🏭☀️ Growing Commercial and Industrial PV (C+I): How to crack the code? - Introduction

The commercial and industrial segment (C+I) of the solar market holds the biggest opportunity for growth. However, according to Solar Power Europe, this segment has grown slower than residential and utility #PV in recent years, representing 40% of all installations in 2020 and only 33% in 2023. This may sound surprising given the growing need for clean power in C+I, but there are good reasons for the lagging growth.

In the past, just putting PV on an industrial roof was often enough to satisfy a C+I customer. Perceived innovativeness, environmental aspects and financial return were key motives for installing #solarPV. Needs have changed and the key driver now is own consumption of solar PV energy and energy cost savings. But that doesn’t automatically open up the market.

Here are some thoughts to start you off:

1️⃣ C+I solutions are more complex technically. Every system is different. If you don’t build for large retail chains, which seem to have chosen their EPC partners for the long run, variety and complexity in system planning and design are higher.

2️⃣ C+I customers are often less sophisticated in understanding their energy profiles than one would expect. In the past, energy was one (albeit key) item of purchased service. Thinking in consumption and own production profiles requires a new level of understanding, measuring and planning inside these companies.

3️⃣ Understanding the commercial case: As a #developer, you now need to understand the integration of on-site PV into the customer’s energy load profile, ideally linking it to heating, cooling, process media and storage. Most importantly, the customer wants to understand and have confidence in the commercial case of solar power. Complexity and required competence grow. Not many developers have kept up.

4️⃣ Permitting, planning and project management are more challenging in C+I.

5️⃣ More parties involved: Often, the owner of the roof is not the user of the electricity. This adds complexity as the interests of building owner and user of the electricity are not aligned and agreements need to be reached (incl. typically financial compensation).

6️⃣ A Commercial „as-a-service“ PV portfolio could be highly attractive, but is missing „First-of-a-kind“ (#FOAK) #funding to build out the asset class. Investors have trouble understanding risk for such new portfolios and pricing them. For example: in comparison to retail solar, customers are now companies and not house owners – a different credit risk profile.

In the following 3 parts of this series, we will address the #customer perspective, the viewpoint of developers/#EPC ’s and the #investor angle of C+I. Our goal is to share our perspectives on how to grow the segment and how to be successful as a market participant and investor in the space. Follow us for more and don’t forget to comment and add your views. 

by •Tobias Schütt and Christian Langen

Beyond Mega investments: which type of funding is needed to drive cleantech adoption in Germany?

According to Wood Mackenzie in September, global investment of $2.7 trillion a year is needed to achieve net zero emissions by 2050. Last week, #Brookfield announced a $3bn commitment into two of their #energytransition / #cleantech funds, their new Global Transition Fund II will have a $20bn size goal.

💰💰💰 With mega transactions becoming more frequent and institutional funds sitting on billions, the question is: what will this capital be invested in? 

With these amounts, #efficient #capital #deployment becomes an issue. #Institutional investors need big transactions so that they can put huge amounts of capital to work efficiently. 

The return requirement of the last Brookfield Transition Fund of 10% #IRR net, 13% IRR gross, may sound high to the German ears, but on the scale of global cleantech it is relatively normal return requirement for low risk capital.

❓ So where are those projects in Germany, big in size (>100 M€), with a track record and pipeline, that can provide +13% equity return – with limited risk exposure to the equity? Well – hard to find.

👆 So, like for the energy system itself, could decentralization be part of the answer? 

💡 What we see as trends in the German cleantech space are

➡ new technologies evolving, like new battery technology, 

➡ new business models developing, like heatpump-as-a-service for retail clients or grid-scale stand-alone storage systems, co-located generation and storage assets of all sizes,

➡ new developers entering the market with limited track record, 

➡ the development of C&I as the next huge growth segment for solar PV, which brings new hashtag#off-taker risk compared to #FIT based business models,

➡ new behind-the meter and baseload PPA’s, taking over from “as produced” PPA structures,

➡ new cross-technology service solutions like solar PV + battery or power + heat – preferably in as-a-service-models.

😤 You will notice that the list includes the word “new” many times. This marks one of the key challenges for those new #assets being developed. The #trackrecord is non-existent (meaning higher perceived risk). Also the first assets are likely in the “few million Euro range” – which is too small for the mentioned billion $ funds.

😡 That means: funding is very complicated for the “new kids on the block”. Welcome to the “First of a Kind” or #FOAK world. 

💫 Bottom-line: the huge institutional funding will help on the net zero path, but it will likely be deployed in more established parts of cleantech infrastructure. To truly expand the reach and increase deployment speed, a new type of funding approach is needed – one that enables the creation of new asset classes. 

👉 In the coming months, we will discuss more how to bring more #FOAK funding to the cleantech space in #Germany.

Corporate Equity vs. Asset Funding … no, it is absolutely not the same

🌞 Early 2023 has seen significant funding in the downstream solar power sector, such as #Enpal's 215 M € Series D at a 2.4 bn € valuation in January 2023, followed by 430 M€ in debt raised in June. #Otovo raised 120 M € in asset finance in January 2023. While much of that money is still there, just recently, Otovo had to raise a 40 M € equity round at a vastly reduced valuation.

⁉️ So, those scale-ups now have deep pockets? 

Often, a crucial distinction about funding rounds gets blurred in financial communication: large #assetfinance deals, while impressive in size, do not immediately add to corporate funding. This misunderstanding poses a significant risk in evaluating the stability of a cleantech scale-up with asset roll-out: even with hefty asset funding available, the scale-up could teeter on the brink of failure if corporate capital is dwindling. We may see some of that unfolding in the coming year.

🔥💸 Corporate equity: the typical funding structure 

Corporate #equity involves exchanging a company's shares for capital, typically catering to a broad range of corporate expenses and structural growth investments, in case of cleantech scale-ups with retail business, a considerable costs item is sales and marketing expenses. With corporate funding, investors buy into the company's vision and potential, looking for long-term growth and returns. Corporate equity is money at risk.

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