Residential solar has gotten a lot of media attention in the last few years, but it's the smallest segment in the solar market. Image: SolarCity.
The residential solar boom has gotten a lot of attention in the last few years as SolarCity (SCTY +0.00%) became a household name and hundreds of thousands of people put up solar on their roofs. But it takes a lot of work to put up a solar system on a residential roof, and it's a lot of work and cost to sell those systems day after day.
Don't get me wrong, distributed solar built on the sites where there's electricity demand is a valuable tool for the solar industry. That's why it makes the most sense to fill thousands of commercial rooftops with solar. These are large open spaces that cost less to install than residential rooftops, and they can integrate smart energy more efficiently than a home can. Here's why this is an opportunity nearly everyone in solar has their eyes on.
Solar systems like this one on eBay's headquarters are becoming more commonplace. Image: SolarCity.
Lower cost than residential
According to GTM Research, the average cost of a residential solar system in the fourth quarter of 2014 was $3.48 per watt, while a commercial system cost just $2.25 per watt. That's a 35% discount from smaller systems, driven by efficiencies the larger systems can offer in sales and installations.
But the real advances in commercial solar are happening beyond the solar panels, with how they're interacting with consumers and the grid.
Advancing solar technology
For solar energy to be a truly widespread and revolutionary source of energy it needs to be more adaptive than it is today. In today's solar industry, companies rely on the grid to offload any extra energy a home or business with solar energy might create during the day, then provide any energy they need when the sun isn't shining. This net metering structure works well when solar is a small part of the grid, but not as well when it's on every rooftop.
That's why solar companies are tripping over themselves to form partnerships with energy storage providers, and are searching for all the information they can find to learn when and how to use energy storage and rate structures to maximize the financial benefit of solar. Solar companies need to add these capabilities beyond just building solar panels or installing systems to add the kind of value customers want, and as a way to stay competitive as utilities challenge net metering.
SolarCity is working with Tesla Motors to launch energy storage products, and has commercial solar financing as well. SunPower (SPWR +0.00%) has partnered with privately held Stem to provide commercial energy storage, and EnerNOC to provide data that will be used to optimize commercial installations. Even SunEdison's (SUNE +0.00%) acquisition of Solar Grid will likely be used in the commercial space.
Once these partnerships and acquisitions are integrated, solar companies will be able to offer a full suite of solutions for commercial buyers. They'll be able to maximize savings by lowering demand charges or adjust to dynamic pricing, all while generating on-site power. That's when real value will be added for businesses.
Corporate America loves commercial solar
The commercial solar boom isn't just a pipe dream, either. Companies are getting on board with commercial solar as well, and they're using a variety of strategies.
Apple is pursuing a few opportunities simultaneously. It owns its own solar plants, built by SunPower, and also owns a fuel cell farm near its data center in North Carolina. It's also buying power from a First Solar (FSLR +3.78%) solar farm in California, using a virtual net metering structure to get its power.
Companies like Walmart and Kohl's are putting solar on their rooftops, along with hundreds of other businesses. They're interested in saving money and having more control over their energy needs. It's just good business to put solar up in many locations in the U.S., and new technologies will only add to its value.
A huge opportunity for solar
For companies like SolarCity, SunPower, SunEdison, and First Solar, the opportunity in commercial solar is massive. The National Renewable Energy Lab projects that commercial solar could be a 100 GW business by 2030, about 16x all of the solar installed in 2014. A study by the Institute for Local Self-Reliance recently stated that municipal buildings alone could be a 5 GW opportunity.
There's big money in commercial solar, and the opportunity will only grow in coming years. Solar companies see the demand coming, and are improving products to become more adaptive as energy providers and offer more control for customers looking for cost savings and independence from the utility. Those who can take advantage of this opportunity will create a lot of value for shareholders.
