Total Addressable Market Tools and Analysis Defining the Market and Setting Goals

Green banks use Total Addressable Market to define goals

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• A Total Addressable Market (TAM) describes a goal in relation to a market

• Focus on a market permits identification of customers

• Market definition permits comparison of financing goals

TAM is maximum technical potential of market

CT residential solar TAM measured by households, energy

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Total Addressable Market

659,312 Households 6.51 GW of Capacity

Market Share Segment 4,500 Households

Penetration is 0.68% of TAM

SAM is market for which solar makes economic sense

Serviceable Addressable Market economically viable

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Serviceable Addressable Market

506,714 Households 3.89 GW of Capacity

Market Share Segment 4,500 Households

Penetration increases to 0.88% of SAM

TAM and SAM analyses show green bank market potential

• TAM – Total Addressable Market

– Total possible revenue, units, households, people in the market, clean electricity potential

– Choosing the right metric is important - what is common unit of measurement in this market?

• SAM – Serviceable Addressable Market

– Segment of the TAM that you will actually target

– Must select criteria of what makes market serviceable

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Residential solar TAM and SAM measure technical potential and economic viability

• TAM for residential solar measured as:

– Total residential rooftop capacity that is technically possible, irrespective of any economic constraints

– Could also be measured in terms of solar generation or number of households

• SAM for residential solar measured as:

– Total residential rooftop capacity that is economically viable

– Viability defined by certain economic inputs and constraints

• For instance, only systems that achieve a positive payback in less than 15 years may be considered viable

– Various pieces of data must be collected and analyzed together to assess viability

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Measure every residential roof in state, use satellite or drones

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This is the TAM for Connecticut

Get SAM with filter for economic viability

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This is the SAM for Connecticut, measured in % of rooftops viable and capacity.

TAM and SAM put CEFIA goal in context

• Goal written by legislature is to install 30 MW of residential solar over a ten-year period. But how big is that actually?

• The goal is only 0.77% of the SAM. If CEFIA actually took 10 years to deploy 30 MW, it would take nearly 1,300 years to reach today’s SAM!

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TAM in CT (Technical Potential) SAM in CT (Economically Viable)

TAM also shows market structure and customer needs

• TAM helps green banks understand how market size changes in relation to subsidy level, technology cost, and financing costs

• Green bank can design a data-based plan to ramp-down subsidies without reducing market size

• Green bank can use TAM data to make tailored financial offerings to each customer, listing terms and savings that demonstrate economic gains of clean energy

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TAM and SAM change as costs, subsidies change

• TAM and SAM are not static – what is technically possible or economically viable today will change in the future

• TAM and SAM represent measurements at a point in time

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As “Effective Price” (install cost – subsidies) of solar goes down, economic viability goes up.

Solar becomes cost effective for more roofs Payback period becomes shorter for roofs that were already viable

Savings of solar increase for all those who install

SAM changes as “effective price,” maximum payback period change

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Can calculate how much subsidies cost states

• CEFIA’s solar subsidy creates an effective price of $2.40/W for Solarize customers, including $1.10/W subsidy

• If your payback threshold is 15 years, then approximately 60% of all rooftops in the state are viable at this level

• If every one of those customers actually chose solar and took the subsidy, this would represent over 3GW of capacity and cost the state over $3 billion

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Set meaningful, cost effective goals with TAM and SAM

• For instance, the Solarize program in CT can achieve install cost of $3.50/W before incentives

• If effective price is lowered to $3.00/W, 15% of households are viable with a 15-year payback, representing 800 MW

• But a $0.50/W incentive to get to effective price of $3.00/W would cost the state 800 MW x $0.50/W = $400 million!

• So what other tools or plans can be implemented to create an effective price of $3.00/W in order to create a SAM of 800 MW?

– Can use REC’s, spread goal over time, ramp incentive from $0.50/W down to zero over time to minimize cost

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Customer-specific data used to segment market, target customers

• With TAM and SAM green bank can identify which customers need least amount of subsidy, or have the greatest economic gain from solar

– Green bank can specifically market to those customers first

• With customer-specific economic data, green bank can create custom financial terms that ensure the offer is economically viable

– Every customer in the state can receive an email telling them what the financing offer is and how much money they would save

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First green bank step is define market

• TAM defines the clean energy market for the green bank

• Can set meaningful goals in context of market size

• Understand how market size changes, and how much current programs will cost

• Plan sustainable financial support and target customers more effectively

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Appendix

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Calculating technical potential (TAM) and economic viability (SAM) requires multiple data sets

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• Rooftop size and energy potential

• Estimated household energy usage

• Installation cost of solar

• Solar subsidy level

• Current and expected price of grid electricity

• Assumed discount factor

“Economic Viability” means solar is cheaper than the grid

What makes solar viable?

• System must be large enough

• Roof must receive enough sun

• Install cost must be low enough or subsidy high enough

• Price of the alternative, grid-power, must be high enough

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Compare utility electricity price to the implied cost of solar power

• Implied cost of solar per kWh is the “levelized cost of energy” or LCOE

• LCOE accounts for all lifetime costs of solar (almost all upfront) and divides by total number of lifetime kWh

• Future expenses, kWhs discounted to present value

• If solar LCOE is lower than the utility rate, the customer is economically viable and in the SAM

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Green Bank Academy

Washington, DC February 6-7, 2014

www.greenbankacademy.com