Getting away from the snowflake: Mainstream Energy CEO Paul Winnowski on the need for standardization in the commercial PV project space

by Solar Server International Correspondent Christian Roselund
Interview conducted on August 21st, 2013

Paul Winnowski
Paul Winnowski

Paul Winnowski is the Chief Executive Officer for Mainstream Energy and its subsidiaries REC Solar, AEE Solar and SnapNRack. Paul brings 20-plus years of experience at the helm of large corporations in highly-competitive markets.

He previously served as President of United Technologies Fire & Security in North Europe & South Africa, where he was responsible for well over $1Bn in sales and more than 13,000 employees. Winnowski also held a number of leadership roles at General Electric, where he built GE Security’s business in China and Asia, and began his career scaling a private company from $30M to $650M in revenues, ultimately leading to acquisition by GE.

 

Solar Server: Mainstream Energy’s subsidiary REC Solar does a lot of work in the commercial and industrial (C&I) space. Can you describe the challenges of that market segment, and how you see business models developing to address C&I demand?

Paul Winnowski: As I look at the commercial and industrial space, whether that means retail, or hospitality, or otherwise, there are a couple of things happening.

We are encountering two types of commercial customers -- One type has a solar mandate, a real push to go green. For them, the economics of that statement are sort of secondary. They market themselves as green, they sell themselves as green, and they are going green. And with them we have a different roll-out approach. We like to roll out in the good economic geographies.

What makes a great solar geography? It is still that three-legged stool, which says that it is good environmentally, meaning lots of sun, and high efficiency for the modules. Two is the cost of electricity is high, and three is local or state-wide incentives.

So where those three things converge you have a great market for solar. So the companies that do have a national solar footprint, and they do have a solar mandate, we guide them towards the best economics first, but then rolling out to the rest of the estate in a more measured, calculated way.

On a portfolio approach, some of the locations or assets will have a great financial model behind them, other locations may be subsidized locations, but because the company has a solar mandate we are going to go for it anyway.

The second, bigger group of customers are those that really are first and foremost talking about the economics. And for those accounts, you are only looking to locations where on day one it financially makes sense.

So for them you really do become a consultant, because state-level and local incentives arise all the time. And as they come up and various programs are launched, we want to make sure that we are acting in that consultive sort of space, and making sure that we have an open communication with the end-user today.

New York, as an example, or maybe Westchester County in New York, wasn't compelling in the past for you to put solar on your roof. Today it is, and we recommend that you move very quickly. But it's kind of a one-off, and you pace yourself in terms of what is next.

So how is that market evolving? It is evolving very methodically, and quite modestly, as I look at that vis-a-vis the residential space. And the reason that it is not seeing the liberation that the resi space has is really back to that standardization. There isn't an air-tight power purchase agreement (PPA) that spans a portfolio of projects. It really is deal by deal.

For those that don't really want to put the cash down, and are looking for a PPA, you are talking about orange one day and strawberry the next, raspberry the day after that. It is a different conversation based on the spec of the system, based on the power it generates, based on state and local rebates, and otherwise. Every deal is a snowflake.

 

Solar Server: When we spoke at ISNA, you talked about the need for standardization of projects in this space. Can you elaborate on this point and what that would look like?

Paul Winnowski: There is a commercial terms standardization, there is a financial terms standardization, and then there is the operating terms standardization. It would need to fire along all three of those parameters in my mind, to really open up the category. Meaning on an operating perspective, it is more the model T Ford: “Any color you want, as long as it is black”.

And you see this across industries. You could argue that technology is the same. Whether it was Microsoft in the 80's, or Apple more recently, you didn't see a hundred different flavors of Word and Excel or the Microsoft Office package, it was the same package. The iPhone, you don't see thousands of flavors of the iPhone or the iPad, it's really one with different colors. In solar, we still are very disconnected in having a standardized package to take to a commercial account. We need to get much closer to a standardized offering.

I see examples of that in different states. In North Carolina I have seen some companies standardizing on a product offering. In upstate New York, Massachusetts, I see companies cookie-cuttering a solution. That's good. We need to drive that much more. It really drives cost out of the system.

In terms of the commercial terms, this has got to be another area that companies look to standardize that ideally accounts across the different verticals, in terms of what a PPA looks like. It can't be different commercial terms every time you get into a deal. It should be a structured conversation around the commercialization.

And then from a financing perspective, and otherwise, again, I come back to the resi business, where there has been a big leap forward. And it is very cookie cutter. And it is a portfolio approach. Wherein companies such as SunRun, CPF, OneRoof, NRG, have had success setting up a fund, which can be distributed over thousands and thousands of homes.

We need something similar in commercial where the financiers are working closely with the solar experts and put up a portfolio-based fund, which would not be attributed just to one, or two or three locations, but an entire state, or across states, such as a big hotel chain, a big retailer, where the terms of the PPA and the financial vehicle that supports it is the same regardless of the shape, size or location of that facility.

We need to get there. That's where you look out in your crystal ball and say at some point we do get there, it's more a matter of when than if.

 

Solar Server: To move over, you also mentioned that you see a slowdown in large utility-scale projects in the United States. What are your thoughts on the future of the utility-scale PV project space?

Paul Winnowski: I think the definition is changing. As I look at just the past 12 months and as you look at the next 12 months, there is a strong move away from larger one-off, three, four, five hundred MW systems It is really the distributed mid-sized utility projects that are starting to make a lot more sense to the utilities.

These have got the ability to really provide power within the needed areas of their network. Meaning close to their substations and feeders and otherwise. It is really about the strategic placement of these mid-sized utility projects within any given service territory.

And we are seeing this move in certain pockets. Sacramento is one where we are seeing exactly that. They are putting up these mid-sized utility projects close to the key feeders and substations within their transmission infrastructure.

That seems to make a lot more sense to me as an installing company and it is making a lot more sense to many of these utilities across the country. This is where we see the big movement, into more systems, smaller size.

 

Solar Server: You have mentioned that REC Solar has a disproportionately large share of cash customers.  Can you talk about why you think that is, and what larger economic dynamics are at play?

Paul Winnowski: Sure. There is a resi conversation and a commercial conversation. On the residential side of the business, you've seen a three-year, strong trend, away from cash and to PPAs and financed systems. The low-down or no-down systems. That, in my opinion, has stabilized.

It got to 70-80% of all systems, meaning financed resi systems, very quickly, and now it seems to be hovering close to that 80% threshold. And you start to see more and more customers, looking to use cash, or even get a loan to put cash down on a system, and really monetize that federal income tax credit themselves, and gain the full value of the system over the 20-year period. There is a segment of customer that is comfortable with receiving the benefit of that cash outlay over 20 years.

The flip side of that equation is in commercial. This is a trend, just driven by the fact that in corporate America, the cash coffers have really swelled. Solar is a great way for companies to put cash to work. Particularly those companies that have a high tax threshold and a high tax appetite  and are sitting on not hoards of cash, but sitting on ample amounts of cash.

 

Solar Server: I know we have covered a lot of topics, but is there anything that we didn't talk about that you think is important for our readers to to know?

Paul Winnowski: I always sort of bifurcate my comments. Because I do see such a split between commercial/industrial solar, as opposed to residential solar.

As you look at that resi market, the big threat to the growth in the residential space is the external threat of net metering. You've got to point to what could derail what is proving to be a terrific story in residential solar, it would be a major change in the landscape in terms of net metering.

That is something that keeps me awake at night. There are consortiums fighting the battle, across multiple states right now, most notably in Arizona. That fight will continue.

Absent a change in the current landscape as it pertains to net metering, I'm very bullish on residential solar. The word is really getting out. As more people go solar, it is having an exponential effect on the growth in the market. Referrals have become far and away our number one lead source. We are finding less and less of a need to go out to radio advertisement, print advertisement or otherwise. Because as people go solar, and tell their neighbors and tell their friends and tell their families: Solar pencils. And where the math makes sense, I think the execution has gotten better and better, and from that perspective a positive story that seems to snowballing, especially in the solar-friendly states, which is our current footprint.

Commercial, I remain cautiously optimistic about the market. I do see an increasing volume of companies that do have a solar mandate, with an ongoing commitment to going solar. That groundswell of national accounts that we have today feels very good.

My caveat always is that until we have a more standardized package across those three areas, in terms of operating plan, commercial and financial terms, until we've got a repeatable model there, I think it will continue to be limited, and it won't be sort of seeing the growth that we see in the residential side of the business.