Will Shifting Trends Rock the Solar Market?

(3Bl Media/Justmeans) — There appears to be upheaval in the US residential solar market. Attila Toth, writing in Greentech Media (gtm), says it’s ready for a “radical makeover.” Citing a combination of continuing record-breaking install numbers and a strong consolidation among major brand players, with Sungevity and SunEdison going bankrupt, and SolarCity hooking up with Tesla, he points to change in the air.

The industry has done such an amazing job of reducing module costs and providing financing options that the long poles in the tent are now the little things, the soft stuff, commonly known as sales and marketing.

Andrew Beebe, of Obvious Ventures, also writing in Greentech Media, speaks of “the revenge of the long tail,” referring to the thousands of small solar providers, who are taking back the market from the handful of mega-players that have recently dominated. Beebe predicts a shift from utility and commercial scale projects to more residential rooftop installations.

Because prices have come down so much, there’s no longer the need for those complex PPAs and other financing arrangements that favored the large publicly trade providers because of the tax implications. This would seem to open the door to more customer-owned systems, as opposed to the 3rd party-owned systems that dominate the scene today.

So, as Toth says, “the overhead-intensive, vertically integrated model has given way to more agile providers who can deliver better service and better pricing.”

That leaves the bigger guys is to find a way to reduce customer acquisition costs, which is where the difference now lies. It’s an area where, unlike modules or other equipment, economies of scale do not seem to apply.

For some customers, it’s as simple as “why not buy from a local business, if the prices are the same?” Toth provides charts that show the for several large players, declines in system costs are nearly offset by increasing customer acquisition costs.

He then points out that in Europe, a solar installation sells for a dollar or more less per watt than in the US ($2.00 vs. $3-3.50) with as much as half of that difference going into customer acquisition. Says Toth, “In order for the U.S. residential solar market to move from a niche market (one percent penetration) to mass market,” those costs associated with signing on new customers, “must be reduced by an order of magnitude.”

What does Europe do differently? Zach Shahin looked at this back in 2013, comparing the US to Germany when the price difference was $3 vs $6.19, only slightly different as a percentage, from now. His analysis which leaned heavily on studies made at Lawrence Berkeley Labs (LBL), focused on the soft costs.

Culture, is clearly part of it, as Germany had higher installation rates than the US, even when their costs were higher. The higher installation rates have led, in turn, to lower prices.  German installers tended to lower the prices as feed-in tariffs (FiT) were to maintain attractive from a value perspective. Ultimately, customer acquisition costs were found to account for $0.62/Watt of the price differential.

Some of the factors offered by LBL to explain it were higher bid success rates, strong partnerships with equipment makers, and a “more certain value proposition (i.e. FiT), installer learning and critical mass for word of mouth.”

In the end, these are largely intangibles that point towards culture, education, an absence of climate denial, and an each-man-for-himself mentality that pervades much of the US, all of which make solar harder to sell.

A clear incentive structure—along with clear messaging—from those to whom people look for guidance that encourages people to consider solar would also help a lot. But that battle is no different from others currently being fought on multiple fronts, along these same lines.

Meanwhile, US solar sales continue to boom, with 14.8 GW being added in 2016, raising the installed total to over 42GW. It will be interesting to see how these changes will impact growth. The US DOE’s SunShot Initiative is aimed at reducing soft costs, but it remains to be seen if that program is going to survive the changing policy climate in Washington.