WORLD-GENERATION MAY/JUNE 2016
18
PERSPECTIVE
It is no secret that the commercial and
industrial (C&I) solar market has lagged
behind the fast-growing residential and util-
ity scale markets.
While residential and utility solar grew
by 51 and 38 percent respectively in 2014,
commercial solar decreased by 6 percent
and continued its decline in 2015, shrinking
by another 5 percent.
The stagnation is not due to a lack of
opportunity – there are over 274,637 com-
mercial buildings in the northeastern
United States alone with roofs equipped to
host solar installations that could collective-
ly host nearly 95,000 MW of renewable
energy.
Across the United States, high electrici-
ty rates and compelling incentives, like the
recently extended federal Investment Tax
Credit (ITC), make C&I solar a tremendous
opportunity for businesses and investors
alike.
Until recently, transaction costs and
fragmentation have impeded the ability for
C&I solar to reach its potential. In order for
the sector to grow this year, greater access
to capital and greater streamlining of
financing processes will be paramount.
COMMERCIAL SOLAR:
ONE SIZE DOES NOT FIT ALL
The greatest challenge impeding the
growth of commercial and industrial solar
is access to financing. Across the sector,
projects vary in size and often feature
unique nuances. C&I is comprised of proj-
ects totaling a few kilowatts (kW) to large-
scale installations on warehouse roofs that
reach several megawatts (MW). The C&I
market includes businesses of all sizes and
varieties, while the broader ‘non-residential’
market includes schools, universities, non-
profit organizations, and municipalities. The
complexity of projects can result in lengthy
contract negotiations and deal completion
times. In turn, transaction costs are often
prohibitively high relative to deal sizes, and
may turn out to be far higher than expected
at the time of project initiation.
The contracts, due diligence, and
underwriting processes involved in C&I
solar necessitate standardization. While the
residential solar sector has the FICO score
system to standardize consumer credit,
there is no ubiquitous credit rating model
for the commercial and industrial market to
communicate to investors. Standardization
in the C&I sector will never fully resemble
the residential sector, but there is an oppor-
tunity to create a standardized set of docu-
ments and credit evaluation processes that
can act as the foundations for all contracts
regardless of project size and type. Simply
eliminating the need to continuously draft
new bespoke contracts decreases transac-
tion costs and facilitates the ease of lending.
THE RISE OF ALTERNATIVE FINANCING
OPTIONS
Alternative sources of capital are
increasingly making it possible to reduce
C&I solar costs. Recently, new financing
options have emerged across all industries,
from consumer lending to solar. Traditional
lenders, such as banks, have high operating
costs that make it uneconomical to lend to
projects under several million dollars, as
high service fees do not match the size of
the project. Democratizing financial servic-
es is a response to the market demand for
affordable, readily available financing
options.
Alternative lenders utilizing online plat-
forms are able to meet the gap in the mar-
ket and bring financing to projects that
would otherwise lack readily available
options. Several years ago consumers had
to go to the bank in person in order to
apply for a credit card, an arduous process
that could take weeks. Today, one can apply
for a credit card online and receive a deci-
sion almost instantly. By automating pro-
cesses and reducing the need for time-
intensive paperwork and back-and-forth,
online lending can significantly decrease
the cost of financing. This trend is quickly
making its way into C&I solar finance, mak-
ing it easier for developers to connect to
investors willing to finance their projects.
Open Energy was the first company to
introduce online lending to the C&I solar
sector. By drawing inspiration from tradi-
tional asset classes, we have been able to
increasingly streamline the commercial
solar lending process. The Open Energy
platform features a secure borrower appli-
cation, fixed legal and transaction costs, a
timely credit decision response time, and a
shared due diligence process tracker. By
developing an efficient application and doc-
ument gathering system, and automating
parts of the due diligence process, we are
able to reduce transaction costs by up to 70
percent. These cost savings have allowed
us to provide financing for a large range of
C&I and non-residential solar projects,
starting as low as a half a million dollars
and up to $10 million.
It is time to unlock the commercial
solar market.
COMMERCIAL AND INDUSTRIAL SOLAR
BY GRAHAM SMITH
CEO
Open Energy
