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Southeast Solar: The advantages and challenges of being a second mover

By K Kaufmann

I was only a few minutes into an opening night reception for the recent Solar Power Southeast conference in Atlanta when I found myself in the midst of an intensive networking conversation. Business cards were rapidly being exchanged between a project developer from an Australian company with US offices in Colorado, a representative from a solar racking firm based in Vermont, and a steel tube manufacturer from Arkansas.

Then I met a project construction subcontractor from Missouri who had only found out about the event the day before and then jumped into his car for a quick road trip to Atlanta.

To say that companies from across the solar value chain are keenly interested in the Southeast market is, at this point, probably something of an understatement. The region now has the fastest-growing number of solar projects queuing up to be connected to the grid in the nation, according to Nathan Serota of Bloomberg New Energy Finance, who started the conference with a market overview that was brief and to the point.

Nathan Serota of Bloomberg New Energy Finance (right) moderates the opening panel at Solar Power Southeast, May 25 in Atlanta. Other panelists include (left to right) Joe Ritter of Seminole Financial Services, Ervan Hancock of Georgia Power, Pete Marte of Hannah Solar, and James Marlow of Radiance Solar. (Photo by K Kaufmann)

“Solar is cheap in the Southeast . . . in part because it has to be,” Serota said. “Electricity is pretty inexpensive across utility service territories.”

In fact, solar in the Southeast is being watched closely across the industry because it has developed quickly in the past few years, primarily as a price-driven market that also has the advantage of being a secondary player. Solar here looks and acts a bit differently than in states with richer incentives or higher renewable energy mandates, such as renewable standards in California and Hawaii, which, at least in the popular mind, are often seen as integral for market development.

In the Southeast, the drivers have been more subtle. While legislatures and utility commissions here may not pass mandatory laws, they have applied significant pressure on utilities to up their solar game, as occurred in Georgia. Low electricity prices have also created a highly competitive utility-scale market in which utilities continue to see falling prices.

The exception, of course, is North Carolina, which has become a national solar leader, based on a relatively modest renewable energy mandate, 12.5 percent by 2020, topped up with other incentives that have given solar development a dramatic boost. The state has a generous tax credit and an attractive price guarantee for certain projects of 5 megawatts (MW) and below.

At the conference, executives from Southeast utilities described their approach to the region’s solar market as simultaneously “bullish” but prudent. Georgia Power, for example, recently proposed doubling its solar portfolio by adding 525 megawatts to the 525 megawatts that was part of its 2013 resource procurement plan.

Echoing Serota, Ervan Hancock, Manager of Renewables and Green Strategies at the utility, noted that Georgia Power tries to keep its rates low because 40 percent of its customers have annual incomes of $45,000 or less. He repeatedly stressed the company’s commitment to procuring increasing amounts of solar based on projects’ bottom-line economics and the value they provide to all customers.

“The Southeast will move (on solar) just like it would for any other resource,” he said. “We’re making a very rapid transition toward renewables . . . but you don’t jump too fast. You don’t go out and do two gigawatts. Who knows what will happen with storage? You start taking tangible, bite-sized pieces of solar and renewables, and you learn from that and you are able to create more value.”

Cutting fat in lean solar markets

For installers, the economics of the Southeast market have meant their businesses must be highly competitive and efficient; and rather than residential, their primary focus has been on utility-scale and commercial and industrial projects.”

“It’s all about cost,” said James Marlow, CEO and founder of Radiance Solar, an Atlanta-based firm. “It’s not about policy or optics or market; it’s about cost.”

Pete Marte, CEO of Hannah Solar, also in Atlanta, sees other solar markets as “having a lot of fat on the bones.”

“The Southeast has always been so super aggressive on pricing, we grew up in a very lean environment, even when bigger projects came along” he said. “It’s a very, very tight market financially. To make everything work from our side, the solar integrator part of the business, we’ve got to be a lot smarter in customer acquisition.”

Hannah is now venturing into the residential solar market — and again taking a lean but aggressive approach, offering solar plus storage, more traditional backup generators and installation of electric vehicle chargers. But Marte said, the company has only done about 100 rooftop installations within the past year and taken all together, its residential offerings account for less than 5 percent of his business.

Going forward, residential may be the test of Southeast market’s ability to use its strong focus on solar economics and its second-mover advantage to grow and offer an alternative view of market growth and sustainability.

Speaking at a conference workshop, Steve Kalland, Executive Director of the North Carolina Clean Energy Technology Center, said that net metering discussions in the Southeast are already more focused on “net metering 2.0 and value of solar.”

He and other speakers at the session also noted that solar policy development in the region has been generally less divisive and more collaborative from the start. For example, South Carolina’s 2015 law aimed at opening up the state’s residential market was crafted through collaboration between utilities, solar companies and others, with the state’s electric cooperatives playing a major role.

“We can look across the country at what’s gone wrong politically and what’s gone wrong regulatorily with distributed generation policies and say, ‘Nope, don’t want to do that,’ and actually learn from others,” said Emily Felt, Director of Distributed Energy Policy and Strategy for Duke Energy.

Still, with the region’s low rates, rooftop remains a hard sell because of relatively long payback periods. Some utility executives at the conference estimated solar payback of up to 17.5 years, though Marte said with falling prices, a more modest 12.5-year return on investment is possible.

But, the economics will undoubtedly improve with the development of distributed technologies that provide both customer and grid benefits — and revenue streams. California, with its first-market advantage, is setting up policies to allow distributed resources to be aggregated and sold into wholesale markets and is also looking at how to remove policy barriers to storage with multiple revenue streams.

Clearly, the Southeast has an enormous opportunity — and challenge — to develop a robust residential sector. Can the region develop the policies, rate structures and business models required to provide the economic and customer value that will continue to drive the region’s market? And, in the process, can it generate even more interest in its solar market?

K Kaufmann is Communications Manager for the Smart Electric Power Alliance. She can be reached at [email protected].