Is it worth getting into the solar installation business? That may depend on whom you talk to.
According to Joe Bono, CEO of Solar Universe, the market for residential solar installations can result in a very lucrative business if done right.
Bono says that solar panel leasing programs, which provide solar panels to homeowners and small businesses at no up-front cost, are becoming increasingly popular. (System users are guaranteed a certain amount in energy production from the solar arrays, so they should save more on their electricity bills than they pay per month to lease the panels.)
He says leasing has grown from about 10 percent of California’s residential installation market in 2009 to 25 percent in 2010 and 34 percent in the first quarter of 2011. In addition, some smaller and municipally owned utilities offer good rebates for homes producing solar electricity. SRECs (Solar Renewable Energy Credits) that pay homeowners and businesses for producing energy to help offset their system costs, are available in some states. Feed-in Tariffs, which pay producers a cost-based price per the energy produced, have been instituted in Ontario.
“Anybody with electricity bill of $150 to $200 and higher is a good candidate for solar [photovoltaic systems],” Bono says. “We often see bills in the $300 to $400 a month range,” and in many cases those are decreased by half or more with a solar array. He says that those who have invested in electric vehicles with in-home EV chargers are also good candidates for solar, as the chargers can use significant amounts of electricity.
Bono says his company usually sees gross project margins of about 20 percent.
Can You Scale?“There are two parts of this business: scale and execution,” says Bono. “There are a whole lot of moving parts with lead generation, marketing, sales teams and managing installations. If you don’t have the delivery platform or can’t scale up, it’s hard to compete.”
Solar dealers should plan on making smaller and medium-size margins, and a compression of margins from an influx of inexpensive solar panels from China could make it hard for small dealers to compete.
Bono says the top ten solar installation companies in California, in which Solar Universe is a part of, command about 40 percent of the state’s market.
To scale up, Solar Universe is taking a franchise approach and now has 22 franchise locations in seven states. The company trains electrical contractors, roofers and other entrepreneurs in the sales process and delivery platform. The company also provides a software platform that includes estimation, build materials, design and invoicing; a call center; marketing collateral; and marketing campaigns on quarterly basis.
The franchise approach allows the company to buy product at volume rates. Bono believes that thin-film technologies like CIGS (Copper Indium Gallium Selenide) and CdTe (Cadmium Telluride) hold a lot of promise, as their lower manufacturing costs could further reduce the price of solar installations, but that the crystalline silicon panels that currently dominate the market are still the best bet for efficiency and stability in having more established companies backing them.
Bono identifies many of the issues involved with solar panel sourcing:
Unique Supply Chain:
- Design/engineering, sourcing, manufacturing and assembly happen in different countries.
- Incentives of countries/states dictate where the panels flow.
- Currency exchange rates can affect supply.
- Vertically integrated manufacturers vs. outsourced manufacturing.
- No dominant brands that are well-known.
- R&D and testing are must haves.
- A solar panel is not just a panel. All of them perform differently.
- Must review the financial backing of the company.
- Review the warranty. Is it meaningful?
- Manufacturing tends to be either totally automated, labor intensive or hybrid.
- Clean rooms and efficiency are similar to semiconductor industry—very impressive.
- Aesthetics can play a big role in consumer adoption, particularly in residential.
- Look at length.
- Is it backed by an insurance policy or company backed?
- What does it cover and how are warranty problems remedied?
- Legacy product replacement (replacing a 175-watt panel with the latest 240-watt panel does not work).
- Direct from manufacturers.
- Through “solar” distributors.
- Through “electrical” distributors.
- Very competitive landscape.
- Changes frequently and follows typical supply/demand curve and perception.
- Chinese are leading the price reductions.
- Must negotiate in volume to achieve best prices.
- Supply commitments can help negotiate price, but not good for buyer as there is such volatility.
- Product SKUs change often as technology improves.
- Availability can depend on currency rates and demand from other countries.
- Not as simple to swap out one brand for another.
- Customers can get “set” on what they were sold.
- Electrical compatibility of inverter + panels + space + string sizing.
- Buyers should standardize on handful of products to manage.
- Typical terms are net 30 to 60 days.
- Credit is based on relationship + balance sheet + references.
- Some suppliers will provide discounts based on early pays.
- Time = money
- Constantly shopping price can sour relationships?
- Forecasting is a big plus for both parties.
- Opportunities exist when the suppliers need to stuff the channel with excess.
- Getting to know the supplier well is key for price + availability + problem solving.
- Solar is a small world, so treating vendors right is paramount.