- See nascent alternative to solar trackers in select niches with ground-mounted (literally) solar panels
- Overall inflation for trackers is the notable piece; latest MtM including steel high-teens c/W, up from 12c/W earlier this yr
- Watch co Erthos as alternative in the SE; still see trackers as dominating. See large jumps in cost of solar.
Earth-mount alternative to trackers - offsetting costs
We hosted a conference call with Erthos, a utility-scale solar installation company focused on an earth-mount approach - where panels are installed directly on the ground without trackers or racking. Erthos expressed its approach as able to drive 20% lower LCOE - expressing solar module costs as having declined enough where the benefits of trackers no longer justify the added costs and complexity against a backdrop of inflating steel costs (up 60-70% in recent months) and logistic costs as well. Specifically, Erthos estimates 35-40 tons of steel per MW for utility-scale solar installations eliminated with its design. Additionally, Erthos highlighted its robotic cleaning machine that can be used under its system design relative to a tracker-ground-mounted solar system (vs. limited to rows under typical design) driving reduced soiling (<1% vs. typical 3-5%). Erthos notes reduced cost of steel but lower yield offset with additional panels.
LCOE, performance vs trackers; FTCI read-throughs
At 15 cents/W tracker costs, Erthos notes its LCOE to be +20% better relative to single-axis trackers. That said, Erthos mgmt. noted that it has verified with leading solar specific independent engineers that current tracker quotes are higher at 19-20 cents/W due to the presently elevated steel and freight costs. However, the recent earnings calls held by tracker companies indicate 11-13 cents/W ASP. E.g. for FTCI, the 4Q implied guidance of 1GW of sales with ~$135mn of revenues implies a 13.5 cents/W ASP. Our read of FTCI commentary suggests that given the lag between backlog additions and revenue recognition, the ASPs for trackers would inch higher over the next few quarters. Could there be an upcoming sharp ASP uptick at the cost of slowing growth for trackers? While FTCI's y/y revenue growth (~65%) suggests gaining market share v peers, we're cautious about the margin pressure as freight impact (~3.5 cents/W) may persist through 1H22. We continue to monitor developments in FTCI's cost reduction roadmap ('design-to-value') as a lever to mitigate freight and commodity inflation and be more competitive with fixed tilt/tracker-less solutions in terms of ASP and profitability.
Erthos end-to-end solution, near-term US Southeast focus
Erthos offers utility-scale solar developers an end-to-end solution from project protocol design to development engineering to long-term O&M - highlighting diligence with developers and independent engineers as it builds pipeline, expecting to begin implementing it technology in projects by year-end to demonstrate benefits of technology in driving lower LCOE cited. In terms of markets, Erthos emphasized the US Southeast as a prime target given wind and water resistance - Northern regions prone to snow are less favorable for its technology. In terms of IP, we note that Erthos differentiates itself due to its frame solution that allows the solar panels to be installed at wind speeds as high as 150 mph (vs. 90 mph without it) and in areas where is risk of flooding as well. We note the ability to withstand high wind speeds could be another advantage in Ertho's solution given that major tracker players' solutions. e.g. FTCI Voyager) can withstand wind loads of 105-120 mph. All-in, we perceive potential for further competition for tracker companies (FTCI and others) as their price jumps of late.
Erthos saving on steel and logistic costs, a key proposition
Under its prior embedded assumptions, Erthos perceives single-axis-tracker build systems as ~25% more expensive but only providing ~3% more energy yield - driving an improvement to LCOE of ~20%. Higher module costs for Erthos are offset by eliminated steel costs and reduced construction costs, less of a difference in other costs. We see ground-mount systems and trackers as a novel angle to watch into the future (depending on terrain, steel costs, etc) around price parity for systems. While we still view trackers as likely far and away the go to solution for solar systems all around, we perceive an emerging niche for ground-mount While one may view the steep cost increase as temporary, Erthos commented on its solution being competitive at the 2019 steel prices (~$1,100/ton) so long as the solar module prices stay below 38 cents/W. Besides saving on the steel cost, trackerless solution saves on the transportation costs as well. While a traditional tracker solution for 100MW requires ~200 containers, Erthos's solution can be contained in just 4, resulting in a savings due to freight costs as well. With some tracker solutions being quoted at as high as 19 cents/W, Erthos's solution of overall system cost of < 50 cents/W appears more economical in the current steel, freight, and labor inflation environment in particular.
Overall solar inflation remains material - highest costs in years
Related we see total solar system costs as high as $1.60/W for 2022 given all of the challenges in the market & uncertainty whereas we note prices are being quoted for systems in the 80c/W range for 2023. We stress the backdrop remains particularly uncertain heading into 2022 for solar & inflationary versus previous periods despite substantial focus on this theme across the market already through 2021; the latest inflation is driven by the uncertainty and added cost of tariffs from a litany of potential new policies. This remains a pending question as to how hedged developers are against the latest set of policy setbacks.