Cinnamon Solar prognosticates.

December 30, 2013

Happy New Year, dear readers.

As the year winds down, we hope you are resting, recovering, and enjoying some time off with your loved ones. Before we return to the grind in 2014, Barry Cinnamon provides a forecast into the fate of rooftop solar in the coming year.

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1. Net metering will win in big solar states and lose in small solar states. The efforts of SEIA, Vote Solar and others make a tremendous difference — but the biggest factor is voters who want more solar. As such, states with a strong solar constituency (like California with almost 200,000 rooftop systems) will be most successful in passing solar-friendly policies. The lesson for the solar industry is that we need strong grassroots support coupled with effective lobbying. Happy net-metered voters are the foot soldiers who will win this war.

2. Nothing definitive will happen with the ITC in 2014, even though extending the ITC is a priority for all segments of the industry. The 30% ITC is the swing factor in states where electric rates and incentives are low. Although the ITC is not required where the economics of solar are already compelling (like HI and CA), there is no other single federal policy that is effective for both customer-owned and third-party-owned systems.

3. Public utility commissions will timidly propose changes to existing utility business models. The irresistible force of cheaper solar technology is stronger than the immovable object of a high guaranteed rate of return for utilities. I use the word timidly because utilities have money, political clout and legions of lawyers to effectively lobby to retain their business model.

4. The profitability of investor-owned utilities will begin an inexorable twenty-year decline. Factors such as slower growth in electricity sales, a decline in utility-owned generating capacity, higher borrowing rates, long-term customer uncertainty, inexpensive power substitutes (solar, wind), and the inevitability of cost-effective localized battery storage will apply downward pressure to utilities stock prices. There is no good news for utilities (except EVs), and it is wishful thinking that they will act altruistically on behalf of DG solar instead of rationally on behalf of their investors.

5. Solar paperwork will get easier in some locations and tougher in others. San Jose, California is a great example of fast, over-the-counter solar permits. And PG&E has implemented procedures so that it can turn around interconnection applications in less than a week. But these victories are generally localized and temporary. Starting in 2014, San Jose will begin enforcing state fire code limits on rooftop solar that eliminate the best 30% of roof area, and PG&E is, after all, an investor-owned utility. Two steps forward, one step backward.

6. Prices for all solar equipment will continue their gradual decline. We are on track to meet GTMs <$0.50/watt module cost target by 2016. Just because its nice to have consistently profitable solar manufacturers doesnt mean well achieve that goal. There will still be companies that will sell at a premium because they are better in some way. But since supply is still greater than demand (and supply can be ramped up relatively quickly), price premiums will not be sustainable, as other manufacturers will sell at marginal cost.

7. Customer acquisition costs will stay stubbornly high. Right now, theyre on the order of $1/watt when sales-related overhead is included. Lead gen services, better software, and new prospecting tactics are unlikely to make much of a dent in these customer acquisition costs, because there are so many smart and aggressive companies with money to spend on marketing to keep their top line growing. Factors that will eventually reduce these costs are lower incentives, standardized solar equipment, better customer awareness of the costs and benefits, and more people having solar so they can refer their friends (the diffusion effect, which has been so successful in Germany).

8. Small solar companies will co-exist with large downstream installers. Little guys wont go out of business, but they may go into hibernation when the air- and web-waves are blanketed with ads. Small installers will thrive because their overall operating costs are low and their service levels are high. New financing options, including bank loans and credit unions, will make it easier for local installers (as well as electricians, roofers and HVAC contractors) to compete with no-money-down, free solar offers.

9. New solar distributors will crop up, and old solar distributors will consolidate. The business of solar distribution will start to streamline when solar installation components become more standardized. We are not there yet; currently, the plethora of products and specifications makes it too difficult for distributors to establish well-stocked local distribution facilities. It is exactly this type of localized product availability that improves supply chain efficiencies for electricians, roofers and other contractors.

10. More focus will be directed toward mundane components like solar roof flashings, grounding, racking, job preparation and supply chains. RMI and Georgia Tech just released a terrific time-and-motion study of rooftop solar installations. Their conclusion: the biggest cost reduction opportunities are with integrated racking, and in eliminating the array of little nuts, bolts, wires, clips, pieces and parts that dont add any functional value to the system, but still need to be assembled on the rooftop.

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Barry Cinnamon is a long-time advocate of renewable energy and a widely recognized solar power expert. He is CEO of Cinnamon Solar and the founder of Westinghouse Solar and Akeena Solar.

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