Opportunities, as seen from above

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There are multiple national-level factors affecting the U.S. solar market in 2019 and in the near future. For instance, every year around February 6, the import tariff on solar panels will fall by 5%, and this will most likely affect how developers import solar modules. There may even be a buildup of module-filled shipping containers off the coast of California. Additionally, with the decrease of the Investment Tax Credit (ITC), from 30% to 26% in 2020 and then to 22% in 2021, there are further levels of nuance to be considered.

 

Utility partners

The utility-scale solar market segment will continue to be the largest in the United States. Many relationships in this space have already been established, but geographical expansion and market change within provides new opportunities. The biggest solar module companies with the safest balance sheets — nationwide developers like NextEra, 8Minutenergy, sPower and Invenergy — will offer many gigawatts of projects per year for the next three to five years.

These largest of developers, the most financially sophisticated, will likely seek to optimize their purchase timing, payment timing and delivery timing to maximize cash flows. As such, some of these groups will seek to “safe harbor” their solar modules, meaning spending 5% of their projects’ total costs before December 31, in order to gain a bigger share of the ITC.

Thus, it might be that right now a project developer or EPC will start negotiating to sign supply deals as the end of the year approaches, with delivery to occur in the first quarter of next year. This pattern will continue in 2020 and 2021. And since some of these projects will be built through the end of 2023, module delivery schedules should be expected to go on through that window.

Bifacial modules are gaining popularity and single axis trackers are increasingly dominating the utility-scale space, but with most places having more land than interconnection capacity, these largest projects are most likely looking for the highest yield, best value-for-money, solar modules.

 

C&I clients

The commercial and industrial (C&I) customer segment includes a varied group of buyers. These can range from big corporate customers with national footprints like WalMart and Ikea, to local C&I-focused project developers that tend to buy hardware through regional distributors such as CED Greentech.

In California and states with strong solar incentives, including those in the Northeast (Massachusetts, New York, and New Jersey) and Illinois — as well as places with higher rates for electricity — higher-efficiency solar modules are being purchased to take advantage of limited roof space. Companies that have developed products for China’s Top Runner program will have an advantage. For instance, SunPower, the highest-efficiency module manufacturer selling panels as a premium product, is the largest developer and module supplier in the C&I space.

More price-conscious state markets will get standard efficiency products that deliver better bang for the buck, similar to those that utility-scale customers look for. These markets are very large in total population and include Florida, the southeastern states, Texas, and a growing market across the Midwest. While these regions have lower electricity rates, low to zero state-level incentives, and minimal environmentally minded politics, they do value local power generation and have low regulations coupled with low labor costs.

While the largest of commercial customers may have internal procurement teams that will dictate exactly what products to buy, average-sized commercial customers will only do high-level research, and will use their partners to verify choices. Thus, providing these buyers with strong information on a supplier’s long-term financial viability will be of huge importance.

Within this space, and the larger utility scale space, manufacturers have partnered with development teams to offer EPC services in order to lock in their products. These relationships yield low return on investment for the construction services, however, they create strong lock-in relationships with developers who seek respected partners that increase their presentations to potential buyers.

While C&I customers won’t be able to make use of the multiple-year Safe Harbor benefits, they will hope to complete their projects by December 31 of each year. Orders should therefore be expected to ebb and flow as the year goes on, and could increase to massive amounts as 2020 moves into 2021 — much like what happened in 2016.

 

Residential customers

The residential market is composed of homeowners who own their systems, and those who lease PV hardware from major companies like SunRun, Vivint and Sunnova. Over the last several years, owning rather than leasing has become the dominant business model, with only 33% of residential solar systems being provided by residential lease companies in 2018. This means that solar manufacturers must increase brand awareness across many smaller installers instead of those few centralized buyers.

As most manufacturers already know, residential customers that own their own systems have strongly tended toward higher-efficiency, aesthetically pleasing products in order to maximize both energy generation and their homes’ curb appeal. The major reason for the focus on aesthetics — black aluminum frames, including black cells and even black backsheets — is that for most Americans their home is their main investment, and even a form of retirement savings account.

The premium level that consumers are ready to pay, much like the C&I space, is largely informed by returns on investment, which are driven by local electricity rates and state-level incentives. These premium residential areas tend to overlap with the higher-efficiency C&I market.

Premium solar module manufacturers such as LG, SunPower and REC Group have continued to push their products through strongly developed dealer relationships. This focus on quality and established dealer networks has allowed them to charge a premium for their products, which are in high demand.

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