The commercial and industrial (C&I) segment of the energy transition – i.e. distributed, behind the meter energy resources - has experienced only modest market penetration over the last few years, particularly compared to other segments like utility scale and residential solar. In 2023, non-residential commercial solar accounted for ~5% of total solar installations and Wood Mackenzie forecasts ~2GW of commercial solar installations in 2024, compared to almost 25GW of utility scale solar. Historically, C&I solar has been limited to investment-grade companies, MUSH1 or community solar projects that are perceived to have a low credit-risk profile. This narrow approach limits the potential for solar expansion in the broader C&I market. Nearly all US businesses fall into the “True C&I” segment - commercial real estate, unrated or sub-investment grade corporates or small & medium enterprises. By some analyses this segment could generate 25 percent of all the electricity used in commercial buildings in the United States and about 10 percent of all electricity generated in America.
The Changing Landscape of C&I Solar Development
Utility scale projects are extremely competitive, and take years to materialize due to interconnection queues, permitting etc. Investors are competing for the same pool of projects, driving margins down. Developers that are shifting away from the historical focus on utility scale are discovering a relatively untapped market of C&I solar: one that encompasses a broader range of small & medium businesses and commercial real estate.
These projects are harder to execute – there are many more stakeholders and sites to content with, and the entities may not have the same credit profile “on paper” as investors are used to in the utility scale segment. Success requires expertise, strategy, thoughtfulness, and a pragmatic financing partner that recognizes this segment does not introduce a materially higher risk profile.
The opportunity in the C&I segment has attracted significant interest from investors. Notable instances include:
EQT's purchase of Madison Energy Investments.
Denham Capital's acquisition of Solops.
Aspen's acquisition of Safari Energy.
Warburg Pincus backing Scale Microgrids Capital Solutions.
Hull Street Energy announces Strategic Investment in Greenskies Clean Focus.
The run of mergers and acquisitions in C&I platforms, emphasizes the sector's potential.
The Future of a Mature C&I Solar Market
As the C&I solar market continues to evolve, the focus on investment-grade clients is diminishing, paving the way for developers to take advantage of a more inclusive and diverse range of solar projects involving non-investment-grade businesses. By addressing the challenges associated with these projects through innovative solutions, the C&I market can continue to expand and diversify, providing more opportunities for developers to expand their market share and advance the energy transition.