By Pamela Cargill, Principal, Chaolysti
A version of this post was originally published on Chaolysti.
Research from Greentech Media Research Solar Analyst Nicole Litvak points to some key trends that will affect residential solar companies. Litvak’s research uncovers a shift in thinking from “sell to build” to “sell to maintain.”
Greentech Media Research Solar Analyst Nicole Litvak presented research recently highlighting important trends in residential solar. Her results indicate an underlying change in the economy that has opened up of loan availability. The results also raise important questions about the direction of effort needed to reduce the cost of solar from the longer-term perspective of operating and maintenance. This research implicates a shift in thinking from “sell to build” to “sell to maintain.” Let’s take a closer look a how your residential solar company can plan for the future based on these market shifts.
The return of debt financing
When the housing market crashed in 2007/2008, it had a chilling effect on sales of residential solar. The business model innovation that came to market at that time, the solar lease, created an exciting new opportunity for residential solar sales and filled the gap that was left when many homeowners saw the equity in their homes dry up. Up until that time, the residential solar market was a cash-and-rebate-based system. Debt financing backed by home equity was a common way to finance home solar.
The SunRun, SolarCity, and Sungevity models grew rapidly starting in 2007 and are still growing. However, the analysis by Litvak shows a leveling off in the percentage makeup of third-party-owned residential solar over 2013 across key US markets.
Over the course of 2013, as the overall US economy has improved (albeit very slowly), lenders have begun to ease restrictions on loaning. In some housing markets, value has begun to return to homes, though still way off their 2006 peak.
Third-party-owned residential solar created a philosophical schism in the solar industry. Some argued that it eroded the investment options for the homeowner by removing their ability to take tax credits directly. Some were upset that – like with any financed products – the consumer ended up paying many times more than the cash value of the system over the course of the lease. Regardless of where one stood on the issue, it clearly opened up an entirely new market segment and was a viable alternative for solar installers to sitting on their hands and waiting for the lending market to improve.
However, much like in the downstream automobile industry, options to buy create a strong market. You can buy outright, you can lease, you can engage in several different kind of lending options to get behind the wheel. When there are options and choice diversity, there is strength on the side of the consumer. The top solar companies see this and are aligning their sales strategies behind offering choices.
The rise of operating and maintenance (O&M) services
In the auto industry, much has changed since the first Model Ts rolled off the production line. An entire robust aftermarket services industry of repairs, upgrades, detail cleaning, and much more has grown around the sale of vehicles.
This, too, is slowly becoming visible in the solar industry.
Perhaps the most important innovation outside of the financial model that made the sale of solar possible through third-party ownership was the contractual obligation to long-term maintenance over the period of that contract. During the rollout of leasing models, the maintenance aspect was baffling to many potential customers. After all, until leasing emerged, many installers had predicated their pitches on “maintenance-free” systems. While there are no mechanical parts (unless you bought a tracker), so a solar system doesn’t need upkeep the same way a car does, over time, the wind/sun/rain/ice/nearby tree can take its toll on system production and equipment longevity.
Now, almost five years after the explosion of residential third-party ownership, operating and maintenance or “Fleet Operations” is a rapidly growing division in many of the top solar installers, backed by an even more rapidly growing hardware and software monitoring services sector.
Companies like NextPhase and True South Renewables are already offering white label O&M services to service the portfolios of the top residential solar installers. Expect more competition to enter this space and more innovation combining the monitoring solutions and O&M service providers to continue to coalesce.
Return to ownership and the rise of O&M
With Litvak’s analysis showing leveling off of third-party ownership, and with many solar providers launching loan programs to promote ownership, diversification in sales strategies should follow. It is likely that O&M services will become a line item on many of the loan-backed residential sales. While a package part of the third-party deals, the convenience and “peace of mind” behind long-term O&M is not too dissimilar from extended warranties. This is a promising new revenue stream for solar companies and a strong sign of growth in the O&M space.
Consumers will demand the benefits of the established long-term and hassle-free culture of residential solar even with a shift back to ownership. The most successful solar installers in the next five years will find opportunities to take advantage of the diversification of financing, plus an operational philosophy shift to sell-to-maintain, and will fully leverage operating and maintenance services as a new revenue stream for long-term customer engagement.
Disclaimer: Any opinions expressed in this blog by persons not affiliated with PV Solar Report reflect the judgment of the author and not necessarily that of PV Solar Report.