Saturday, January 10, 2009

Ready to jump into the solar market? Not so fast.

Its no longer a secret, installations of PV cells and modules have grown 35% since 1998 (Cooler Planet / CEC Data). With climate change awareness, soaring fuel prices, declining equipment costs and  government incentives, the solar industry is expected to continue to grow at a blistering rate in the foreseeable future. In California alone from 2002 to 2008 there has been a 17-fold increase in solar installations. (Citi Renewable Energy – May 8, 2008). California has allocated funds to install solar panels on 1 million homes and businesses over the next 10 years. The program is working and it is expected that the success in California will be repeated in other states that either have great solar radiation, high cost of energy or incentives. Does this sound like an attractive business environment for contractors, electricians and entrepreneurs looking to participate in the growing renewable energy space?

Some of the challenges the industry faces is perception. Customers fear that solar is "not yet economically" viable and that technology will be quickly outdated. However, with the cost of solar panels dropping dramatically, state/federal incentive programs and financing options, solar has never been so cost-effective. The time for distributed and independent energy is now ... the time for solar is finally here. Financing your system will often result in a cash flow positive result in month one and many studies suggest that for every dollar invested, it increases the value of your home or business by 20 fold. 

Electricians, roofers, HVAC and general contractors are all good candidates for trades with skill-sets appropriate for the solar industry. However, entering the PV market poses challenges that new and existing solar businesses will not successfully navigate. Most will not have a complete offering and will struggle with generating great proposals that sell, dealing with constantly changing building codes/permits, offering killer financing programs, lack of ready and available product supply, and bid to close ratios in the 20 to 1 range. 

Part of the problem stems from the way installers think about a customer project as a one-off transaction. They fail to realize that the solar system will be operating for at least 25 years, will require care and maintenance, and other technology that will improve its effectiveness. Solar installers need to take on a mindset of a long term revenue relationship with their customers and include yearly cleaning, monitoring/response  contracts, or financing arrangements. A well designed solar system will follow a life cycle of first conservation, then generation and finally efficient operation. 

Research and development for new products and services in the solar market will expand rapidly. How will you choose which products you work with? Which ones are designed to last? Which will operate as advertised? Which can you stand behind? Technology will improve quickly in the solar industry and many installers will experience difficulty in choosing products that meet their business objectives. 

Developing a winning strategy in the solar market will not be easy. Those models that win will include: product distribution, branding, customer financing, ongoing training/support and credibility. Let's face it, a solar installation is not a small investment, to win, the installer must demonstrate capability, trust and compelling value. What is the right strategy to carve out a business in solar?

Some installers will go it alone. They will attempt to innovate, market and create a brand from scratch. In some cases, this may work and new models that can differentiate themselves will carve out a niche. Most however, will struggle with assembling a comprehensive offering and may find that subcontracting for larger installers makes more sense or they may just create a "side" business to compliment their principal line of work. 

Solar giants are being created, these include venture funded and publicly held companies. They will have the capital and resources to grow a nationwide brand, expand quickly to many cities and bid on the large commercial projects. In many cases, they will grow with a roll-up strategy and will inspire a waive of consolidation. However, as competition heats up, will they be able to operate profitability?  How will they recruit, train and retain employees? Will their overhead of offices, headcount and vehicles erase any project margins?

Some installers will gravitate toward distribution or franchise relationships where buying power is pooled, brand awareness is shared, and technology is created and distributed to local offices. This model tends to attract the "long-tail" of solar contractors; people who want to be in the solar industry, but require the autonomy of running their own business. 

One such company offering a turn key business solution is Solar Universe. Solar Universe is a unique installation concept that is delivered through a network of owner-operators under a franchise model that includes education, standardized solar design, product distribution, project financing and technology. The system provides opportunity to get started in solar, and develop your own business with the benefits of a national brand and corporate support system. 

This model works well:
1) Its quicker to scale than corporate owned and operated business
2) The Packaged SunGen product line reduces design complexity and installation time
3) Local owner-operators provide better service and higher quality work 
4) Franchise partners operate in a primary residence area and have established lead channels. 

"If you look at nationwide companies that provide a product or service to your home or business, they are all franchise models. This is no accident and its testimony that in solar, a franchise model will be successful." - Joe Bono, COO Solar Universe

Its really anyone's guess at the winning strategy and model that will work in the the solar installation sector. Some are voting on giants that will focus on massive solar projects, some believe the utility departments will rule the roost, and others believe that "two-guys-and-a-truck" are the only viable model. Whatever your beliefs are, you must consider this: solar is a big market and someone will have to install the panels on the roof. Who will it be now? Who will it be tomorrow?

More information on this topic can be found at

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