Q1 2017 Update: The State Of Distributed Solar · Q1 2017 Update: The State Of Distributed Solar. ... Transitioning away from unabated market share capture to profitable growth 90%

0Perea - State of U.S. Solar

Austin Perea

Analyst, U.S. Solar

[email protected]

Q1 2017 Update: The State Of Distributed Solar

1Perea - State of U.S. Solar

2016 was a banner year for the U.S. solar market…

Source: GTM Research

Annual U.S. PV Installations (GWdc)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Residential Non-Residential Utility

+95% in 2016

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…but the story is different for residential PV

107 111128

148169 171

195

261 249279

328

410

461

501

593612

677 681

612632

563

0

100

200

300

400

500

600

700

800

Inst

alla

tio

ns

(MW

dc)

Quarterly Residential PV Installed Capacity (MWdc) Q1 2012-Q1 2017

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Despite strong near-term policy certainty, major residential state markets are struggling

35%

9%

8%8%

6%

34%

Q1 2017 State Market Shares

California

New Jersey

Maryland

Arizona

New York

All Other States

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

Q1-2015 Q3-2015 Q1-2016 Q3-2016 Q1-2017

Year

-ove

r-Ye

ar G

row

th %

Top 5 Residential State Markets Q1 2015-Q1 2017

California New Jersey Maryland Arizona New York

California’s lowest market share ever – 42% in Q1’16

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Unpacking Residential Solar’s Slowdown

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But why is it struggling to scale?Has residential solar actually grown above and beyond “early adopters”?

20.1%

8.8%

5.6% National TAM With Solar (%)

1.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%H

IC

A AZ

MA

NV VT NJ

MD

CO UT

CT

NY

NM DC

DE LA OR

NH

WA

MT

TX SC ID PA

MO

Oth

er FL NC

WI

IAM

N VA

MI

TN ILO

H AR

GA IN AL

MSSh

are

of

Ad

dre

ssab

le M

arke

t W

ith

So

lar

(%)

State Level TAM With Solar National TAM With Solar (%)

Only 3 states have installed more than 5% of their total addressable market (when accounting for current technical and economic/financing constraints)

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Growing pains among the national residential solar providers…Transitioning away from unabated market share capture to profitable growth

90%106%

66%

-1%

45%24%

78%

45%

-20%0%

20%40%60%80%

100%120%

2013 2014 2015 2016An

nu

al G

row

th (

%)

Growth Rate (SolarCity, Sunrun, Vivint Solar)

Growth Rate (Rest of Residential Market)

$0.00$0.10$0.20$0.30$0.40$0.50$0.60$0.70$0.80

SolarCity,Vivint Solar,

Sunrun

Large Regional(over 2

MW/quarter)

Mid-SizeRegional (1-2MW/quarter)

Large Local(100 kw-1

MW/quarter)

Long Tail

20

16

Avg

Co

st (

$/W

)

0%

20%

40%

60%

80%

100%

SolarCity Vivint Solar Sunrun All Others

Shar

e o

f To

tal

Dep

loym

ents

Third-Party Owned Customer Owned

Source: GTM Research

Annual Growth Rates: SCTY+RUN+VSLR vs. Rest of Residential PV Market Quarterly Residential PV TPO Market Shares in 2016: National vs. California

Source: GTM Research

2016: TPO Market Shares by Residential PV Company

Source: GTM Research

In aggregate: National residential PV companies have a more than 3x highercost of customer acquisition than the long tail of installers

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Heading into 2018: There will be 36 states at grid parity for rooftop solar

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

HI

MA VT

CA

DE

AZ

NM N

J

NY

DC SC MD

MN

NH CT

UT RI

PA KY ME FL TX MI

WI

CO

WY

OH

GA IL

NC

AR LA

MO

MT

VA IA KS IN NE

OR ID MS

NV

AK

WV AL

WA

TN OK

ND SD

Year

1 B

ill Im

pac

t fr

om

So

lar

(%)

At Grid Parity: 36 states (including Washington, D.C.)

Note: Grid parity metrics account for all NEM and rate reforms currently in effect for modeled utilities.

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A Tale of Two Segments: Major Market Weakness vs. Emerging Market Growth

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Emerging Markets – Quarterly Installed Capacity Q1 2015-Q1 2017

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Utah South Carolina Texas Florida Pennsylvania

Cap

acit

y (M

Wd

c)

Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 Q3-2016 Q4-2016 Q1-2017

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No state-level net metering policy – state growth primarily supported by utility-level rebates

• Oncor and public utilities booming with lucrative upfront rebates, though CPS Energy rebates to be exhausted by end of year

• Austin Energy VOST continues to attract national installers

68 MW installed in 2016 vs. 90 MW in 2017E (32% annual growth)

NEM policy, strong fundamentals, and incentives make (and break) market opportunities

20% NEM cap, full retail-rate NEM enabled market, RMP proposal could stunt growth

• In-state tax credit fueled growth in 2016 with 12,000 applications in 2016 vs. 3,000 in 2015

• Q1 2017 demand pull-in from proposal; response leaves uncertainty in market

Installed 72 MW in 2016 vs. 86 MW forecasted in 2017E (19% annual growth)

Act 236 set distributed energy resource solar goals per IOU

• Established full retail-rate credit for exported generation

• Legalizes third-party ownership and leasing/PPAs

• Requires IOUs to incentivize residential growth through goal carve-out and mandated rebates

2 MW installed in 2015 vs. 37 MW in 2016 – though writing of the law caused market confusion

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Case Study: Nevada’s death, rebirth, and the rise of Illinois

Nevada PUC’s decision to pull-back NEM and not grandfather

had huge impact

• #7 in 2015 vs. #11 in 2016 vs. #20 in Q1 2017

• Installations trickled into H1 2016 as they were energized, but stark dropoff

thereafter

◦ Major installer base left market

Decision to restore NEM opens up major new market

opportunity as national installers announce renewed presence

Illinois’ new RPS program rethinks REC program

Adjustable Block Incentive (ABI) 15 year REC program

• Sets capacity procurement targets – ~330-675 MW by 2020

• Upfront REC functions like cash rebate program, but doesn’t diminish tax

eligible basis of project, resulting in higher value proposition for customer

• Reduces volatility of SREC; appeases finaciers

-

5

10

15

20

25

30

35

40

Q1-2014 Q3-2014 Q1-2015 Q3-2015 Q1-2016 Q3-2016 Q1-2017

Cap

acit

y (M

Wd

c)

Nevada Quarterly Installations

1 4 625

59

84

118

156

0

50

100

150

200

2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Cap

acit

y (M

Wd

c)

Illinois Forecast 2015-2022E

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Major Trends Defining Residential Solar in 2017

• The “long tail” of installers, with cheaper customer acquisition costs, are on

track to grow at a faster rate than Tesla/SolarCity, SunRun and Vivint

collectively

• And the “Big Three’s” pursuit of profitable sales and lower customer

acquisition costs will leave the national residential PV market flat

• Major markets continue to struggle despite strong policy environment

• Meanwhile, emerging markets are being shaped by policy

2017 marks the first time…

• California will fall on annual basis this decade

• Direct ownership will drive the majority of annual installations since 2011

• More than half of all states in the U.S. will be at grid parity in H2 2017

◦ Emerging state markets outside the top 5 (CA, AZ, NJ, NY and MD) to

grow 20% in a year of flat national level demand

The Near Term Residential PV Outlook: Defined by market transitions

50%

117%

14%

59%64%

84%

63%

71%

5%

37%

24%20%

-13%

10%

20%

2%

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

California Next 6 LargestStates

All Other States Total

An

nu

al G

row

th R

ate

(%)

2013 2014 2015 2016 2017E

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Non-Residential Solar’s Reboot: Growth Beyond Standalone Onsite Solar

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Policy and Incentive Driven Bubbles Support 2016 Rebound

The Top 4 States: Partly fueled by short lived market drivers

• California: The closure of solar-friendly rate structures

• Massachusetts: Pull-in of demand amidst closure of SREC programs

• New Jersey: RPS driven demand for SRECs pulled in from future years

• New York: Depleting pipeline of virtual/remote NEM projects

What’s driving a reboot in all other states?

• The emergence of community solar: 220 MW+ installed in 2016

◦ Utility led community solar: Drove more than 60% of community solar

◦ Top 3 community solar states in 2016: CA, MA and MN

After 3 Consecutive Years of Flat Demand: Non-Residential PV Grew by 50%+ in 2016

72% Growth686

51% Growth268

85% Growth88

15% Growth77

44% Growth526

0

100

200

300

400

500

600

700

800

An

nu

al In

stal

lati

on

s (M

Wd

c)

2012 2013 2014 2015 2016

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Emergence of Community Solar: Legislative and Voluntary Segments Both Set to Scale

126 9 6

2952

223

410

0

100

200

300

400

500

600

700

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

E

20

18

E

20

19

E

20

20

E

20

21

E

An

nu

al In

stal

lati

on

s (M

Wd

c)

Third Party Led Utility Led

3744

62

26

227

113

0

50

100

150

200

250

Coop IOU Muni

Uti

lity

Led

Co

mm

un

ity

Sola

r (M

Wd

c)

Operating In Development

Source: <Insert source>

Community Solar Installation Outlook:Third Party Led vs Utility Led Community Solar

Source: <Insert source>

Within Utility Led Community Solar:Emergence of IOUs Procuring Large Scale Community Solar

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Non-Residential PV Outlook: Moving Beyond Onsite, Standalone Solar

8351,075 1,110 1,063 1,062

1,5861,756 1,671

1,9332,127

2,471

2,859

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Share o

f An

nu

al Installatio

ns (%

)A

nn

ual

Inst

alla

tio

ns

(MW

dc)

Non-Residential Community Solar Solar-Plus-Storage Onsite Solar

2021: Less than 50% of annual non-residential PV installations will be onsite, standalone PV

2016: First year < 90% of non-residential PV market came from onsite PV

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The Next 5 Years of U.S. Solar

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1. Macro level uncertainty: Solar trade dispute, corporate tax reform, NEM and rate reform risk

What comes next for U.S. solar?

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Potential Impact of Section 201 Petition

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1. Macro level uncertainty: Solar trade dispute, corporate tax reform, NEM and rate reform risk

2. Residential Solar: Sub 15% annual growth in a more fragmented installer landscape, paired with the emergence of loans and cash sales collectively outpacing third party owned leases and PPAs

3. Non-Residential Solar: Continued growth hinges on community solar (near term) and solar-plus-storage (long term) amidst state incentive reductions and TOU rate reforms across major markets

What comes next for U.S. solar?

4. Utility Solar: On track for another boom in procurement heading into 2019 in response to the scheduled stepdown of the 30% federal ITC, supporting growth in the 2019-2021 timeframe

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U.S. Solar Market Outlook: Resumption of market growth in 2019

0.9 1.9

3.4

4.8

6.2 7.5

15.0

12.5

11.1

13.1

15.0 16.3

17.4

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

An

nu

al P

V In

stal

lati

on

s (G

Wd

c)

Residential Non-Residential Utility

Resumption of total market growth

Return to 2016 installation levels

22Perea - State of U.S. Solar

Austin Perea

Analyst, U.S. Solar

[email protected]

Thank You