Like just about every other industry in the country, the COVID-19 pandemic has struck commercial solar. Most of New Resource Solutions' ("NRS") active projects have hit roadblocks in some way. Here are a few scenarios which depict the challenging new reality of developing and constructing commercial solar projects amid this pandemic:

• Waiting for site visits / inspections
• Full pauses mid-construction
• Delays on permitting from the local authority having jurisdiction
• Complete re-working of the offtake structure (e.g. pre-paid PPA to $0 up-front PPA)
• Force majeures for "epidemics" and "pandemics"
• Equipment delivery delays

But what is third-party solar investing if not dealing with constant change and challenging new situations? Without flexibility in solar project finance, you won't last long — either you go insane and just get out or you adapt and get some business done.

The secret lies in working with great partners — installers, investors and offtakers. We're consistently seeing all parties be reasonable, flexible and creative in working out solutions to accommodate the most pressing needs. We believe it's a testament to the broader solar market and the collaborative mindset of the people who gravitate to it.

The post-COVID-19 world – reasons for optimism

NRS remains confidently bullish on the commercial solar market coming out of this pandemic, particularly from a third-party ownership perspective. Solar demand from commercial entities will continue to increase, as certain fundamental realities only become starker for commercial (e.g., for-profits, non-profits, and public) entities:

1. They seek energy independence and cost certainty
2. They seek ways to reduce their operational costs
3. They seek ways to become more environmentally friendly

With that in mind, our optimism is rooted in four of the key parties involved in solar project finance transactions: offtakers, installers, investors and government.

Offtaker Impacts

Of commercial solar's $5.2B market, NRS estimates $1.3B of projects are tied to cash deals where the customer also owns the system. COVID-19's economic impacts will drastically reduce the cash deal market size for 2020 due to reduced free cash flow, reduced tax capacity, and reallocation of capital expenditures to core business needs. However, these entities still want solar. NRS is seeing this happen for numerous projects, and installers need to work on transitioning those clients to a PPA, where eligible.

Offtakers who weather this storm will look for ways to lock in operational cost savings for the future. PPAs typically offer 10-20% discounts off their year 1 power bill, and the savings are always projected to increase over time. Additionally, most offtakers have a sense of urgency to "go solar" before the overall value of their system decreases as the ITC is reduced from 26% to 22% in 2021. Public, municipal and non-profit entities — who entered the pandemic with already-stretched budgets — will emerge with an imperative to reduce operational costs and need third-party financing to get it done.

Biggest Hurdles: It may be tough to get a decision maker's attention for going solar. If marketed correctly, however, seeds planted now should grow over the course of the year into live projects. Offtaker credit thresholds will be raised by investors and their financing partners (i.e., banks), but strong balance sheets and public entities will still pass muster.

Installer Impacts

Many commercial solar installers are struggling in real time to keep things afloat during this pandemic and the associated lockdown. In much of the country, spring usually kicks off construction season, so installers have found themselves with fully loaded payrolls but limited work, at best. Still, busy solar installers only get so much desk time, and all partners should be able to capitalize on the (hopefully) brief window of down time covered by government Paycheck Protection Program payments and other stimuli.

NRS sees this as an ideal time to:

1. develop new financing relationships targeted to an installer's needs; 
2. strategize with installers on their portfolio so they can most efficiently move projects forward; and
3. finalize outstanding paperwork.

Biggest Hurdles: Installers must survive until business can return to normal. NRS anticipates various equipment delays and temporary price increases once construction resumes across the country. It will be imperative for installers to ensure solar remains at the forefront of rebuilding the economy with local and state governments.

Investor Impacts

NRS's usual investor partners are still seeking quality solar projects. Investors who are raising new capital may face some roadblocks, but solar projects overall look more attractive given the recent equity markets turmoil, so it should be surmountable. NRS expects new institutional, individual and impact investors to enter the commercial solar market over the next two years, further driving down yields for quality projects.

Biggest Hurdles: Certain sources of tax equity will inevitable dry up this year, namely one-off investors who see a dip in tax liability. More established tax equity investors, with varied relationships, appear to remain in a strong position. While underlying treasury rates have dropped, the debt markets remain fickle on how to price solar assets. Debt is also taking a tougher view on credit, which may limit some projects' viability.

Government Impacts

The current administration is not particularly friendly to solar, but it cares about jobs and investment, so there is some hope. Solar industry leaders are making strong pushes for the administration to provide some respite for our industry.

The potential scenarios for change are, in order of likelihood: 

1. clarification that "30% safe harbor" equipment is permitted longer than its allotted 105-day delivery window (which has now expired);
2. push the current ITC percentage (26%) out for one more year;
3. switch to a cash version of the ITC (similar to the 1603 cash grant); and
4. refresh the ITC back to its prior value of 30%. 

NRS does not expect any of this to occur in 2020, but we are more optimistic than we were three months ago. A new Democratic administration would bring dramatic opportunities for solar in 2021+.

Biggest Hurdles: The current administration's opposition to renewable energy and climate change, but we all knew that already. It is highly likely that states will continue to drive the proliferation of commercial solar while the current administration is in place.