The Outlook for Solar: Q&A With Borrego Solar CEO Mike Hall

While venture investments in cleantech startups declined last year, technology advances in renewable energy remain a hot area of interest for both cleantech innovators and investors. In an effort to gain a better understanding of the solar energy market, especially in the photovoltaic segment of the industry, I sought insights from Mike Hall, the CEO of El Cajon, CA-based Borrego Solar Systems.

Borrego is a fast-growth company that finances, designs, and installs grid-connected photovoltaic solar systems. Much of Borrego Solar’s business is concentrated in New England and California. Before getting to our Q&A, however, a little background is in order.

Borrego Solar Systems was a dormant, 20-year-old business when Aaron Hall, a senior at Northwestern University, developed a venture business plan for the small solar company as part of an undergraduate entrepreneurship class. A Hall family friend, San Diego State University physics professor James Rickard, had started the company in 1980, in part to install a solar system on his off-the-grid home in Borrego Springs, a small desert town east of San Diego. Rickard liked Hall’s business plan so much that he sold half the business to Hall, who took over at Borrego shortly after his 2001 graduation. They each put in $20,000 to restart the company.

Borrego Solar workers at UCSDSince then, Hall says the company, which is based in the San Diego suburb of El Cajon, CA, has grown into one of the nation’s top five contractors specializing in designing and installing grid-connected photovoltaic solar systems. With more than 165 employees in seven offices nationwide, Borrego Solar says it has installed more than 1,000 photovoltaic systems.

Last year, Inc. magazine named Borrego Solar to its list of “Fastest-Growing Private Companies” for the third year in a row. Inc. ranked Borrego Solar at No. 321 in the magazine’s 2009 list of 500 fastest-growing companies, based on Borrego’s sales growth of 754.4 percent from 2005 to 2008. Inc. also named Aaron Hall as the No. 1 entrepreneur in its 2008 list of the “Top 30 Entrepreneurs Under 30.”

Over the past few years, Borrego Solar has undergone even more significant changes:

—Aaron made his older brother Mike CEO, and stayed on as president of the company. Mike Hall, who was trained as a chemical engineer, was a product development engineer at Applied Materials in Santa Clara, CA, before joining Borrego as a partner in 2002. In addition to expanding the company’s operations in Northern California by establishing a Borrego office in Berkeley, Mike focused primarily on the sales and marketing of commercial and government grid-tied solar power systems.

—Borrego Solar took outside funding for the first time last year, securing $14 million in what the company called “venture financing” in February, to help expand its business into the Mid-Atlantic region and develop lower cost systems. Borrego, which opened an office in Lowell, MA, in 2007, later revealed the funding came from Walsin Lihwa, a Taiwanese manufacturer of cable, insulated electric wire, ceramics, and other products.

—As part of its recapitalization, Borrego announced a strategic change in focus, saying it was selling its residential solar installation business to groSolar of White River Junction, VT. Borrego said it plans to focus its business on larger solar PV installations (100 kilowatts to 2 megawatts) for commercial buildings, schools, and other “public sector opportunities.”

—In August, Borrego announced it had established a new financing option, known as a power purchase agreement (PPA), which enables Borrego to finance the cost of designing and installing a solar system itself. An additional $30 million in project financing from Taiwan’s Walsin Lihwa was expected to lead to as much as $100 million in PPA projects. Customers, who are not required to bear any upfront costs, merely pay for the electricity generated once the solar system is operating.

On to my interview with Mike Hall:

Xconomy: What are the key differences between projects undertaken in San Diego (and Southern California) and Boston (and New England)?

Borrego Solar CEO Mike HallMike Hall: The big difference is in the environmental circumstances that you have to engineer for. In California, we largely can ignore the impact of heavy snowfall, but we need to worry about seismic considerations. In Massachusetts the opposite is true.

X: In New England, how difficult is it to arrange with NSTAR and other utilities to provide excess power into the grid?

MH: The utilities have generally been good to deal with. The net metering legislation in most parts of New England is very strong. In Massachusetts, it was recently strengthened to be more solar friendly. Utility scale renewable energy projects (solar especially) have been slow in adoption across all states. It can be challenging as they are large projects and very few have been undertaken before. It takes all parties involved some time to get comfortable with the risk profile.

X: How do you view the permitting process in Boston specifically, and New England in general, when it comes to solar energy installations? Are some areas better than others?

MH: The agencies for the most part are relatively new to the industry. The major difference for Massachusetts is the fact that the electrical and structural portions of the system are not permitted at the same time. The “Building Permit” here [in Massachusetts] is only for the structure. The electrical permit is pulled by the electrical contractor who is doing the work, normally with just an application.

We don’t think there are really any areas that are better than the others. With some cities and towns the process does take a little longer, but it’s usually to bring the inspector further up to speed on PV, which is helpful in the long run.

The permitting process in Boston is pretty similar to the rest of the New England. Boston is obviously larger than most cities and towns in New England, therefore the building inspectors probably have more exposure to photovoltaic systems there. But that’s not to say that a small town in western Massachusetts doesn’t have just as much experience. Permitting is typically streamlined. It only takes longer if the inspector is curious of how a system works.

Borrego Solar Installation Atop Stone BreweryWe have developed a standard “permit set” that includes adequate information about the site, the building, method to attach or ballast the racking system and the structural calculations performed on the existing structure. On the electrical side, we find that more often than not it’s the first permit submittal for a PV system that the inspectors have come across. Other than references found in the National Electrical Code (NEC), they don’t have a vast knowledge of PV systems. Generally, most building inspectors have plenty of questions and are eager for knowledge, which of course we are happy to provide. There are quite a few building inspectors we have come across who are now taking courses and seminars to further educate themselves on how PV systems work.

X: The Massachusetts Renewable Portfolio Standard calls for 20 percent of the electricity that utilities provide to the grid come from renewable sources by 2025. The California RPS is more aggressive, and calls for 20 percent in 2010 and 33 percent by 2020. What affect, if any, do these mandates have on Borrego Solar?

MH: In California, the Renewable Portfolio Standard (RPS) has not yet had a material impact on our business. While on the surface, the program seems aggressive, some key elements are still missing. Generally, it lacks teeth and there is not a clear cost for non-compliance to the utilities. Additionally, they have not done a good job of creating a market for the tradable credits (RECS) in California. Lastly, there is no carve-out for solar or small-scale renewable.

The Massachusetts, RPS is very different. They have created a mechanism for trading the RECs and have mandated that a portion of the energy come from solar. As a result, we see the Massachusetts RPS as a major driver for market demand.

X: How has the recession affected the industry and your business?

MH: The recession had a tremendous impact on the industry. Most of our projects were financed using tax incentives that were largely being purchased by large financial institutions. As the big banks started to report losses, they lost all appetite for purchasing tax incentives. As a result, it became very difficult to finance projects. The good news is that the stimulus bill did a lot to help the situation. It created a cash incentive program as an alternative to the tax program. It also directly created significant demand through grants to states, municipalities and government facilities. As a result, the second half of 2009 was tremendous for contracts and bookings. We expect that 2010 will be our best year on record.

X: Borrego Solar must be in an ideal position to choose the best solar technologies for its projects. Among the various choices like thin-film solar, PV, concentrating solar PV, solar thermal, which ones do you recommend and why?

MH: We generally use crystalline solar PV for our projects. The technology is proven and widely available. The price has also come down by more than 50 percent in the last 18 months. Given the current pricing of crystalline PV there are very few other technologies that can compete on value and reliability. Crystalline technology has been used in commercial applications for more than 30-years. Despite the growth in thin film cell capacity, crystalline silicon technology is still used in the vast majority of solar power plants.

X: Can you explain what advantages a Power Purchase Agreement, in which Borrego Solar or someone else finances the cost of a solar installation and the customer pays for the electricity generated, has over conventional financing for a commercial customer?

MH: Power Purchase Agreements allow a building owner to take advantage of the benefits of solar energy without taking the risk. No upfront investment is required and all the risk of performance is on someone else. The building owner only has to pay for the energy produced. It is similar to the Software-as-a-Service model. It is very good for companies or government agencies that want to save money and go green, but don’t want to take on the burden of operating and maintaining the system. Borrego has the advantage of being able to offer our customers the option to own the system or purchase the energy through a PPA. In addition, our PPA has the advantage of being fully integrated with our EPC (Engineering, Procurement, Construction) business, allowing our customers to have a single point of contact and responsible party for all aspects of the project, system, and services.

X: A couple years ago, The San Diego Union-Tribune highlighted how some local schools had made substantial investments in solar installations—and ended up paying drastically more for grid-supplied electricity. Does the utility rate structure in San Diego still create disincentives for school districts?

MH: The issue of proper utility rate structure design is very important and often ignored by policy makers and advocates. Generally, rate structures have improved in San Diego and now it is easier for schools and government agencies to go solar. There is still more work to be done as many customers in the SDG&E service area still can’t take advantage of the solar-friendly rate schedules. Regardless, schools and government agencies represent the majority of our PPA customers. We are usually able to deliver a solution that is cash flow positive out of the gate.

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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