Q3 2017 Update: The State Of Distributed Solar Austin Perea Analyst, U.S. Solar Perea@gtmresearch.com 0
Installations (MWdc) National-Level Market Overview H1 2017 7,000 6,000 6,582 The U.S. solar PV market installed over 2 GW Up 12% year-over-year 5,000 Up 8% quarter-over-quarter 4,151 Utility PV 1.4 GW 4,000 3,285 ~60% of U.S. solar capacity in Q2 2017 3,000 2,110 2,205 2,090 2,203 2,132 2,387 DG remains smallest share of overall quarterly capacity additions 2,000 1,364 1,287 1,395 1,342 1,434 1,430 Non-Residential 436 MW 1,000 747 941 964 Up 10% over Q1 2017 Up 31% year-over-year 0 Residential 563 MW Residential Non-Residential Utility Up 1% over Q1 2017 Down 17% year-over-year 1
Unpacking Residential Solar s Slowdown 2
Capacity (MWdc) Residential solar continues to face challenges Quarterly Residential PV Installed Capacity (MWdc) Q1 2012-Q2 2017 800 700 600 593 612 672 679 607 638 555 563 500 461 501 410 400 328 300 261 249 279 200 100 111 128 148 169 171 195-3
Year-over-Year Growth (%) Despite strong near-term policy certainty, major residential state markets are struggling Q2 2017 State Market Shares 300% Top Five Markets Year-over-Year Growth 250% 30% 200% 150% Q2 2017 marks first quarter top five states all experience YoY decline Top Five state markets account for 70% of national installations 41% California Arizona New York Maryland 100% 50% 6% New Jersey All Others 0% 7% 7% 9% -50% California Arizona New York Maryland New Jersey 4
Installed Capacity (kwdc) MW Installed Residential solar slowdown began in California in 2016 100,000 kw California Installation Volumes by Installer Size 200 SolarCity vs. All Other Installers in California: Capacity and Year-over-Year Growth 40% 90,000 kw 180 30% 80,000 kw 160 20% 70,000 kw 140 10% 60,000 kw 50,000 kw 40,000 kw 30,000 kw 120 100 Residential solar slowdown began in California in 2016 80 60 0% -10% -20% -30% Year-over-Year Growth 20,000 kw 40-40% 10,000 kw 20-50% 0 kw Sub-1 MW 1-2 MW 2-10MW 10 MW+ Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 0 Q1-2016 Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 SolarCity All Others SCTY YoY Growth All Others YoY Growth -60% 5
Capacity (MWdc) Year-over-Year Growth (%) and hit Northeast markets in full force in H1 2017 Northeast Markets Q2 2016-Q2 2017 Residential Installations Northeast Markets Q2 2016-Q2 2017 Year-over-Year Growth 70.0 60.0 50.0 140% 120% 100% 80% 40.0 30.0 20.0 10.0 60% 40% 20% 0% -20% -40% -60% 0.0 New York Maryland New Jersey Massachusetts -80% New York Maryland New Jersey Massachusetts Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 6
Share of Total Deployments 2016 Avg Cost ($/W) Annual Growth (%) Growing pains among the national residential solar providers Transitioning away from unabated market share capture to profitable growth Annual Growth Rates: SCTY+RUN+VSLR vs. Rest of Residential PV Market 120% 100% 80% 60% 40% 20% 0% -20% Source: GTM Research 90% 45% 106% 24% 66% 78% -1% 2013 2014 2015 2016 Growth Rate (SolarCity, Sunrun, Vivint Solar) Growth Rate (Rest of Residential Market) 2016: TPO Market Shares by Residential PV Company 100% 80% 60% 40% 20% 0% Source: GTM Research 45% SolarCity Vivint Solar Sunrun All Others Third-Party Owned Customer Owned Quarterly Residential PV TPO Market Shares in 2016: National vs. California In aggregate: National residential PV companies have a more than 3x higher cost of customer acquisition than the long tail of installers $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Source: GTM Research SolarCity, Vivint Solar, Sunrun Large Regional (over 2 MW/quarter) Mid-Size Regional (1-2 MW/quarter) Large Local (100 kw-1 MW/quarter) Long Tail 7
Capacity (MWdc) Emerging Markets Quarterly Installed Capacity Q1 2015-Q2 2017 35.0 30.0 25.0 20.0 15.0 10.0 5.0 - Utah South Carolina Texas Florida Pennsylvania Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 Q3-2016 Q4-2016 Q1-2017 8
Capacity (MWdc) Capacity (MWdc) Recent regulatory and policy wins have potential to open up new markets NV, IL 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 - Nevada Quarterly Installations Nevada PUC s decision to pull-back NEM and not grandfather had huge impact #7 in 2015 vs. #11 in 2016 vs. #20 in Q2 2017 Installations trickled into H1 2016 as they were energized, but stark dropoff thereafter AB 405 decision to restore NEM opens up major new market opportunity though NV Energy general rate proceeding 200 150 100 Illinois Forecast 2015-2022E 84 59 118 156 threatens long-term outlook Illinois new RPS program rethinks REC program Adjustable Block Incentive (ABI) 15 year REC program Sets capacity procurement targets ~330-675 MW by 2020 50 0 25 1 4 6 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E Upfront REC functions like cash rebate program, but doesn t diminish tax eligible basis of project, resulting in higher value proposition for customer Reduces volatility of SREC; appeases finaciers 9
Axis Title The Near Term Residential PV Outlook: Defined by market transitions 120% 100% 80% 60% 40% 109% 50% 64% 95% 75% 45% 52% 38% 82% 65% 54% 72% Major Trends Defining Residential Solar in 2017 The long tail of installers, with cheaper customer acquisition costs, are on track to grow at a faster rate than Tesla/SolarCity, SunRun and Vivint collectively And the Big Three s pursuit of profitable sales and lower customer acquisition costs will result in a the market contacting 3% from 2016 Major markets continue to struggle despite strong policy environment 20% 0% -20% 23% 15% 20% 5% 2% 5% -3% -13% California Next Five States All Other States Total 2013 2014 2015 2016 2017E 2017 marks the first time California will fall on annual basis this decade Direct ownership will drive the majority of annual installations since 2011 More than half of all states in the U.S. will be at grid parity in H2 2017 Emerging state markets outside the top 5 (CA, AZ, NJ, NY and MD) to grow 20% in a year of flat national level demand Q2 2017 second consecutive quarter in which emerging state (Utah, Texas) replaces major state (MA) at #6 largest market 10
Non-Residential Solar s Reboot: Growth Beyond Standalone Onsite Solar to Community Solar 11
Capacity (MWdc) After 3 Consecutive Years of Flat Demand: Non-Residential PV Grew by 50%+ in 2016, expected to grow 9% in 2017E 800 700 600 500 400 Policy and Incentive Driven Bubbles Support 2017 Rebound The Top 4 States: Partly fueled by short lived market drivers California: The closure of solar-friendly rate structures Massachusetts: Pull-in of demand amidst closure of SREC programs New Jersey: RPS driven demand for SRECs pulled in from future years New York: Depleting pipeline of virtual/remote NEM projects 300 200 100 0 What s driving a reboot in all other states? The emergence of community solar: 220 MW+ installed in 2016 Utility led community solar: Drove more than 60% of community solar Top 3 community solar states in 2017: CA, MA and MN 2013 2014 2015 2016 2017E 12
2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Annual Installations (MWdc) Utility Led Community Solar (MWdc) Emergence of Community Solar: Legislative and Voluntary Segments Both Set to Scale Community Solar Installation Outlook: Third Party Led vs Utility Led Community Solar Within Utility Led Community Solar: Emergence of IOUs Procuring Large Scale Community Solar 700 250 227 600 500 400 410 200 150 300 200 100 0 1 26 9 6 29 52 223 100 50 0 113 62 44 37 26 Coop IOU Muni Third Party Led Utility Led Operating In Development Source: <Insert source> Source: <Insert source> 13
Annual Installations (MWdc) Non-Residential PV Outlook: Moving Beyond Onsite, Standalone Solar 2016: First year < 90% of non-residential PV market came from onsite PV 2021: Less than 50% of annual non-residential PV installations will be onsite, standalone PV 3,500 100% 3,000 2,500 2,000 1,500 1,000 500 835 1,075 1,110 1,063 1,062 1,586 1,756 1,671 1,933 2,127 2,471 2,859 90% 80% 70% 60% 50% 40% 30% 20% 10% Share of Annual Installations (%) 0 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 0% Non-Residential Community Solar Solar-Plus-Storage Onsite Solar 14
The Next 5 Years of U.S. Solar 15
What comes next for U.S. solar? 1. Macro level uncertainty: Solar trade dispute, corporate tax reform, NEM and rate reform risk 16
What comes next for U.S. solar? 1. Macro level uncertainty: Solar trade dispute, corporate tax reform, NEM and rate reform risk 2. Residential Solar: Near term contraction, sub 12% annual growth in a more fragmented installer landscape, paired with the emergence of loans and cash sales collectively outpacing third party owned leases and PPAs 3. Non-Residential Solar: Continued growth hinges on community solar (near term) and solar-plusstorage (long term) amidst state incentive reductions and TOU rate reforms across major markets 4. Utility Solar: On track for another boom in procurement heading into 2019 in response to the scheduled stepdown of the 30% federal ITC, supporting growth in the 2019-2021 timeframe 17
September 18 ia.org 29, 2017 Yearly Installed Solar Capacity (MWdc) Total Installed Capacity triples by 2022, reaches 16 GW annually 18,000 U.S. Solar PV Deployment Forecast 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Source: SEIA/GTM Research U.S. Solar Market Insight 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E Residential (PV) Non-residential (PV) Utility (PV) 18
Thank You Austin Perea Analyst, U.S. Solar Perea@gtmresearch.com 19
Appendix: Utility-Scale Trends 20
2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E Annual Installations (MWdc) Market Drivers to Watch: Utility Solar s Reboot Pegged to Non-RPS Demand 12,000 10,000 8,000 4 Key Trends That Will Shape the Next 5 Years Community Choice Aggregation in California The Push for Rate Based Ownership of Utility Solar Future Implementation of PURPA Policies Corporate Demand for Offsite Solar PPAs 6,000 4,000 RPS Driven Non RPS Driven 2,000-63% % Share of Utility PV Pipeline 37% PURPA Voluntary Procurement Retail Procurement CCA 21
Installed Capacity (kwdc) Residential solar slowdown began in California in 2016 100,000 kw 90,000 kw 80,000 kw 70,000 kw 60,000 kw 50,000 kw 40,000 kw 30,000 kw 20,000 kw 10,000 kw 0 kw Sub-1 MW 1-2 MW 2-10MW 10 MW+ Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 22
Annual PV Installations (GWdc) U.S. Solar Market Outlook: Resumption of market growth in 2019 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 - Return to 2016 installation levels Resumption of total market growth 16.3 17.4 15.0 15.0 12.5 13.1 11.1 7.5 6.2 4.8 3.4 1.9 0.9 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E Residential Non-Residential Utility 23