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Commercial Solar | Solar design tips, sales advice, and industry insights from the premier solar design software platform

Financing options for solar projects can be complicated, and that is particularly true for commercial and industrial (C&I) solar projects. Yet understanding the available financing tools is essential for solar contractors operating in this space. After all, determining how to pay for a solar project of this size is a critical first step to getting the project off the ground.

In this article, Part 4 of our Unlocking Commercial Solar series, we provide an introduction to some of the common commercial solar financing options—including considerations for determining which may make sense in different instances. While the complexity of these financing mechanisms means that a deep exploration of each is beyond the scope of this article, we’ll get you familiar with the basics and include links to other sources where you can learn more.

(Looking for a more introductory overview of solar finance for both residential and commercial projects? Check out our  Solar Finance Primer!)

We spoke with practitioners in the field to get real-world perspectives on these commercial solar financing mechanisms and what you should know about them. We talked with Dan Holloway, VP Origination & Acquisitions at Sustainable Capital Finance, a financier that provides commercial solar PPAs, and Conrad Chase, CEO of Point Load Power, an emerging cleantech company whose flagship technology, PV Booster rooftop solar trackers, is tailored to commercial and industrial building owners.

Holloway is responsible for building and managing relationships with all of SCF’s Developer and EPC Partners. He previously worked at Cobalt Power, a large EPC in Mountain View, California, where he was involved in the origination, development, construction and financing of over 200 solar projects. Chase as well has worked with many commercial clients to help them navigate the commercial solar financing process.

In the commercial solar sector, there are a variety of different ways that a project can be financed, but some of the most common are: solar power purchase agreements (PPAs), solar leases, energy services agreements, tax equity financing structures such as sale leasebacks and partnership flips, and cash or loan purchases of the system. Let’s take a closer look at each.

We’ll start off with PPAs and leases, two of the most prevalent options for financing C&I solar projects. As we explain in our primer on solar financing options, under both PPAs and leases, the PV system is owned by a third-party financier—rather than the solar developer or the customer who will use the power it produces.

The third-party owner will receive any tax incentives from the system, such as the 30% Federal Investment Tax Credit (ITC) and depreciation. They can pass those savings on to the customer in the rates they offer, making this a preferred option for customers with low or no tax liability (i.e. taxes owed)—such as nonprofits. However, in both leases and PPAs, the commercial customer may be given the option to buy the PV system at certain points during or at the end of the contract.

## PPAs

Under the terms of a PPA, the solar customer agrees to purchase the power the solar energy that is produced by the PV system from the system owner at a certain price over a set number of years. The term length of a PPA typically ranges from 10 to 25 years.

A solar power purchase agreement or PPA has historically been one of the dominant ways that commercial solar projects are financed. Holloway notes that, in the commercial and industrial sector, PPAs are “still the primary funding source that I'm aware of.”

And as noted above, the ability for customers without high tax bills to indirectly benefit from another entity taking tax incentives on their behalf is also a big contributor to the popularity of PPAs. “Nonprofits, and other organizations that do not have the ability to take advantage of the Investment Tax Credit—think schools, municipalities, churches, and charities like Boys and Girls Clubs—is in a position where there's no other way that they can take advantage of the ITC; they need someone to do that on their behalf. And [one of] the only financing vehicle[s] they can use to do that would be a PPA.”

PPAs are popular for other reasons as well. One is that they can be structured so that there is no upfront payment (no money down) required from the customer. Additionally, the long-term nature of some PPAs (e.g. 25 years) can allow for lower payments.

PPAs may also be structured with an escalator—meaning that the price the customer pays for the energy they purchase will increase at a certain rate over time. For customers looking to maximize their savings at the outset, escalators provide a mechanism for lower costs at the start of the contract.

### PPA Considerations

If there is an escalator in the agreement, customers should look closely to see how the rate of increase compares to historic rate increases from their utility. While no one can read the future and know exactly how a utility’s rates will increase, it’s important that the escalator is based on reasonable assumptions of future utility rate increases. This minimizes the risk that the customer someday ends up paying more for solar energy than they would have buying power from the grid.

## Leases

Leases are another common way of financing commercial solar properties, and they share a number of similarities with PPAs. As with PPAs, the PV system is owned by a third-party financier and the deal can be structured so that there is no upfront payment.

However, instead of purchasing the actual power produced by the system at a per-kWh price as would be the case in a PPA, under a lease the customer pays a fixed rate over a set number of years. While this fixed rate is based on the estimated production of the system and it’s assumed value, the cost that the customer pays is not directly tied to system production.

Whereas under a PPA, the customer’s solar bill will fluctuate seasonally with lower charges when the system produces less, a customer will a solar lease knows that their payments will always be the same. On the one hand, this provides consistency and the ability to plan costs; on the other, if production is lower than anticipated for reasons other than a problem with the system—for instance, during an unusually rainy year—the customers bill will not be proportionally reduced.

Similarly, due to the fixed nature of lease payments, leases do not include escalators as many PPAs do.

### Types of Leases: Operating vs. Capital Leases

There are two types of solar leases, with different accounting implications for companies: capital leases and operating leases. While an exploration of the full accounting implications of operating versus capital leases is beyond the scope of this article, a primary difference between the two is that operating leases are not held on the balance sheet of the company, while capital leases are.

As Holloway explains, “Most companies primarily use operating leases in the [C&I solar] space, as capital leases end up on your balance sheet. Most companies prefer to keep as much of their financing off balance sheet as possible for the simple reason that it decreases the amount that they can borrow.”

In essence, an operating lease acts more like renting equipment, whereas a capital lease acts more like a loan and includes some of the benefits and risks of ownership.

### Lease Term Length

The length of a solar lease can vary widely, from as few as seven years to as many as 25. However, commercial solar leases are often shorter than commercial solar PPAs. “While it's possible to offer longer term Operating Leases, this is not currently the industry norm,” says Holloway. “In my experience, the vast majority of operating leases still fall into the 7-10 year term length category.”

The length of the lease will impact how much the customer pays. As Holloway explains, “If you only have seven or 10 years to amortize those payments, those payments are going to be considerably higher” than a longer-term agreement.

## Energy Service Agreements

Another type of commercial solar financing that is similar to an operating lease is an Energy Service Agreement. As the American Council for an Energy Efficient Economy explains, “Under an ESA, a service provider delivers energy-saving services using equipment it owns and operates.” Like an operating lease, this is a type of off-balance sheet financing, making it popular with businesses.

While legally distinct from leases, in practice, ESAs are similar to operating leases in that the customer pays a fixed rate for the “service” of solar energy (though ESAs can also be used to finance a variety of other building energy upgrades). In many cases, the ESA provider guarantees a certain level of energy savings.

Chase explains that many companies—especially ones with multiple sites or portfolios of properties—“often use energy service agreements as a no-risk way to finance a number of energy improvements, and essentially receive a guarantee of savings.”

## Tax Equity Project Financing: Sale Leasebacks and Partnership Flips

As you can probably tell from our coverage of leases and PPAs above, the “tax equity” of a solar project—or the ability to reduce taxes owed by taking advantage of certain policy incentives like the ITC—is a valuable commodity for entities with high enough tax bills to make use of it.

While tax equity is important in many types of solar financing like PPAs and leases, there are other types of financing agreements that have been developed specifically for the purpose of allowing certain groups with high tax bills (tax equity investors) to utilize the tax equity of a project in exchange for investment.

These tax equity deals are a special category of solar project finance. They include partnership flips and sale leasebacks, among other structures. While these arrangements are too complex to cover fully in this article, we’ll provide a brief introduction to them and the basics of how they work.

### Partnership Flips

In a partnership flip, a deal is structured so that the tax equity investor receives the majority (e.g. 99%) of income allocation of the project for a certain duration of time—specifically until the ITC recapture period has elapsed.. Following that point, the contract specifies that their allocation “flips” such that they can be bought out, or stay in the partnership while being allocated a minority (e.g. 1%) of the project’s income & cash allocations, with the majority then being allocated to the project sponsor.

As Holloway explains, “The tax equity partner’s goal is to monetize virtually all of the tax benefits. Their goal is not to own the asset for the long term... [just to] be a partner in the deal until the benefits of the tax equity—the ITC, depreciation, etc.—have been monetized.”

“At that point the tax equity partner “flips” out of the deal; they go from being [for example] a 99% income allocation partner to 1%. Then the sponsor has a 99% allocation, and they are in it for the long haul.”

A partnership flip is one of the most common forms of tax equity financing in solar.

### Sale Leasebacks

In a sale leaseback, the tax equity investor purchases the PV system from the project sponsor. They then lease the system back to the project sponsor who retains the right to use and operate the system and receive revenue through its operation. The sponsor has the option to purchase the system at some point.

### Transaction Costs Impact the Use of These Financing Options

Solar project finance deals like these bring together several parties with different interests and goals in a project. Negotiating legal terms that are acceptable to all can be costly. As Chase explains, “because there are so many parties involved, there are high transaction costs to securing this type of finance.”

These high costs typically mean that such deals only make sense for large projects above a certain value. In addition to the large commercial sector, these types of finance structures are well established in utility scale; however, they are impractical for many smaller commercial projects.

## Debt Financing (Loans)

In addition to the variety of financing options discussed above, in which ownership of the PV system is held by someone other than the user of the solar energy (at least for a period of time), a commercial solar customer can choose to purchase their PV system—outright (cash) or through a loan.

In these cases, the tax benefits go to the customer. Since cash deals are straightforward, we’ll restrict our discussion to loans. Solar loans are similar in many ways to other types of loans that you may be familiar with in your daily life.

### Types of Debt Financing

There are multiple types of loans, including secured loans, which are “secured” by the lessee’s assets, and unsecured loans, which are not. For customers comfortable using their assets—like their real estate property—as collateral, secured loans can enable customers to get a better rate or to get a loan that they might not otherwise qualify for. To do that, the customer must own their building.

Additionally, another form of debt financing that has emerged in some areas is Property Assessed Clean Energy (PACE) financing. In PACE financing, the loan for the solar installation (or other property improvements, like energy efficiency upgrades) are repaid in the property taxes of the project site. PACE is only available in areas that have enabling legislation, but can be another good option of financing solar—particularly since in some cases the loan can be repaid over as many as 30 years.

### Debt Financing Considerations

A key limitation when comes to solar loans is whether the project owner (commercial customer) has strong enough credit to get a rate that makes this option financially feasible—or to get a loan at all. For large companies this may be straightforward, but for others, especially small businesses, it can be a challenge.

Chase explains why asset-backed lending can be a good option for some customers. “Say your commercial solar customer is a building owner—a family business that's been around for 20 years and they don't have investment grade credit. They still may qualify for a loan, but they may have to have a very high interest rate. Ultimately, they may determine it's not worth it, depending on how much they're saving.”

“The benefit of PACE or a real estate loan is that their credit rating is not an issue because the loan is backed by the actual asset value of the property. That directly opens up project financing for solar and other energy upgrades to a whole group of customers that didn't have access before.”

Of course, whether this option is a fit depends on the goals of the commercial property owner. For instance, the lower borrowing rates of a real estate-backed loan may be appealing companies that plan to own the project site for the long-term—particularly if the solar project increases the value of their property. However, it would make less sense for a customer interested in selling their property.

As you can likely tell, commercial solar finance can be complex! In this article we’ve only scratched the surface of the details of each of these common solar financing methods: solar PPAs, solar leases, energy service agreements, tax equity financing structures including but not limited to sale leasebacks and partnership flips, and debt financing.

Depending on the role your solar company takes in C&I solar projects, you don’t need to be an expert in these kinds of solar financing mechanisms. However, it is important to understand the diverse financing options available and their implications. This will let you guide your commercial customer in understanding what options may be available to them and what questions they may want to ask.

Determining how to pay for the system is a critical first step to closing the sale, so the more you can do to help your commercial customer navigate this (sometimes daunting) process, the more likely you’ll be able win commercial solar business.

There is a lot of complexity that comes with selling commercial and industrial (C&I) scale solar, including many factors that differentiate it from residential solar sales. Your commercial client’s motivations for considering solar differ from residential customers, as do the ways they evaluate your proposal and the processes by which they make their decisions.

To understand some of the important factors in a successful C&I sales process, we spoke with professionals with extensive C&I solar sales experience, including Conrad Chase, CEO of Point Load Power, manufacturer of PV Booster rooftop solar trackers for commercial and industrial rooftops. We also spoke with Nico Johnson, host of SunCast, a podcast that shares the experiences of clean energy entrepreneurs, with over a decade of experience in the solar industry.

In our conversations with Chase and Johnson, some essential elements of a successful commercial solar sales process emerged: asking the right questions during the sales process, understanding the landscape of other energy and building upgrades your commercial client may be considering, and selecting the right tools and technologies (including the right proposal and design tools to close the sale).

In this article, Part 3 in our Unlocking Commercial Solar series, we’ll delve into each of these topics and how to tackle them intelligently to improve your chances of closing the commercial sale.

## 1. Ask the Right Questions to Tailor Your Commercial Solar Sales Pitch

One of the fundamental errors of commercial solar sales that came up in our conversations with both Chase and Johnson was the failure to ask the right questions. “Asking the right questions is so important in this category. And what we found over talking to hundreds of installers is that they’re flat out missing the mark,” said Chase.

As Chase explained, asking the right questions is important because it lets you make the right proposal for your customer's needs. This can allow you to deliver a more compelling deal and increase your chances of winning the sale. Johnson also emphasized the importance of asking the right questions in allowing you to connect with the right decision-maker in the organization who can actually get the project approved.

Let’s take a look at a few of the key questions you should be asking.

### Understand the Lease Structure and Owner-Occupant Relationship

A fundamental category of questions that Chase highlighted relates to understanding the relationship between the building owner and tenants (if any).

As discussed in our earlier articles in this series (Key Players in a Commercial Solar Project and Making Sense of Commercial Solar), one of the factors that makes commercial solar projects more complicated is that the owner of the building with the authority to approve a solar purchase is often not the occupant of the building who will benefit from lower utility bills.

Questions about the lease structure and the relationship between the building owner and tenant (if any) allow you to understand these complexities at the outset. This can help you determine whether the prospect is worth pursuing and, if so, how to tailor your solar design and proposal appropriately.

While there are many types of commercial projects and lease structures, Chase highlighted three common lease / building-tenant arrangements that Point Load Power often sees. From least to most complex, these are:

• owner-occupied buildings,
• buildings with a single tenant in a triple net lease (a type of lease in which the building owner provides the building as-is and the tenant is responsible for any building repairs, upgrades, utility costs, property taxes, etc.),
• and multi-tenant buildings (which may have different lease types including triple net or gross leases).

Owner-occupied buildings make for the most straightforward commercial solar projects because the building occupant who benefits from energy savings and the owner who can make solar purchasing decisions are one and the same. Particularly if you’re just getting started it may make sense to focus your energy on projects that are less complex in terms of the lease and tenant situation.

If the building has lease, some of the lease-related questions to ask include:

• What type of lease is in place and what is the tenant-owner relationship?
• Who's the tenant?
• Who is the owner?
• How long is the lease?
• How long is left in the lease?
• Who has responsibility for the roof?

### Understand the Financial Objectives and Considerations of the Parties Involved

It is also essential to understand the financial objectives of the parties involved— particularly the building owner and the entity that will own the solar installation (in many cases these will be the same, though not if a third-party-owned financing option is selected). You’ll also want to understand the motivations of the tenant(s) if there are any.

Chase highlighted the importance of understanding the objective of the building owner related to the ownership of the building. “For example, is this property going to be flipped and sold to some bigger company? Is the property owned by some individual that has a long term buy and hold strategy?”

With regard to single-tenant buildings with a triple net lease, he noted that a significant financial consideration for building owners is how likely their tenant is to renew their lease and at what cost. “The building owner wants longer-term leases, with higher lease rents. And they want that to be as secure as possible, because the more secure that their income is for the building, the easier it is that they get bank financing.”

Reduced utility bills through a commercial solar installation can be a significant motivator for the tenant to renew their lease and can be a means for the building owner to obtain higher rents. Additionally, the revenue from a solar installation may enable the building owner to offer incentives that increase the appeal of a lease for a new or renewing tenant.

This scenario is exemplified in a large commercial project that Point Load Power developed for building owner Harry Ross Industries, whose prospective tenant, Chiquita Brands International, was enticed by utility bill savings solar would provide on their refrigerated warehouse.

Meanwhile, you’ll also want to understand the considerations of the tenant(s) involved. As Chase explains, “It actually depends very much on the tenant, but in general, they're already in or signing up for a lease, they certainly don't want their power bill to go up. And some may have some requirements around, you know, flexibility up on the roof, you know, if they want to put something up there, like an HVAC unit or some other piece of gear, you know, there might be some actual structural consideration that they need to they need to be aware of.”

Finally, you’ll also need to ask questions to understand the financial objectives of the entity that will own the solar installation. In particular, it can be helpful to understand the organization’s tax situation as this will influence whether they can benefit from tax credits for solar.

“Knowing these nuances will shape how the installer makes their pitch and what types of things they pitch” says Chase.

## Find the Real Decision-maker

Another essential element of asking the right questions is to ask questions to identify the individual or individuals who actually have the authority to sign off on a solar purchase. Unlike a residential sale which has fewer decision-makers involved, commercial solar projects involve many stakeholders and its up to the sales person to identify who has the authority to move the project forward.

This is a common C&I sales pitfall according to Johnson. Often “[contractors] get their foot in the door, they've done a great job prospecting, they've got the tools, maybe they've got a good layout and energy analysis—but they're just plain talking to their own person.”

In many cases, he says “the only person they've been able to get open the door is the facilities manager. Well, in very rare cases is the facilities manager actually making the decision. But if you recognize that the facilities manager is your champion, and you understand large account management, and your sales team trained right, then you’ll be able to get to the decision-makers—the board of directors or whoever is going to actually stroke the check—in an efficient process. Identify the economic versus the technical buyer.”

Make sure you ask the questions necessary to understand find the real decision-maker.

## 2. Understand the “Ecosystem” of Other Energy and Building Upgrades Competing for the Same Budget

Another important element of a successful C&I sales process according to Chase is to understand the variety of other options that are competing for the same part of your commercial client’s budget. He says that often solar contractors assume that their main competition is other solar proposals.

In fact, there are many other energy and building upgrade options and technologies competing for the same dollars available for a solar purchase. These include things like energy-efficient windows, roof replacements, new HVAC units, and many other potential investments.

In some cases, these investments may have shorter payback periods than solar. But pairing solar with these other upgrades may yield a more compelling proposal for the client—particularly if the other technologies are eligible for rebates or other incentives.

It’s also crucial to understand that some of these investments may be things that the client needs to undertake to maintain their building. Chase gave the example of a university that Point Load Power worked with. The building in question needed a new roof, as well as to upgrade very old HVAC units that were at risk of breaking, as well as several other changes.

By asking questions to understand the other building initiatives the client was undertaking, the team was able to learn that after the other improvements were done, the load profile of the building would be drastically different. Because of the improved energy efficiency of the building, its energy consumption would be drastically less.

With this knowledge, the team proposed a smaller, 400kW PV system that better matched the actual future needs of their prospect, compared to megawatt-scale projects proposed by competitors. “In summary,” Chase explains, “understanding the ecosystem of solutions is critical because it allows installers to make the right proposal.”

## 3. Use the Right Tools and Technologies

A final critical element of a successful commercial solar sales approach is to use the right tools and technologies. This includes both the technologies that you propose in your commercial solar project, as well as the design and proposal tools—particularly software—that you use.

Both Chase and Johnson highlighted the importance of robust solar software tools to successfully closing a C&I deal. “The right proposal and design tools are critical,” says Chase. “Software that allows an installer to look at a bunch of different scenarios, factoring the other technologies that are in play and may result in a new load profile—to run those scenarios quickly, is important.”

Johnson added, “I see a lot of folks that try to scale in the C&I not investing in the software upfront. And so they try to do the hard math, hoping that they'll do they'll close a deal that'll justify the software expense, rather than justifying the software expense because it'll help you close a hard deal.”

Choosing the right technologies to include in your solar design is also essential in delivering the proposal that will be most compelling to the client. “In the story of the university, they did not want to put carport solar, because it was really expensive,” explains Chase. And because they were already replacing the roof, they were interested in adding rooftop solar at the same time. In that case, Point Load Power’s proposal of an efficient option that offered higher production with fewer modules appealed to the client’s desire to minimize the amount of equipment on their new roof.

Commercial solar sales are complex. That’s particularly true if you’re new to the sector—for instance if you’re transitioning into commercial solar from residential. Bearing these best practices in mind—asking the right questions, understanding the landscape of competing technologies and building upgrades, and using the right tools and technologies—gives you a better chance of closing the deal.

What else have you found to be critical to a successful commercial solar sales process? Let us know in the comments below!

Commercial solar can be a lucrative sector for solar companies, but access to financing can be a significant challenge. Obtaining the necessary capital can be particularly difficult for certain classes of customers and projects—like nonprofits and small projects below a certain kW size.

This barrier is one of the reasons that the commercial solar sector has been slow to take off; despite significantly larger projects, the installed capacity of commercial (C&I) solar is currently far less than residential PV in the U.S.

Aurora Solar’s new partnership with Sustainable Capital Finance aims to tackle this challenge and make commercial solar financing more accessible in the industry. Through this partnership, Aurora customers can view live PPA rates and apply for commercial solar PPA financing for projects over 100kW located in the U.S.—without leaving their Aurora solar sales and design platform.

There are several key benefits this offers to solar contractors:

## 1. Increased transparency about financing rates

One key benefit of Aurora and SCF’s Financing Integration is increased access to information on financing rates for solar contractors, through our Quick Quote functionality. Quick Quote allows you to view real, actionable solar PPA financing rates that SCF is offering for your project.

As you explore different financing options for your commercial project using Aurora’s financial analysis tools, you can add “PPA Finance by Sustainable Capital Finance” and a PPA rate will be instantly generated for your project.

This allows you to set clear expectations for your customers about what rates they may be able to access. This can be particularly helpful for customers who are concerned about the availability of financing options for them.

Additionally, because you’re presenting rates that you know are available to qualifying customers, there is a lower likelihood that the actual rate is significantly different than the assumptions you presented—thus reducing the likelihood that the sale falls through.

Quick Quote, one part of Aurora Solar’s partnership with Sustainable Capital Finance, makes it possible to immediately view real commercial solar PPA rates that SCF is offering.

## 2. Improved access to capital—particularly for projects and customers that have a harder time accessing financing

Another key advantage of our financing integration with SCF is increased access to capital. Rather than searching for financing partners that serve projects like yours, you have one at your fingertips.

Further, solar PPA financing from SCF is notable in that it is accessible to customers and projects that have traditionally had a harder time accessing capital: nonprofits and small commercial projects.

As Dan Holloway, VP Origination & Acquisitions at SCF explains, “most companies that offer PPA financing do not offer financing for projects smaller than 1 MW, and almost none that will go below 500 kW. Sustainable Capital (SCF) believes that this is a vast and very under-supported part of the overall solar PV market. We offer PPA financing for projects as small as 100 kW and happily support nonprofit organizations.”

At Aurora, our mission is to create a future of solar energy for all; increasing the accessibility of financing through this partnership directly supports that goal.

Aurora users can now submit an application for commercial solar financing from SCF without leaving the Aurora software. All of your relevant project information will be automatically transferred to SCF for review, saving you time and effort.

## 3. Access capital faster to close more sales

An additional significant benefit resulting from this financing integration is the ability to reduce the time it takes to finance your commercial solar project. Not only can you see live commercial solar PPA rates with Quick Quote, as an Aurora customer you can directly apply for solar PPA financing without interrupting your solar design and sales workflow.

Instead of spending time rounding up the documentation and production data needed for a financing application, you can automatically transfer all of your design information from Aurora to SCF.

This Aurora information also helps allow SCF to efficiently process financing applications because they can be confident in the energy production data and other solar design information you are submitting. Aurora’s remote shade analysis has been validated by the National Renewable Energy Laboratory (NREL) as statistically equivalent to onsite shade measurements and our shade reports are accepted as bankable by financing and rebate authorities across the U.S.—including NYSERDA, CT Green Bank, and the Energy Trust of Oregon.

As a result of software tools like this, SCF is able to price and underwrite projects in hours instead of days, allowing you to respond faster to your leads. Faster turnaround time has significant sales benefits—allowing you to respond to inquiries while the lead is hot or apply to RFPs more quickly and accurately.

Whether you’re new to commercial solar or have hundreds of commercial projects under your belt, it is our hope that this new partnership, and the resulting commercial solar financing options, give you additional resources to close more sales.

We’re particularly excited that this partnership makes solar PPA financing accessible to smaller projects and customers like nonprofits that have historically had a harder time getting financing.

At a macro level, this new partnership aims to make commercial solar PPA financing more accessible and more transparent. (That’s something solar finance expert David Arfin highlighted as a key opportunity when we interviewed him in 2017!) This is an important step to advancing the growth of the commercial solar market.

Though commercial solar has grown more slowly than the residential or utility-scale sectors, it’s a market with great potential. In fact, NREL has estimated that commercial solar on offices, hotels, and warehouses has the potential to reach 104 GW in the U.S. if current barriers are addressed! We consider this partnership one way of chipping away at those barriers to help commercial solar grow.

Topics: Solar Finance, Commercial Solar

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.

An example of a commercial solar project; C&I solar projects can take a wide range of forms and sizes.

## 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. Installed PV capacity in the U.S. by sector through 2017 and projected demand from 2018 to 2021, according to NREL. 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.

Excellent customer service is extremely important during all stages of solar PV sales and installation. This is particularly true for commercial solar installations, given the often considerable size of the project and the impact it can have on the client’s operations and bottom line.

Having literally “written the book” on commercial solar, Jim Jenal, founder and CEO of Pasadena, California-based solar installation company Run on Sun, has a wealth of information on what contributes to a positive customer experience in commercial solar projects. Jenal has blogged about the solar industry since 2009 and has been interviewed by the Los Angeles Times and the Wall Street Journal. His book Commercial Solar: Step-by-Step is an in-depth look at what commercial solar customers should think about when considering solar.

For solar contractors considering how to excel in customer service for their commercial solar customers, this article compiles some of Jenal’s insights on this topic from Commercial Solar: Step-by-Step (page numbers noted in parentheses), as well as blog posts and interviews.

One of the first considerations for delivering excellent customer service is to fully understand where your prospective commercial client is coming from, according to Jenal. Knowing the concerns, wishes, and assumptions of the facilities manager or building owner allows you to anticipate their needs so you can offer them the best experience and clearest understanding of how solar can improve their bottom line.

Facilities managers and other commercial prospects may be under considerable pressure to lower operational costs and be very interested in finding creative alternatives to save money, as Jenal explains in his book. He recommends finding out what cost-saving approaches they may have tried in the past, such as lighting and HVAC system upgrades or smart devices to reduce peak power demand. Perhaps they have considered solar in the past but found that lack of financing made it a challenge.

It’s also important to understand the extent of your prospect’s knowledge about solar so you can speak to their interests and level of technical awareness. Your client may be highly trained in engineering or technology and want comprehensive, technical details about all aspects of solar. Others may educate themselves extensively about solar before soliciting bids. Conversely, Jenal describes clients who are social workers who “don’t need that level of technical detail but are really big on finding that sense of trust.” (11:23) He explains that his company strives to speak to what each group is looking for because “that is where the connection gets made.” (9:44)

Understanding your commercial solar customer can help you better address their needs. That includes understanding their past efforts to save on energy, as well as their knowledge of solar.

## A Consultative Sales Process

The proposal process is a key element, according to Jenal, because it sets the standard for the quality of the relationship. Make it clear that you are doing your utmost to offer a bid that accurately reflects the cost of the project to avoid “inconvenience, delays and costly change orders once the project is underway.” (29)

Demonstrating honesty and expertise during this stage is vital to building trust. Jenal describes how the prospect will have a lot of questions, perhaps they don’t know a lot about solar or because they have done the research and want to assess your level of proficiency. Offer fact-based answers and be ready to answer questions that are outside of what is typically asked. Be candid when you don’t know something and be willing to educate yourself about it.

Additionally, while it should go without saying, Jenal also emphasizes that "Honest communication...starts with the fact that not every potential client is a good fit for solar and you need to be able to tell them that.” (1:02)

Jenal recommends managing customer expectations by making sure they understand system performance projections and the ins and outs of their bill. For example, make sure your client understands the impact net metering and how being a net seller or net purchaser of energy will affect their bills, and avoid offering overly simplistic savings explanations.

Finally, Jenal notes that going the extra mile can make a big difference. He describes an example when Run on Sun secured a bid partly because of the level of support they offered around a time-sensitive rebate application process. Jenal writes how the Director of Facilities appreciated that they offered “to take care of all the paperwork, filing within the deadline period and eliminating the extra bureaucratic steps the school would otherwise have to take.” (121)

A great commercial solar sales process educates the customer and answers all questions they may have, manages customer expectations, and goes the extra mile on things like rebate applications.

## The Right Proposal

In addition to answering all of your commercial customer’s questions, a comprehensive and accurate proposal is essential. Your proposal should have all the information the client will need, including an overview of their bills and detailed estimates of how much a solar system will save them—with any relevant information about net metering, rebates, and incentives, and a comprehensive shading analysis. The proposal process should also include a thorough review of the electrical system to identify any interconnection issues.

A key factor in your ability to deliver accurate solar savings estimates is having the right savings assessment tools. Jenal emphasizes the importance of an approach that accounts for complexities like time of use rates. He suggests being conservative with your estimates so that the customer will be pleasantly surprised.

Jenal also highlights that providing complete and accurate financing information is particularly important for a decision as significant as whether or not to install a commercial solar system. Materials on financing options should be thorough, including information tailored to your prospect’s region. Jenal also points out that, the solar contractor can play a valuable role in helping customers to understand their financing options.

A strong commercial solar proposal will include all the information customers need, particularly accurate shading analysis, performance estimates, and solar savings estimates.

## Clarity and Excellence During—and After—the Installation

Once you’ve secured the sale, walk your customer through the solar installation and permitting process so they know what to expect. Be up front with the client about the length of time it may take for a utility to process the paperwork and issue a Permission to Operate letter, discussing the best and worst case scenarios. (63)

When it comes to system permitting and applications for financial incentives, Jenal recommends offering a seamless process by handling the process for your client candidly and with attention to detail. In his book, he offers examples such as bringing the required utility paperwork to the first meeting after the contract is signed, and carefully filling out rebate applications to avoid having to reapply. With the inspector, Jenal recommends striving for a collaborative and communicative approach, as well as detailed plans from which you rarely deviate. (64)

Of course, it is paramount that the installation itself surpasses expectations—sticking to the projected timeline and budget and having strong processes to avoid change orders as much as possible. Upon completion of the installation, walk the client through the system so they can see for themselves how much power it is producing.

After the solar installation is complete, walk your customer through the system so you can be sure they understand it and know it's working correctly.

Finally, your relationship with the client shouldn’t end when the installation is complete. Jenal recommends monitoring system performance to detect maintenance or connection issues when they arise, and staying in communication with the client—especially if you’d like to secure referrals. Providing operations and maintenance services is also something you can consider.

Excellent customer service comes from establishing and keeping a client’s trust with honesty, expertise, and clear communication. This kind of approach can help you secure those all-important commercial clients and advance your company’s growth and reputation. It will also ensure that your customers are satisfied and come away knowing they have “delivered to [their] commercial operation a long-term benefit that will not only enrich the company’s bottom line, but will improve the world at the same time.” (129)

Topics: Commercial Solar

What are the core differences in serving residential and commercial and industrial (C&I) solar markets as a solar contractor? If you’ve ever thought about expanding your residential solar contracting work to serve commercial customers as well, you might find it helpful to understand what these sectors have in common and where they diverge.

To get the lowdown on some of the key differences in solar contracting for residential and C&I solar projects, we spoke with Barry Durand, Director Commercial Sales, and Yashwanth (Yash) Ganti, Design Engineering Manager, at Green Solar Technologies.

Green Solar Technologies expanded into commercial solar several years ago, after nearly a decade serving residential solar customers–so Durand and Ganti were well positioned to highlight the important differences between the two sectors.

Our conversation highlighted several notable differences between C&I and residential solar contracting, including differences in the length and complexity of projects, communication with customers, project costs, and financing. Read on to learn more!

## 1.C&I solar projects take longer, partially because of permitting complexity.

As Durand explained, “Residential [solar] is a quicker process. As far as determining the size of the system, calculating the [financial] benefits, and actually getting it installed, it typically takes from 4 weeks to 12 weeks.

Commercial, not so much. It's a lot longer process for people involved with it; it could take anywhere from six months to a year before the project gets done.” A big part of this is the permitting process, which Durand noted “is quite a bit different, and quite a bit longer.” Ganti reiterated this point, noting that “There's a lot more review involved from the local jurisdictions.”

“For example, here in the city of Los Angeles, when it's a residential job under 10 kW, you can apply for permitting approval online and you don't even have to turn in a plan set. But when it comes to commercial, anything bigger than 10kW, there is a more detailed review process.”

Ganti explains that after turning in plan sets to the local permitting office, “they'll give you a time frame to review the entire plan set, which could be up to two weeks. From there, there can be multiple revisions, if they want you to add more detail.”

Durand also noted that these time frame differences affect the sales process. Companies considering expanding their work into C&I solar need to be aware that the commercial solar sales process is longer (a theme that also came up in our interview with the Community Purchasing Alliance).

## 2. Commercial projects are more technical.

Increased technical complexity is another important factor that differentiates commercial solar contracting. As Ganti explains, “From my perspective when it comes to designing a residential and a commercial job, residential is fairly straightforward. It's on a smaller scale so you're easily able to identify any technical issues and suggest a cost-effective solution for them right away.”

“But when it comes to commercial, there are much more technical concepts involved. For example, you may be dealing with electrical equipment at a higher rating, such as 2000 or even 3000 ampere (amp) switchgears. You have to understand whether you may need transformer upgrades based on whether the local lines can handle the solar backfeed. Basically, all of the technical considerations get more complex when you transition from residential to commercial.”

Because of this, Durand emphasized that it’s very important for companies considering making this transition to ensure “they have a quality engineering firm or a really good in-house designer that's very familiar with commercial [projects] to help streamline the process.”

Beyond ensuring technical competence, this can help speed up the permitting process by reducing the need for revisions. Durand explained that an experienced engineering firm or in-house engineer, can “make sure that you've got [the permit application] done as well as you can the first time. That means a very good site survey and making sure you've accurately answered every question.”

“Once you do that, [the permitting process is] going to be a lot more streamlined. Yes, it will still take two to six months to get to the point where the system is ready to be installed–but if you don't start with that it could take a year.”

## 3. Communication with customers differs from residential solar projects.

Communication with customers is also somewhat different for C&I solar contracting compared to residential. Because commercial projects span over a much longer time, it’s important to establish clear expectations at the outset for the length of time the project will take.

“The difference is all about length of time,” says Durand. “With a homeowner, the minute you sign an agreement with them, they want solar on [their house] tomorrow... You have to communicate with them every few days... it's a totally different animal.”

“With commercial, we manage those expectations a certain way,” letting them know “it's going to take six months to a year." Because of that, the frequency of communication may be less than with a homeowner (though of course clarity in communication and regular updates are important in all solar projects).

## 4. Commercial projects have higher costs, but lower cost per watt.

Another key difference between residential and commercial solar projects is in the costs. While it’s intuitive that the price tag of a large C&I project will be greater than for a small residential solar system, Ganti and Durand highlighted some particular aspects of C&I projects that come with much higher costs.

“For example,” Ganti noted, “if you have to upgrade an electrical panel, it will probably cost you about $2,000 in a residential job. When it comes to commercial, you're actually looking at upgrading the local transformer, which could cost from$4,000 to \$20,000 or more depending on the local transformer and other technical factors.”

Despite this, because of the economies of scale at play in commercial projects, the cost per watt of commercial projects tends to be lower. “A contractor can end up saving money on a cost per watt basis for a [commercial] installation due to the fact that some of these costs are set, whether residential or commercial.” He cited the cost of truck rolls to bring staff to a project site as an example. Additional savings come from buying hardware components in bulk.

For these reasons, for contractors that are prepared to manage the complexity of C&I solar projects, it can be a very lucrative sector.

## 5. Financing for commercial solar projects is less accessible.

A final important difference between residential and C&I solar relates to financing. Durand notes that “it's a lot easier access to financing for the residential market, than for commercial,” a factor that has held back the growth of the C&I sector.

Durand notes that in residential solar, financing options have been more developed, whereas the C&I sector is somewhat new territory. Despite that, he observes “there are more and more ways to start financing your commercial projects; not everybody wants to pay cash.” He recommends that for businesses that have a relationship with their own bank, that can be a great place to start when seeking a solar loan.

Although commercial and residential solar contracting diverge in a number of respects, a final takeaway from our conversation with Durand and Ganti was that, ultimately, the two sectors are not so different. “As long as [contractors]... hire the right engineering firm, have the right equipment, and the skills to do the installation, it's the same process,” says Durand. “[Commercial solar is] not that difficult, it’s just a matter of having all of your ducks in a row when you start.”