Residential Solar Market-New Growth Opportunity for ConEdison and Georgia Power

Utilities turn the threat of distributed generation into a business opportunity.
Published: Tue 11 Aug 2015

In many circles, the rise of distributed generation was first seen as a fad, then it was met with alarm as the community generation movement grew.

Now with price points for solar and batteries dropping dramatically, ConEdison Solutions, the unregulated subsidiary of the New York investor-owned utility Consolidated Edison, joins another utility, Georgia Power in its quest to harness business opportunities in residential solar.  

This is another anecdotal proof point that the market has tipped and the utility sector needs to rush to board the distributed generation train that is pulling out of the station fast.

Utility-owned distributed generation

Utility Georgia Power has entered the residential solar business in the Peach State, an opportunity that was made possible by a new third party owned (TPO) finance plan law passed in May. The Solar Power Free Market Financing Act, HB 57, legalizes the TPO residential solar finance plan that has seen solar growth skyrocket nationally. The law allows any electric service provider or affiliate to become an authorized solar financing agent which means they can engage in the business of leasing, financing or installing solar technology.

The TPO finance plan was central to the 50%-plus growth rate of residential solar in the last three years running. Along with low module prices, no-upfront-costs financing allowed for the installation of over 500MW of residential solar where there were no state incentives last year.

In response to the approved plan, Georgia Power, a subsidiary of national utility powerhouse Southern Company, put together a business plan for rooftop solar. The utility will be selling solar installation services to customers through an unregulated business unit. The strategy was clearly announced by Southern Company CEO Tom Fanning: “If distributed generation is eroding your growth, own distributed generation!”

Solar advocates are backing the law as it allows customers to install solar using a financing mechanism of their choice, including financing mechanisms such as leases and solar energy procurement agreements in which payments are based on the output of the system. It also limits residential third party financed systems to 10kW and TPO commercial installation to no more than 125% of the host’s peak demand. It echoes the message that third party owners who transfer the solar generation to system hosts are not electric utilities.

ConEd will be partnering with solar developer SunPower in its movement into the Empire State’s rooftop solar market. ConEd will own the rooftop systems and offer a 20 year lease that will provide electricity at below the retail rate from a host's rooftop at no upfront cost to the homeowner. ConEd Solutions will handle the financing, installation and any ownership responsibilities associated with the SunPower modules it uses.

Forward-thinking amidst utility disruption

The decision of ConEd to expand their unregulated business offerings unfolds during a time of enormous disruption for utilities in New York. [Distributed Energy Resource Markets Coming To New York and New York Energy Vision Reform A Step Closer].

State regulators have just released a new white paper to launch the second phase of rulemaking in its Reforming the Energy Vision (REV) initiative. The paper outlines the creation of new utility business models in the state, centring around the creation of distributed system platforms (DSPs), which will effectively function as a customer-facing marketplace to enable two-way flows of energy, services, and value across the distribution grid.

With ConEd's regulated utility division barred from owning distributed resources like rooftop solar under the REV initiative, the company looked to the residential solar market as a new growth opportunity.

Last year, New York state added 147MW of solar capacity, boosting its total to 397MW. Of that, 89MW were residential, 49MW were commercial and 9MW were utility scale, according to Solar Energy Industries Association (SEIA).

Solar loan market expands to accommodate demand

Third party ownership arrangements like ConEd and Georgia Power’s are growing quickly across the US. TPO systems accounted for 72% of the total 1.2GW of US residential solar installed in 2014.

Three companies financed over half (56%) of US residential solar installations last year. SolarCity led, financing 34% of the installs. Vivint Solar, just acquired by SunEdison, was second at 12%. Sunrun was third at 10%, followed by residential finance sector standouts SunPower, NRG Home Solar, Sunnova, and Clean Power Finance.

The 28% of residential solar that was not installed through TPO leases and PPAs in 2014 was customer-owned, much of it through loans that offered similar year-one savings and other advantages in lease and PPA plans. By 2020, direct customer ownership will likely account for 54% of the predicted 5.2GW residential solar market.

The solar loan market is expanding fast as TPO financiers are introducing or planning to introduce loans to the solar market.

Further reading

Bloomberg News via Crain's New York Business: Con Edison will start leasing solar-panel systems to homeowners; The electric company will offer solar panels manufactured by SunPower Corp.

SEIA-New York Doubles Solar Capacity in 2014