Join Ginger Elbaum, E3 Managing Director, and Jim Langel, Head of E3's Solar Practice, for a discussion of what's trending in the solar market and what headwinds the industry is facing.
One of the top trends we are seeing is that costs are going down, which hopefully put some money in everyone's pocket at the end of the day
The second trend is the challenge that everyone's facing at home: COVID-19. The pandemic has impacted the solar industry over the last year and a half by slowing down the supply chain and causing a labor shortage.
Thirdly, we are looking at the impact of having a new administration that is supportive of renewable energy and has already extended the ITC for a couple of years.
We hope you'll join us for this episode!
Join Ginger Elbaum, E3 Managing Director, and Jim Langel, Head of E3's Solar Practice, for a discussion of what's trending in the solar market and what headwinds the industry is facing.
One of the top trends we are seeing is that costs are going down, which hopefully put some money in everyone's pocket at the end of the day
The second trend is the challenge that everyone's facing at home: COVID-19. The pandemic has impacted the solar industry over the last year and a half by slowing down the supply chain and causing a labor shortage.
Thirdly, we are looking at the impact of having a new administration that is supportive of renewable energy and has already extended the ITC for a couple of years.
We hope you'll join us for this episode!
Ginger Elbaum (10s):
The top three by E3, a monthly podcast about the intersection between engineering, energy and project finance. My name is Ginger Elbaum, managing director at E3 and I'll be your host today. And today I'm joined by Jim Langel, head of E3's solar practice. Welcome Jim.
Jim Langel (24s):
Happy to be here today.
Ginger Elbaum (26s):
Good. So today we're going to talk about what's trending in the solar market. Some of the challenges faced and then, you know, just where are things headed? So Jim, why don't we just kick it off? So what, what, from your perspective is trending in the solar markets.
Jim Langel (40s):
Yeah. Great question. You know, what's turning in the solar market over probably the last year or so. We've really seen prices starting to do a downward trend and some of that's really from a good perspective. And by that, I mean not only of equipment costs and installation costs from an EPC perspective and so forth, gone down, but also we've seen the PPA price has gone down. So that means the cost that the utility is essentially paying for that energy has gone down, which means some of the customers are actually seeing that on their bills when you get it at the end of the day. So those sorts of costs trends we've seen across the industry, but they've continued in that downward trend, particularly, even on the O&M side where you're monitoring some of the larger facilities that are out there, the ones on top of schools and the ones on the top of warehouses and some of that utility scale projects, the O&M is just the costs have gone down.
Jim Langel (1m 26s):
They've really focused more on a remote monitoring application versus having individuals in the field. So that's one of the primary ones. We've also seen technology adjustments. And by that, I mean, you know, a big part of solar is the modules, right? Which is essentially the panels that are either on your roof or being used for the application that captured the light from the sun. And those we've really seen a big push towards bi-facial modules, five facial modules, for those who don't know are modules that collect light on both sides of the module. So not only them on the front side, that's facing the sun, but also the reflected light off the ground or the snow or the pavement on the backside of the module.
Jim Langel (2m 7s):
So traditional modules go back four or five years. You have modules that had more of a backsheet. So it was a wider black sheet that essentially didn't allow for that albido light to be reflected off the ground and, and captured yet. Now that is a possibility, and it's done a lot of projects even on the utility skill and large Kate scale applications. So it's become really popular over the last year. Some of the other applications that are out there for those that don't know, there's a solar app, that's now available, that NREL was really pushing hard on which essentially allows for government agencies to ensure that all projects are compliant with the standards that are out there. Meaning, you know, you're using the proper regulations you're using the pot, the proper media, the proper codes.
Jim Langel (2m 51s):
So that way there's no fire issues. So for instance, if you were to install something in the Denver Metro, which is where we're located, you might try to install a solar facility on top of your roof. And this app would allow the government agency meaning the authority having jurisdiction, because let's say it's the city of Lakewood or the city city of Inglewood. They could utilize that application and ensure you're meeting all the codes and compliance applications. So those are kind of the new things that are out there. And then finally the big one over the last, I'd say year, year and a half is battery energy storage being an add on to the solar facilities. And that's a big application right now in the utility scale market. Now, standalone batteries are really popular and they've been applied to multiple different energy systems in the past, but it's become really popular in the solar industry as of late.
Jim Langel (3m 41s):
And the big advantage of that is you're able to utilize the same sun energy that you've captured during the day, but you, you can utilize that in the evenings, in the nighttime when the sun isn't shining. So it gives that advantage of have kind of a prolonged, renewable approach. So that's really the big one that's happened here over the last year.
Ginger Elbaum (4m 2s):
Sure, sure. You know, it seems like we've seen as, you know, as many or maybe even more of the solar plus storage projects now than, than just solar alone,
Jim Langel (4m 14s):
100%. And we're seeing a lot of applications already with, you know, looking at old facilities and trying to add batteries to them. And most of the new facilities is certainly the large ones, meaning one megawatt and above are at least have the option of adding batteries at some point along the way.
Ginger Elbaum (4m 31s):
Sure. Okay. Great. Great. All right. That's what's trending what, looking back a little bit, what have been some of the challenges that the solar market's been experiencing?
Jim Langel (4m 41s):
Yeah, there's really two main ones, right in the big one is, you know, the elephant in the room, right. That everyone's dealt with over the last year and a half is COVID-19 right. And COVID-19 the solar industry wasn't, you know, immune to the difficulties that came along with that. And by that, you know, especially on the utility scale and large scale solar projects, it's really come down to, you know, hurting the supply chain in that, you know, some manufacturers, whether it's modules or inverse, whatever that application might be, even the steel market particularly, right. It's harder to get materials, right. Even if you're looking to, for me, myself, I'm trying to finish my basement, right. If you're trying to do those sort of applications costs for those have really gone through the roof and that is no different in the solar market.
Jim Langel (5m 21s):
So it's really made the supply chain and put some stress on that. And, you know, in particular, right, right now I think the, you know, the country of India has really had some problems with COVID-19. They're really struggling with the pandemic and, you know, anyone that's manufacturing modules or certain applications over there, you're starting to see the ramifications of that, where they can at their delivery deadline, or they have to, you know, essentially delay what they're trying to do in order to get those materials to you on time. So it's really been no different from that perspective, from an install perspective, you know, the job market is slightly down in the solar applications, roughly 7%, but the silver lining is, is really the solar market in is do it better than the economy. Meaning they're adding more jobs in the solar industry than they are in really any other industry that's out there.
Jim Langel (6m 5s):
So that's, I guess kind of that blend between, you know, it's good, but at the same token, it could be even better. And so hopefully as we move, start beyond the pandemic, hopefully this year and next year, those numbers will only go up even higher. The other application that I wanted to mention was, you know, several years back going back to 2018, when the previous administration was out there, they had essentially implemented a tariff on modules. And for those warrant on a, you know, routine basis involved in the solar industry modules and the equipment really make up anywhere from a third to 50% of the cost of the installation. So it's a massive amount of costs. And that tariff essentially on, you know, anything coming from China and manufacturers particularly, right.
Jim Langel (6m 46s):
A lot of the module manufacturers are out of China. And so you're able to buy from different locations and now that's maybe made it easier to get, you know, first solar, who's doing a lot of the manufacturing here locally in the United States and to lean more on those versus trying to buy it overseas. And that was initially implemented in 2018, at 30% tariff. Now it's dropped down to about 18% and I believe it's supposed to be exhausted by the end of 2022, but we'll see if that happens. There's the potential it could get extended there's potentially could, could get rid of it sooner. It all depends on what the new administration wants to do, but that had an influence on the market on where people were buying their certain materials.
Ginger Elbaum (7m 27s):
Sure. You know, thinking about your supply chain comments, I mean, you know, in your basement, but that, that really is actually, that's not, that's not unique to the solar industry. I mean, that's something that we've seen across all of the industries, you know, that certainly there were some challenges there in supply chain for, for all of the different projects that we work on. It'd be good to see those challenges removed over time. So, so, all right. So where are we headed? I mean, we've looked, we've looked back, we're talking about what's trending now. So what is the, what does the future hold here, Jim? What's a magic ball. Tell us here
Jim Langel (8m 1s):
Depends a little bit on the administration, but they've already made some, some adjustments already. And before I guess I dig into that a couple of clarification's I should make, right. There's really three different applications in solar that people look at. There's the residential application, right? Anybody at their home, trying to apply solar, there's kind of the CNI space, which is commercial and industrial space, which is your kind of small, little bit larger than residential. You know, your warehouse applications, your school applications, things like that. And then there's the utility scale, which is more of your farm fields full of, you know, solar panels. So those are kind of the three different markets. And, you know, in each one, if the adjustments are a little bit different, but they're all based upon the ITC, which is the investment tax credit.
Jim Langel (8m 42s):
And that's been implemented since oh five. And so for 15 years, we've had that tax credit that's out there. And it originally started at 30% at this point in time in 2021, it's at 26%. Meaning if you were to invest in your house or any other application that you see out there and you invest, let's say $10,000 in your house to apply that residential solar application, then you're going to see 26% back. You're going to see $2,600 back on your federal tax income. And that's where you can have that as a write off. So there's a big advantage that's out there right now in the market. And there's been talk for a long time of how that's going to be teared down. As it's currently set up. It was supposed to tear down this year from 26 to 22%.
Jim Langel (9m 23s):
But as part of the new administration, one of their applications as the second COVID package that was sent out there, you know, that was a very large package. I think it was 900 billion or something to that effect, but that have extended the ITC for twice from 26%, for an additional two years, meaning that 26% that would have ended in the end of 2020 in late December. They extended it out for two additional years. So that'll go through 20, 21 and 2022, and then it'll tear down in 2023 to 22%. And then in 2024 to 10%, and one of the key clarification's there on the 2024 application is when you get to 10%, that 10% value is only good for utility scale or C and I applications from a residential standpoint, if you were looking to add it to your house, it would be zero.
Jim Langel (10m 9s):
So meaning if you're considering doing residential solar, the time to do it is in the next two to three years, if you're going to take advantage of that tax credit, which again, I kind of already gave you the application. There's big advantages there. If you're willing to do it, if it's not extended for right. But to that point, the new administration, right, there's been talk out there of this new American jobs plan and included in that is a couple of things with the IDC is potentially extending it up to 10 years to have targets of a hundred percent renewables by 2035, which is, you know, 15 years away. But that might happen fairly quickly. If you really look at the applications. And in addition, they want to cut cost by 60% in that same time window.
Jim Langel (10m 50s):
So those are pretty aggressive targets. And right now they're just targets. So we'll just have to see what the administration decides to do as time goes on. But those sorts of applications provide a lot of advantage if they do extend it out because we're seeing, you know, broader across the industry, more and more states, more and more residents, more and more utility scale projects everywhere. And you know, one of the applications from the CNI space, which is kind of that middle solar ground is I believe in New Mexico recently just added a community solar program, which was the 21st state to do that. And, you know, to realize that, you know, there's certain applications that are already out there in other states like New York Jersey, North Carolina, that are very mature in the solar market, but to see more and more states start to add these community solar applications and starting to green gain traction in other locations, in other regions of the United States, which is good for the solar industry in general, and hopefully good for the, the, the end user, meaning the customers, meaning you, me and everyone.
Jim Langel (11m 47s):
That's out there when you're paying your electrical bill. Hopefully you'll be paying a little bit less because you're getting energy for little bit smaller cost.
Ginger Elbaum (11m 55s):
Yeah. Yeah. Great, great. Well, okay. So Jim, I, you know, top three by E3, so what are the top three points that you'd like for our listeners to walk away?
Jim Langel (12m 5s):
Yeah, the big one on trending is, you know, we're seeing costs go down and hopefully that's a, you know, money in everyone's pocket at the end of the day, we're seeing, you know, the challenges that everyone's facing at home is no different in the solar industry: COVID-19 has impacted everyone and it's difficult across the board. And so it's one of those things where we're hoping to see, you know, an upward trend over the next year, year and a half. And then, you know, where are we headed in the market? It really is predicated on the new administration and what they want to do the silver lining is they've already made their first move. They've already extended the ITC for a couple of years, which means, you know, there's a better opportunity for the solar industry to be extended out and be a longterm add to the business. So it's a good thing.
Ginger Elbaum (12m 46s):
Okay. Well, Jim, excellent. Thank you. I appreciate it. And thanks for coming on today and thank you to our listeners for listening today. If you have any questions about solar and or storage, you know, please reach out to us at e3@e3.comand Jim, thanks again, and thanks to our listeners for listening. Thank you.