Solon: North American strategies, growth prospects and how Microsol stepped in at just the right time

05. September 2012 | Top News, Global PV markets, Industry & Suppliers, Markets & Trends, Storage & smart grids | By:  Becky Beetz

Solon Corporation’s new VP and GM of power plants, Jared Schoch discusses his plans for growing the company’s North American photovoltaic business, the financing landscape in the region, and the impact of Microsol’s recent takeover of Solon SE with pv magazine.

Prior to joining Solon’s North American team this August, Jared Schoch worked with SunEdison on its commercial and utility-scale photovoltaic development business. He recently took time out of his schedule to talk to pv magazine about his plans for Solon’s future, which include expansion into new markets, particularly in the Caribbean, the importance of making financing more efficient, and why Microsol’s entrance into the German business has given Solon a competitive edge in the solar sphere. In addition, Patricia Browne, director of marketing and communications outlines the importance of developing solar storage technologies.

You have been hired to develop commercial and utility-scale PV plants, and expand Solon’s presence in the Americas. What markets are on your radar and why?
Jared Schoch: We’re in the process of hiring roughly 14 individuals in the U.S. market to help us grow into the West Coast and California, as well as the north east, the south east and the Caribbean, and do more in the south west than we’re doing now.

In what areas is Solon hiring?
Our headquarters are in Tucson and we have a major office in Phoenix, Arizona, as well as San Francisco and California. We will have individuals joining us in all the offices, as well as individuals … in new geographies. Sales and business development will be the lion’s shares of this team to help us expand and grow, in addition to some leaders we are hiring across construction and project finance, and other areas.

In a recent press release, Solon said it wants to expand into the Americas. What other regions will be focused on?
We are definitely looking to bolster our presence and plans at home in the U.S. and as soon as we do that the next focus will absolutely be turning south and developing in Latin America. I have a team member who is analyzing that market for us with plans to expand there in the next year.

Is Chile, specifically, on your radar?
Chile is definitely one. There’s a variety of countries [in South America] that are doing not just solar, but energy and energy infrastructure, where we’re seeing a lot of positive economic development and growth, so we are very excited about that space.

Will Solon open new offices up in these regions in the next year?
In the next 18 to 24 months. I think we will have core team members for the U.S. evaluating and supporting that market as it gets off the ground, and then ... absolutely that will be the focus, and eventually scaling and having local presences there as well.

What are Solon’s plans for the Caribbean?
We have just agreed to terms with an individual who is going to be our leader in the Caribbean. He’s going to be based out of San Juan, Puerto Rico. If you look at the North American market, at least from my vantage point, one of the fastest growing markets is the Caribbean. The reason is 2- or 3-fold. The first is that the cost of power is mostly fuel oil-based, and fuel oil costs are US$0.20 to $0.50/kWh depending on what geography you’re in. We can create solar underneath that very easily and create a value proposition with solar, and even solar in storage that helps to create some stability for the energy and make it work in their grid system effectively. We are also seeing an acceptance and a very large interest in places like Puerto Rico, the Dominican Republic and the Bahamas.

Is there a project pipeline already in the planning in these regions?
We have analyzed the market and we definitely know what we believe the pipeline will be, but we are just starting now in terms of developing [it] from scratch.

What are the bureaucratic process like in the Caribbean? Are there many hurdles to overcome?
Each region is different and has its own nuances. [Therefore] it really requires a local familiarity with how to do business in that geography. Having a local presence and a local team there will be critical to our success. If you can do business in places like California, and in the north eastern United States, I see very little challenge in going to places like the Caribbean from an entitlements process. Really what I found more than anything else is finding the right local team members who understand how to do business in that market and having that team on board.

In addition to local partnerships, what is Solon’s strategy for entering new markets?
Understanding the individual markets fully, and timing. I have had the privilege of working in nearly every market in the U.S. and many of the Caribbean markets, so I’ve had the opportunity to personally go and meet with the utilities, and the variety of clients in these geographies myself, so I intimately understand how each one of these markets works. In addition to [this] … [and] hiring the right local individuals … there’s timing. The right time to go to a market is to be one of the leaders in that market. That is definitely a strategy we want to take to new markets in the Caribbean and Latin America, where we can be one of the first veteran solar developers.

In the U.S., we obviously do not have that luxury. In those cases, it’s figuring out what specific sub-areas within solar make sense to focus on. For us, there’s been a lot of utility-scale solar in the U.S., but like any other energy source that is a boom and bust cycle with those projects – they’re lumpy and inconsistent. In terms of building a predictable business with predictable revenues and profitability, one of the key things is having a better understanding of where the business opportunities are going forward. The thing that excites me more than the utility-scale solar projects is distributed projects – the rooftop, the facility-tied, the roof structure type projects, and those projects in particular are hitting a tipping point in northern California, specifically, in the south west, the Caribbean and the north east, where you don’t need additional incentives to be successful, and the cost of solar is now low enough to a point that we can do business and start to transact in those markets in an effective manner that allows us to scale that distributed commercial business in a very large way.

If you go to places like the Caribbean and Latin America, there are going to be more larger, ground-mounted projects to start with, but we definitely feel the need to build that commercial and distributed business at the same time, because we know in the long run that business is going to be the business that drives the industry.

What about your U.S. pipeline?
We have a very healthy U.S. pipeline. It’s about several hundred megawatts with both distributed and utility-scale projects with clients we have done business with before and in markets we have already invested in. In addition to the south western United States, we are also investing in the Federal U.S. market, working with the Departments of Defense and Energy and that’s definitely another market we are working hard to develop.

What stage are most of the projects at?
We’re revenuing several utility-scale projects right now in the south western United Sates. We have a 10 MW PPA with Tucson Electric Power (TEP) and Duke Energy that we’re building right now. We have several projects with TEP, and we have a variety of school district and government projects that we’re working on under PPA structures. In addition to that we’re getting close to signing contracts on a variety of [other] projects that we will be revenuing next year, and we have a nice, profitable pipeline going into 2013 and 2014. The thing I’m most excited about is the opportunity to expand that pipeline into new markets and double or triple it.

How does Solon finance its projects?
We’re adaptable and flexible – probably the 2 most important words when it comes to financing. We have utility clients that want to own solar assets. At the same time, we have other clients that only want to buy the electricity and do not want to take on the asset risk that a solar project brings to a balance sheet. As such, we have financing partners in place and are developing more ... to invest in these projects as they go forward. Solon had a healthy capability and reputation of financing projects. We have just finished financing one of the projects we have not announced yet with a new partner. There are a healthy amount of investors in the U.S. and we see more investors and financiers coming into the space.

Who are Solon’s financing partners?
Most of the financing we are getting with our projects is with independent power producers (IPPs) – we’ve seen a lion’s share of it from that sector so far. But we’ve seen a large pick up of interest from traditional banks as well. And then there are strategic partners that have a strategic interest in our business. So we’re seeing investment from a variety of areas and we will definitely continue to see that grow.

What about solar leasing, which has recently raised debate in the industry?
We are interested in whatever financial models that push financing to become more efficient. If you look at our industry, the cost of panels, the cost of inverters and the enhancements of technologies, etc., have really shrunk over time and are becoming more competitive as the market evolves. One of the areas I have been pushing for years, and I think as an industry we need to continue to push on, is making financing more transparent and efficient. So from my vantage point, if we can get the cost of financing to a classic infrastructure financing – very predictable, comfortable and transparent for the investment community – [it] is a necessary evolution for the industry.

I also think leasing is causing this debate and a very healthy situation in the industry – is it the right type of strategy and, if not, what are other structures out there that could be improved upon beyond leasing?

What about project costs in North America?
It really depends. What I mean is you have to really understand the cost of doing business in California and in the north west and the south east and the Caribbean – and they are all different, so there is really no one cost in terms of the value we can create. The question [therefore] is how is it valued? How do you interconnect? What’s the value of the sun in that area? How does solar impact the grid? How does the utility value the solar electricity? Is it just an energy value? Or an energy and capacity value? Is there an environmental value? Is there an avoided fuel cost value? One of the debates we are having with utilities, regulators and the industry in general is how we are actually going to quantify the value of solar. It’s very different than wind and other intermittent resources in that it lines up very effectively with peak demand needs with electricity during the day.

How would you quantify the value of solar?
It really depends on where we are and how it impacts the grid. In some places, it works very effectively with the utility and the grid, and we are seeing places where energy and capacity and environmental and avoided distribution and upgrade costs – we’re seeing those values being acknowledged with utilities and regulators in general, and we’re seeing other areas where they are only valuing the base energy itself. So I think it is an education, and evolution of thought and value.

Last August, Solon closed its Tucson module and PV system manufacturing facility down, as part of a new U.S. operations strategy. Are there any plans to manufacture again in the U.S. or in other parts of the Americas?
It was a very small manufacturing line in the U.S. – it didn’t have the scale that European and Asian manufacturers have now. From that vantage point, it was a prudent move as the industry changes as the costs of panels, cells and silicon has come down dramatically. In terms of going forward, we’re using the same manufacturing plant in Tucson to manufacture our SOLquick racking solution, which is a lightweight racking solution that dramatically reduces the time it takes to build a solar rooftop project. So we’re just focusing on a different part of the value chain and the value proposition of solar, which is very important. We must automate and make more efficient the process of constructing solar projects. Solon’s product manufacturing and development business in the U.S. is focused very much on the racking and automation of construction, and making it as simple and efficient as possible.

In addition to that, the other large area of product development focus is on batteries and storage, and what I call the collision course that smart grid, energy efficiency and solar are onto, coming into a singular value proposition at some point in the coming years. So understanding how to integrate storage products into solar, and both of those into the grid, is critical for the evolution of the industry, and we are working on a specific project in Tucson with the University of Arizona, TEP, SMA and others to develop that.

What will the storage project involve?

Patricia Browne: Right now we have planned 4 different storage technologies and it is a project that is integrated with a 1.6 MW single axis tracking system that we previously built with TEP. The first phase of it is a lithium-ion battery that we are currently installing and plan on completing at the end of September. We have a compressed air technology and another battery technology, and the fourth technology has not been identified yet. TEP is looking into various options for that.

The great thing about the site is that we have got all these [aforementioned] partners, so we take different interests and combine them to really be able to understand what the value of the different technologies are to the different players involved. As an integrator, for Solon it is really critical that we understand how each technology benefits various end-users so that in 1, 2 or 3 years from now, when storage is staring to get integrated on a utility-scale level, we’ve got the expertise to be able to go to various utilities, in different locations and ... help them ... incorporate the best technology.

The project is just kicking off in terms of being able to collect data – in September we will be able to collect and analyze it, and then share it with the public.

Who’s supplying the battery technology?
We have a couple of different players.

How has the U.S. subsidiary been affected by the Solon insolvency, and what opportunities has Microsol brought to the table from a U.S. perspective?
Jared Schoch: It’s been a wonderful marriage so far. Microsol is a very entrepreneurial company and it is allowing us to make sure we are looking at the right strategic path for the company and doing the right thing in the long term for the business. For all of Solon globally, it has been a shot in the arm that has really invigorated the business and allowed us to double our efforts on expansion and growth. Obviously  the process of insolvency is a challenge, but that process was very healthy, because it helped us to clean up our financials in a manner that now makes our balance sheet a very attractive, profitable balance sheet that is growing.

I always like to compare the natural gas and solar industries. If you look at natural gas in the 80’s and 90’s, it went through 3 phases of booms before the last companies standing, which are still profitable and running. The first set of companies were not profitable and they were pioneers in the industry. The second set of companies made a little bit of money and then sold to the third set of companies. I think we are between the second and third phases of that same pattern for solar, and Microsol stepped in at just the right moment.

What is Solon’s unique selling point?
Solon is one of the first companies out of the consolidation phase. It has a clean balance sheet, we’re investing in hiring, and reinvesting in the space. So while the industry is consolidating and basically cutting people and reducing their cost structures, we’re actually growing. It’s a wonderful time as a differentiator for us to be zigging while the rest of the industry is zagging, picking up the best of the talent out there and really reinvesting and focusing on the customers, the right value proposition, the right products, while many in the industry are focused internally on survival.


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