of 2016, NREL reported that non-residential solar (another term often used for this market) comprised 24% of the total installed capacity in the U.S.
Despite this slow start, there are a number of indications that this market is poised to take off.
Potential for Growth in Commercial Solar
Among the indicators of commercial solar’s rise is the growing interest of corporations in powering their operations with solar. SEIA’s Solar Means Business report highlights the aggressive deployment of solar by corporations around the country, finding that in 2017 the “top 25 corporate solar users in America [had] installed more than 2,500 MW of capacity at nearly 7,500 different facilities.
Given the scale of many of the buildings in this sector, you can imagine that as barriers are tackled, the potential for installed commercial capacity is significant.
In a 2016 report, NREL examined the potential size of the C&I solar sector if certain challenges were overcome. They concluded that, at the U.S Department of Energy’s “SunShot 2020 targets,” the “techno-economic” potential for offices was 54 GW, for hotels 16 GW, and for warehouses 34 GW for a combined potential across these building types of 104 GW in the U.S.!1
For context, at the end of 2017, DOE reports that the combined capacity of all installed solar PV and wind power in the country was 144 GW.
Many of the challenges in this sector are already being surmounted. A recent white paper by SEIA and SolarKal highlights the fact that commercial solar projects can be structured in a variety of ways that split the costs and benefits across building owners and tenants to meet different criteria. They also emphasize the variety of financing structures to fit the needs of the parties involved, and the fact that solar is cost competitive with utility energy.
Commercial solar can offer many benefits—to building owners, commercial tenants, financiers, and of course the environment. For building owners, benefits include increased operating income and cash flow and longer lease terms, as the SEIA/SolarKal white paper notes. Reduced operating costs through utility bill savings are an obvious benefit for tenants of commercial buildings with solar.
There are also benefits for solar contractors that successfully navigate this sector. The economies of scale at play in these larger projects can make them more lucrative, in addition to the significantly larger total project price tags compared to residential projects.
Stay tuned for the subsequent articles in this series to learn more about the ins and outs of the C&I space. Whether you’re already actively involved in commercial solar, interested in transitioning into this space, or just want to increase your understanding of the industry, our goal with this series is to provide helpful perspectives on how the commercial solar sector works. In future articles we’ll delve into the various players involved in commercial projects, how to sell C&I solar projects, and some of the financing structures for commercial solar projects.
We’re excited for the potential of C&I solar as another key pillar in the growth of solar energy more broadly and hope you are too!
1 - For context, DOE’s Sunshot Initiative was established with the goal of driving down the cost of solar energy. It’s solar cost targets for 2020 were: “$0.10 per kilowatt hour for residential solar, $0.08 per kilowatt hour for commercial solar, and $0.06 per kilowatt hour for utility-scale solar.” Sunshot’s target for utility-scale was reached in 2017. A Q1 2018 analysis by NREL reported that commercial solar cost per kWh in the U.S. has now fallen to 91% of the 2020 target, so the conditions upon which these estimates are based are not far from reality.