Alternative Energy: November Fireside Chat with Credit Suisse on Residential and Commercial Solar: Featuring Jonathan Doochin, Soligent CEO

Interview with Jonathan Doochin, Soligent CEO

Recently I had the great opportunity to be a panelist at a fireside chat with Credit Suisse on where we see the residential and commercial solar and storage markets going over the next two years. I was joined byCredit Suisse, Jon Powers, Founder and President of CleanCapital and one of the largest solar asset owners in North America (previously appointed the Federal Chief Sustainability Officer by President Obama), and Vincent Ambrose, General Manager North America for Canadian Solar. Hopefully, these high-level takeaways on policy expectations, key drivers in our industry, and growth rates will also be useful to you in the upcoming year. 

Credit Suisse Summary

Tax credit refundability expected from DC in infrastructure bill: Jon Powers believes that tax credit direct-pay or refundability is a top priority in the infrastructure bill expected later this year. We believe that upfront cash, instead of credits against taxes, would accelerate renewable demand, especially for developers with limited access to tax equity funding (i.e. commercial and the tail-end of residential solar developers dependent on cash and loan sales). We note that prior Democratic bills have proposed to pay 85% of renewable tax credits in cash if developers forgo the rest, cost of tax equity ~7-9% for large developers. Positive for residential and commercial demand from marginal customers, and especially for equipment suppliers (SPWR, ENPH, SEDG, FSLR, ARRY, SHLS), and to a lesser extent, utilities with some commercial project development (EXC, D, DUK, NEE, ED).

Policy push expected: The panel interviewed was optimistic about clean energy policies supported by the Biden administration. Separately, White House national climate adviser Gina McCarthy said earlier today that the government is actively pushing to extend the tax credits, which we believe could likely come in upcoming economy recovery bills. (source Bloomberg, behind paywall)

Inventory tight due to bottlenecks at ports: Jonathan Doochin noted that Inventory is tight across the supply chain for modules, inverters, batteries, and other components due to bottlenecks at ports in the US. Labor remains tight at ports to move goods (due to COVID-related workplace restrictions) and containers are in short supply given higher trade volume as economies recover in 2021. Air shipment is an expensive and speedy option, but Jonathan noted that many goods can’t be air shipped, and even those that can be see rising air freight. The issue doesn’t seem to be a short-term issue, and will likely keep prices elevated and inventory tight, especially for shorter lead time products that come through ports. We expect module and inverter manufactures to pass higher freight costs to end-customers given this is an industry side issue.

Interest rate yet to trickle down to long-tail: The panel noted that large utility-scale and large residential solar developers are ahead on pricing in rising rates, but small commercial and residential developers are yet to incorporate the impact of rising rates in their forecasts. Expect the long-tail of small developers to focus on interest rates when their cost of capital increases.

Strong demand despite supply chain challenges: Demand continues to remain strong across segments. Jonathan expects the residential market to grow >20% Y/Y in 2021, which could be even >30% looking at guidance from public companies. Growth is driven by strong policy support, but also will accelerate due to resiliency and backup needs especially after weather-related blackouts in Texas. The commercial market is expected to grow at ~10% Y/Y, despite concerns over counterparty credit and bankability amidst COVID.

Module prices to remain elevated: Vincent Ambrose pointed out that module prices will likely remain elevated due to polysilicon shortages, and especially a depreciating RMB. Shortages in solar glass have eased up while improving module-level efficiencies and power output can partially offset the higher poly cost by ~1c/W. Canadian Solar will launch larger solar modules with power ratings of ~400W in residential and 600W in utility-scale projects.

Battery growth strong: The panel expects strong growth in battery attachment rates as more companies launch their energy storage projects, despite shortages in the supply chain (especially for Tesla’s Powerwall). Expects storage costs to reduce every year, but trends will be volatile due to strong demand for batteries from Electric Vehicles as well. Battery storage adoption should accelerate in the next 18 months as states, RTOs and ISOs formulate new rules for distributed energy participation in wholesale power markets (under FERC 2222 ruling). Canadian Solar has launched utility-scale battery projects and will launch a C&I solution in 2021 and eventually launch a residential product as well.

Additional residential stats from Soligent you may find interesting: 

• Storage: The EIA registered 21,000 new residential storage customers during 2020 (+60% y/y) across the US.  In December alone, 3,200 customers added storage.
• Storage Attachment Rates: The December data implies a 14% storage attachment rate in California and a 3% attachment rate in the US overall.  Generally, for 2020, California was closer to a 10% attachment rate on average and a 1.5% to 2% average nationally.  
• Financing (Loan versus Lease) Ratios: We see roughly a 70% loan and a 30% lease mix in the residential solar space. 

I hope hearing these takeaways from us has given you a bit more information on what we see happening on the backend of our industry. I know we all want to make this the strongest year for our industry on record. Always let us know your thoughts.