Small developer look to find their feet in the midst of stumbling giants.

By: Nate Shanklin 8/16/2016

In the past six months, SunEdison has gone bankrupt, Solar City and Tesla have merged with one billion USD in losses combined, and First Solar has had their third quarter of loss with a 200 million dollar shortfall.  These giants were once set to dominate the renewable energy landscape of the United States, but it was not to be.  While the demise of these companies may signal an intriguing opportunity to the bevy of smaller developers, they would be wise to understand the market conditions that brought their larger brethren to their knees.

Large companies are good at addressing the needs of large homogeneous markets, think cars and shampoo.  Looking at the ubiquity of small businesses, manufacturing plants, and houses in the United States it stood to reason that renewable energy would be as readily applied as toothpaste and baby powder, this was not the case. While we may be the United States, there is little if any unity of state by state energy policy and regulation.

In a recent quote when asked about renewable energy and climate change, Chip Beeker, Chairman of the Alabama Public Utilities Commission stated, “I believe that no matter what you call it, a myth is still a myth, and the so-called ‘climate change crisis’ is about as real as unicorns and little green men from Mars.”  There are more reasons than little green men (extreme adherence to coal and the coal lobby) that influence states views on renewable energy.  First and foremost is the issue that often utilities are afforded state sanctioned monopolies in exchange for their voluntary regulation.  This is often a slightly incestuous relationship as utilities donate to campaign funds and hire former elected officials into their ranks and intern get preferential treatment from the sitting government members who seek the utilities donations.  Utilities make money from the hedge between raw fuel costs and the price at which they sell power.  When renewable energy providers sell utilities power, it is akin to selling a baker muffins when what they want is flour.

The large companies were and continue to be aware of this fractional market, but the rapidity of the changes is proving to be nearly impossible for them to navigate.  In the period of 18 months, nearly a dozen states have undergone significant changes to their markets, essentially turning the flow of projects on and off in some states (think North Carolina), while in others such as New Jersey, the ever growing line for the interconnection queue has slowed progress to a trickle.

Without a solid and widespread market, large companies have found it difficult to support their overhead.  In an August 1st article regarding the Solar City/ Tesla merger, Forbes reported that:

“Solar City will benefit because: it will not go out of business, will have access to Tesla’s distribution network (effectively slashing the cost to acquire new customers – which is currently ~ 30% of the price of a solar panel!)”

The missteps of the largest players does indeed open an opportunity to smaller developers.  This market will serve dynamic firms that can adapt to the changing landscape and not be saddled with unattainable margin requirements.  Firms will have an ongoing challenge in obtaining confidence in financial partners that watched their large clients falter, but strong opportunities will stand on their own.  Renewable energy continues to grow and is paving a path forward. The evolution of any industry is a messy endeavor, one bound to be laden with the remains of those who could not adapt.  Adaption while an almighty challenge, is an opportunity for those that are able to do so.  The upcoming year will present just such a situation for many developers across the United States.