Key Cost Drivers in the Solar Industry

Emerging models

A few years back, the buzz and excitement was around the steep fall in panel prices. Everyone was planning their next deal, dreaming of all the opportunities lower prices would bring the industry. While lower component prices certainly have boosted solar sales and more projects have been completed, the discussion has shifted to other ways developers can make deals more efficient to ensure more organizations go solar.

 

When it comes to integrating renewable energy, there are so many moving parts and multiple parties (developers, lawyers, builders, suppliers, and bankers) at play. The financial structures are complicated and many companies have limited experience monetizing the tax credits and depreciation benefits. In addition, while Power Purchase Agreements have grown in popularity, the challenges associated with negotiating, structuring, and financing these deals with numerous parties can frustrate potential customers and make transaction costs prohibitive.

 

A company’s decision to convert to solar energy is also effected by the variable cost of service and maintenance that could impact projected savings. They want to ensure they can maximize their return on investment by minimizing operating costs and optimizing asset performance. 

 

Today, the industry is beginning to adopt new financing models which help streamline the process so solar can be implemented smoothly, while maintaining the cost advantages ushered in by lower component and installation costs. Backed by a financially sound and trusted partner, these models can help deliver large systems that can be reliably operated and maintained for over 20 years.

 

ITC 101

Implemented in 2006 and extended in 2008 and again in 2015, the solar Investment Tax Credit has been a key component to successfully financing solar projects in the U.S. In fact, according to SEIA, since the ITC went into effect it has helped solar installations in the U.S. grow by more than 1,600 percent, a compound annual growth rate of 76 percent. 

 

Why? It provides a 30 percent tax credit for systems and drives tax equity-based funding, an important piece of the capital structure given most projects, and system owners struggle to fully utilize their tax benefits. For project developers, the ITC has brought both stability and a degree of flexibility.

 

Thanks to the latest extension in December, the ITC will remain at 30 percent through the end of 2019, dropping to 26 percent in 2020 and 22 percent in 2021. After that, it will remain at 10 percent for commercial scale projects. With this support, the solar industry is expected to deploy more than 20 gigawatts of solar capacity annually by 2020.

 

Legislation that promotes parity

In the renewables business, there are simple things that can be done to ensure continued success. One getting a lot of attention is master limited partnership (MLP) legislation. MLP structures today are only available to companies in the oil and gas industry. A simple legislative change, while perhaps unlikely in the current Congress, would allow the renewables industry to avail itself of tax efficient MLP structure, open up new and broader sources of capital, and lower the cost of financing for renewable energy. As an industry, we’re hoping to level the playing field with greater parity and simplicity to more easily deliver benefits to the broader energy market.

 

Reducing costs through R&D

To further drive clean technologies down the cost curve, the industry is focused on making continued advancements through research and development. Stable policies enduring over election cycles and administrations will play a role here, allowing businesses to make long-term decisions, because fundamentally, R&D is a long term investment. It’s as critical as financing innovation, policy innovation, and cost reduction.

 

What it boils down to is creating an atmosphere at federal, state, and local levels where sustainable technologies can thrive. With the right policies in place, strong partnerships, and adequate investment in R&D, solar will be set up for success, in 2016 and beyond. 

 

Interested in learning more? Visit www.panasonic.com/energysolutions.

 

Jamie Evans is the managing director at Panasonic Eco Solutions.

 

Panasonic Eco Solutions | http://panasonic.net/ecosolutions/