Fear is creeping into the solar industry.
This year is starting to feel a lot like 2011 and 2012, when a wave of post-Solyndra bankruptcies fueled national political attacks, put the industry on the defensive, and sparked a trade war with China that set installers on edge. At the time, it felt like each day would bring some fresh horror. The fear and depression was palpable at industry gatherings. Herman the death skull made a lot of appearances on GTM.
The mood is once again turning grim. Despite what solar evangelists say about solar's unstoppable rise, there are a lot of headwinds forming in the U.S.
We're covering all of them at Solar Summit this week. And as a Square, livestream access will give you get a front row seat -- even if you can't make it to commiserate in person.
Suniva's trade case against the world: We've covered this extensively. If the U.S. government issues a duty of 48 cents per watt on imported solar cells and a minimum price of 78 cents per watt on imported solar modules as requested by Suniva, the impact could be devastating. Privately and publicly, there are a lot of people terrified of the consequences if Suniva's petition is successful. It could have a particularly devastating impact on utility-scale solar. We've got a few experts who will fill us in.
Rick Perry's baseload head fake: No one can figure out exactly what Rick Perry intends to do with the study he ordered on the grid reliability impact of distributed energy. We do know that the real grid reliability experts at FERC and NERC have not been contacted. Onlookers in Washington think the study will be used as an intellectual foundation to dismantle renewable energy tax policy -- and maybe to weaponize the DOE itself in an effort to override state renewable energy policies. We'll talk with SEIA's Abigail Ross Hopper about the politics.
Residential growth is slowing: The latest numbers from GTM Research show an 11 percent decline in residential solar installations in the first quarter of this year -- and a 17 percent decline compared to the first quarter of 2016. That's a function of a few key states slowing down, but it's also proof that it is becoming harder to convert leads into sales as the industry gets beyond early adopters. Our analysts will slice and dice the data in all kinds of ways.
Financial struggles continue: Sungevity was the biggest disaster of the year. And take a look below at how the Guggenheim Solar ETF, a fund that includes top manufacturers and YieldCos, has bombed this year.
The chart above comes from Shayle Kann's opening presentation. Make sure to watch his full talk on the livestream at 9 a.m. PT on Wednesday. (He will actually argue that we need to stay calm in the face of all these headwinds, because the local policies and macroeconomic factors driving solar are still strong. He's a calming presence.)
But it's worth asking: How nervous should the solar industry be? You'll know how to feel after this week.
And if you'll be at Solar Summit, come track me down.
An SEC investigation and looming solar trade war might be the perfect conditions for Tesla's solar roof
The two most troublesome developments in residential solar may end up being the most positive for Tesla. Hear me out.
Consider this: “We actually wanted to do it, but it was such a scary experience. Now we’ve decided to stay away from it.”
That damning quote comes from a recent Wall Street Journal story on why so many prospective customers are walking away from large solar installers (in this specific example, Sunrun). According to the Journal, cancellation rates are hovering around 40 percent at Sunrun and 50 percent at SolarCity. It's no secret that a lot of customers walk away after signing contracts, but those numbers are not reported.
"Cancellations grew to be so large at SolarCity that in early 2016, before the company was sold to Tesla, about half of its customers were backing out of contracts before solar panels could be installed, according to people familiar with the matter," wrote WSJ reporter Kirsten Grind.
Our own intelligence suggests the number could be higher. One GTM Research solar analyst recently spoke with a lead generation company that used to work with SolarCity: "He said that SolarCity's cancellation rate recently was at 70 percent, not 50 percent. He also said that SolarCity sales reps have quotas for how many "Close 1" deals they have and that reps push hard to meet those quotas. But after that point, sales reps are not motivated to keep contact with customers, which leads to so many canceling."
Another one of our analysts who once worked for a now-defunct installer talked about the "one-call close" problem: "Basically the sales reps were pushed really hard to close the deal on the first visit and were discouraged from doing return visits. The sales reps were paid higher commissions for a one-call close and didn't lose the commission if the customer canceled later. In short, a sales rep cares if the contract is signed, not if the system gets installed. After that, it was the customer service team dealing with the customer/contract to convince them to not cancel."
So why is this problem potentially a good thing for Tesla's solar roof business? Now that Elon directly owns SolarCity, there's no way he can accept that number.
It's a major reason why Tesla stopped door-to-door sales in favor of online sales. The company wants people to shop in Tesla show rooms. And it wants people to get quotes online.
Tesla's solar roof calculator released last week was a clever sales tactic. The calculator doesn't actually give that much detail on how much a solar roof would cost -- but it is effective at encouraging consumers to give up their personal information, put down $1,000 on a preorder, and maybe even buy a Powerwall in the process. Tesla is now writing the playbook for solar sales and marketing, and it's going to look different.
The second factor playing in Tesla's favor is the looming trade case. If the case plays out in favor of Suniva (and against the rest of the world), Tesla's American-made solar roofs will look a lot more attractive. The entire product -- cells, modules and power electronics -- will be made in Fremont, California and Buffalo, New York.
When SolarCity announced its plan to become a solar manufacturer, many were (and still are) skeptical. When Musk indicated he wanted to build a solar roof, we issued a strong word of caution. But a forceful ruling in favor of American solar manufacturers could change the game for the solar roof -- transforming a marginally competitive product into a more legitimate offering.
Silver linings, right?
Data dive: Another reason for developers to worry about the solar trade case
Since the Suniva trade complaint is likely to be the most consequential story of 2017, it's worth revisiting in more detail this week.
"I want to be clear as we go forward...that SEIA is going to lead the fight on this petition every step of the way," said CEO Abigail Ross Hopper, speaking on a call with reporters this week. (I spoke with Hopper to prepare for our on-stage talk at Solar Summit this week, and she said that the trade case is the advocacy organization's "biggest priority.")
SEIA is on high alert. And for good reason. New numbers from Goldman Sachs show a pretty bleak outcome if the International Trade Commission agrees with Suniva's request for a 78-cent minimum price on imported modules. That would effectively double prices. Many projects would become uneconomic overnight.
"Our analysis implies higher module prices could reduce solar developer returns by more than 250 bps on an unlevered basis, all else being equal. [...] This is because we estimate the module makes up 30% of the total cost stack, and a doubling of this price would raise all-in costs by 30% for utility scale and 15% for residential," wrote Goldman Sachs.
"Looking at it another way, we currently estimate a $40/MWh power-purchase agreement (PPA) for utility-scale solar in the U.S. can generate a 6.4% unlevered return. If module prices were to double, then that same PPA would have to be struck nearly 25% higher, at $50/MWh to generate the same unlevered IRR to the developer."
There's really no other way to describe the problem: "Simply put, we believe lower returns would translate to less development activity and thus lower overall demand for solar in the U.S."
If you're watching the livestream this week, make sure to tune in at 11:30 a.m. PT and 12 p.m. PT on Wednesday. Shayle Kann will be talking with trade lawyer John Smirnow about the mechanics of the trade case. And then I'll follow up with Abigail Ross Hopper to discuss the politics of the case, plus all the other wacky political happenings in Washington, D.C. and the states.
Even if a trade case is threatening your utility-scale projects, you can still have fun
Selecting a name for a new baby or pet or is one of the most momentous decisions a person can make. Naming a utility-scale solar project? That's a life-changing experience.
Most companies take the process way too literally. Or they fail creatively. Consider some the biggest project names in the U.S. -- Solar Star, Ivanpah, Topaz Solar Farm. They're all just names of places or generic-sounding identifiers.
The folks at Cypress Creek don't mess around. GTM Research analyst Colin unearthed a fresh list of FERC filings for 500-kilowatt projects planned in North Carolina. Do you recognize the theme?
- Valor
- Whitefoot
- Kili
- Rohan
- Durin
- Brandybuck
- Samwise
- Hurin 53
- Helm
- Hurin 52
- Fanghorn
- Mirkwood
If you still can't figure it out, maybe you can spot the Cypress Creek projects in this map of Middle Earth:
If you failed at that one, see if you recognize any of these other Cypress Creek projects.
- Pennypacker
- Varnsen
- Nostrand
- Sacamano
- Newman
- Peterman
- Puddy
- Chiles
- Whatley
- Vandelay
Here's a hint:
Kudos to the team who put those portfolios together. If you know of others with similar themes, send them my way.
"Of the thousands of U.S. utility solar projects, these are some of my favorite project names I've ever seen," said GTM's Smith. "My next favorite project name is 'Boring Solar' in Oregon. The GTM Research analysts have often talked about what we would name a solar project; I think I would go with a Harry Potter reference and name four projects after the four Hogwarts houses: Gryffindor, Hufflepuff, Ravenclaw and Slytherin."
Yes, that is the kind of thing we talk about around the water cooler at GTM.
