Last week, at the GTM Solar Market Insight Conference in San Diego, I spoke on a panel called ‘Cracking the Code on Small Commercial’. To me, the important fact presented by GTM is that residential solar is blowing past the commercial segment in terms of growth and total installations, while commercial and industrial (C&I) scale installations have mostly flat-lined despite a large untapped market.

 

Four years ago residential solar looked equally daunting. However, SolarCity, Vivint, SunRun, CPF and many other companies devoted massive resources, elbow grease, and long hours into creating scalable processes. They continue to invest heavily in tools that reduce deal friction, the cost of customer acquisition, and provide efficient interface with capital markets.

 

In contrast, C&I players have made a lot of excuses about how hard and unique the market segment is, but have not allocated sufficient resources to improve their processes. C&I continue to use tools and templates developed for the Utility Segment which results in an un-scalable business model.

 

Below are key lessons learned from residential that C&I can do to unlock the untapped potential:

 

Standardize Documentation

C&I solar is slowed by ad-hoc documentation through the investment cycle. In 2014 The Solar Access to Public Capital (SAPC) working group – a program of NREL and DOE – grew to over 450 major solar players across the value chain. They developed standard contract forms, best practices for system installation, operation and maintenance. They engaged five rating agencies on risk perception of the asset class; developed a novel financial structure to combine tax equity and securitization debt into the initial capital stack; developed a valuable performance dataset and data integration standards; facilitated an important dialogue with the structured finance and banking industries on a wide array of technical, credit and regulatory issues; and overall, successfully promoted the solar asset class for capital market investment.  Marketing this effort and getting all players to rapidly adopt this work will bring much needed standardization.

 

Improve Transparency with Channel partners and Developers

Investors need to do a much better job sharing their investment criteria as early as possible in the project development.  They need to provide the tools to developers that give real time transparency on the impact on project finance for every decision taking during the development cycle. Mistakes identified and corrected earlier in the process will drastically improve project closure rates. This transparency will also serve as a foundation for building and maintaining business relationships.

 

Invest in Origination Tools

Residential solar companies continually fight for the best tools to acquire new customers. One example is that a homeowner can visit a residential solar provider’s webpage, enter an address, and get a comprehensive solar proposal in real time, bringing qualified leads in and speeding up the sales cycle. C&I investors don’t have anything that faces developers or property owners that is remotely close to the resources residential solar has implemented across the board. As a result the cost of origination and diligence add up to the cost of the solar panel.

 

One major advantage residential has over C&I is the homeowner’s FICO score which helps assess credit risk. This is still a major challenge for this segment.

 

Residential solar investors put a tremendous amount of work into investment processes that can be repeated. Today, residential solar companies can focus on obtaining customers because the process of finding, screening, and underwriting investments has been simplified. The C&I market is waiting for the winners to make the same investments.