How REC Is Growing Mid-Market Commercial Solar


REC Solar positions itself to grow the mid-sized commercial solar market. With creative financing strategies, the company hopes to overcome the challenges to developing projects in this market segment.


REC Solar is looking to do for mid-market commercial solar what it did for residential solar.

If that’s any indication, we should be prepared for big things. REC’s residential solar growth rate of 65% in 2013 outpaced that of the broader U.S. residential solar market, up 49% at the time — positioning the company well to sell off its residential arm to Sunrun early this year.

That allowed REC to focus on commercial solar. In addition to the traditional non-residential segments, the company has its sights set on an untapped sector in this market: mid-sized projects. At Intersolar North America last week, we spoke with Director of Solar Finance & Policy Ben Peters about strategies for expanding that market.

Challenges for mid-sized commercial solar projects

This is no easy nut to crack, and not one that many have wanted to tackle. Peters says, “Eighteen months ago, people looked at me like I was crazy. They said it was too expensive to finance mid-market projects.” But that didn’t keep REC from trying. He says the company has applied a lot of what they learned from the residential market to this effort.

What size of projects are we talking about? Most commercial installations range from 250 kW to 1 MW, though the company did recently start construction on a 12 MW project in Hawaii. However, in the “mid-market” segment, projects tend to range from 75 kW to 500 kW. REC focuses less on size than on distributed generation (DG), meaning the projects interconnect on a distribution feeder. That represents a huge market opportunity, says Peters, with projects ranging from 10 kW to 3 – 5 MW and up.

Many of the mid-market customers are churches, nonprofits, and small business such as dental practices. In the past, it was hard to finance smaller projects like these — to be worth the transaction costs, including legal and financing fees, a project needed to be at least 1 MW, says Peters. But that has changed.

Challenges still remain. The biggest for financing mid-sized commercial solar? Showing that the customers are credit-worthy. Businesses don’t have FICO scores, so investors aren’t always comfortable with them as credit risks.

Financing solutions for commercial solar

But REC has identified a number of financing mechanisms for these projects. If paying cash is not an option, innovative financing may be required. And REC is working on standardizing processes and documentation, so they can be replicated and some of the soft costs avoided.

This seems to be working. REC is up to over 200 MW projects, including 300 systems for which they’re providing O&M.

The company has already moved from asking “What can I do to help this customer go solar?” says Peters. Now he asks, “Which option do I offer them?”

Some of the options:

PACE: Commercial PACE can be a good option for some businesses. It hasn’t run into as many obstacles as its residential counterpart, and many banks are comfortable with this lending opportunity. REC has taken this a step further with organizations like churches, which don’t pay taxes. They don’t have to pay taxes, that is. “Churches can pay property taxes if they want,” says Peters. That lets them take advantage of PACE financing. “The secret sauce is getting them the value of the tax credit,” Peters adds.

Community solar: More of a policy than a finance option, community solar can alleviate the credit challenge for churches or small businesses. There isn’t as much concern over whether the customer will stop paying their bills or leave the building; the bill credits don’t disappear if a customer moves and can be transferred throughout a community. This model is very active in Minnesota.

Equipment leasing: While power purchase agreements (PPAs) have been key to solar adoption, a traditional PPA can be hard to implement for a commercial solar project smaller than 500 kW. Here, REC has come up with an ingenious solution: equipment leasing. There’s an entire equipment leasing industry, says Peters, that REC has tapped into. And banks have equipment leasing divisions that can be turned to for financing.

This model allows the vendor to monetize the tax credit and saves financing costs. For a traditional PPA, there are three players: the developer, the installer, and the finance conduit. The person in the middle is expensive. Equipment leasing removes that middle layer, allowing the customer to go directly to the bank for financing. The payment period is 7 – 10 years, shorter than with a traditional PPA, and the cost of capital is cheaper. At the of the term, the customer can return the equipment, or exercise their option to purchase the system and own a clean energy asset.

Equipment leasing for commercial solar projects has gotten up to speed in the past 12 months, with about five leasers in the space and another dozen wanting to get in. REC aims to grow the space for small commercial projects.

PPAs: PPAs still have a place. The equipment-leasing model works for about half of the mid-market segment — the dental offices and other businesses. Churches and nonprofits can’t participate for tax reasons, so they use PPA providers. That market too has been growing for REC; they now have several megawatts of PPAs in the works, up from none just six months ago.

Churches, which have their own crowd in the form of their congregation, can even use crowdfunding to finance a PPA. By investing in solar for a church, community members can create a pool of money for a PPA.