What I've Learned about Solar & Why It's a Great Time to Enter the Industry
I was given the opportunity to join the Energy Circle team for four months. Since my background was in vastly different industries from the ones that Energy Circle serves, I had the unique opportunity to observe the solar industry from a fresh and unbiased perspective. Though I learned a bit about the industry by utilizing the scholarly research that I’m accustomed to using at school, I learned much more from observation and the interactions during my time at Energy Circle.
How I learned about solar:
Kept up to date with the current events that affect solar companies
Researched the evolution and predictions of the industry
Participated in meetings with Energy Circle clients
Assisted in a variety of marketing services for solar contractors
I came to the understanding that right now is the ideal time for solar contractors to enter the market. This conclusion is not an obvious one — let me explain why it makes sense.
Several reliable sources claim that the barriers to entry for solar contractors are medium to low, and steadily decreasing. You do need to have the capital, motivation, a good business plan and a well thought out marketing strategy to truly be a successful solar contractor. However, whether you are currently an HVAC or home performance contractor, or looking to start a business, solar can be an investment that will yield a high return for your company in the long-term.
Solar has advanced quickly — in the past few years, we have watched solar panels shift away from being solely luxury products to something that many homeowners can afford. The government has provided several financial incentives to assist in making solar an obtainable asset for homeowners. Consequently, the market has expanded, providing opportunities for local solar contractors.
How did the price of solar come down? Let's look at production:
According to a study called "Does patenting help or hinder open innovation? Evidence from new entrants in the solar industry" conducted by UC Berkeley, we see that the intellectual property of solar manufacturers takes a more temporary form due to the nature of the industry. Similar to the situation that contractors are in, manufacturers do not face high barriers to entry. However, their trade secrets often don’t stay secrets forever. They use their patents and other forms of intellectual property as “bargaining chips” to initiate partnerships with other companies. This collaborative creation has arguably been a key driver in advancing and producing solar technology. Due to this fast innovation, the price of the technology itself has decreased.
Market Share: There is room for local, long-tail solar contractors
Just like in most industries, there are major players that own huge portions of the market share. In many ways, these companies make it harder for the smaller players. This threat is slightly less for solar because the top four companies only account for 4.5% of the entire market share of installers. This includes companies such as SolarCity (Tesla), SunPower and American Solar & Roofing. Not only do they only make up a small portion of market share, but the larger companies face separate difficulties in changing their business plans. Many of these giants have relied on turning a profit by their customers leasing their panels. Currently, many customers are starting to see value in owning their own panels. Consequently, this presents plenty of opportunities that remain for smaller contractors.
For any solar company, regardless of the size, relying on purchasing leads from a third-party can be risky. To ensure the well-being of your company, you should be getting your leads from 15-20 sources, rather than depending on just one source. In addition to the instability that relying on buying leads creates, there is high customer acquisition cost for solar, so purchasing leads can get unaffordable quickly.
Forecasting the future of solar
We have seen exponential growth for solar sales and distribution, spiking in 2016. However, growth is expected to slow down in the near future. But is this a bad thing?
No, it will be beneficial in the long run. During this time, solar companies’ sales channels and business models will have the chance to develop and then proceed to grow in a few years. It seems that now is the optimal time to enter the market. You can think of starting a solar contracting company, or adding solar to your existing company as an investment that is expected to yield high return in years to come. To me, it seems like the industry will come back stronger than before after a period of development.
Why should your home performance business expand into solar?
In addition to the low barriers to entry, there is an ever growing potential market as the electrical use of Americans is expected to increase even further in coming years. Not to mention that after additional profitable sales channels are established, solar will continue to grow. But this time, more stable and profitable than ever. To follow this, the electric power consumption is expected to grow steadily starting now. This occurrence will present tremendous opportunity for contractors going forward.
To maximize building efficiency, solar can be paired with other performance factors such as insulation, or high-efficiency HVAC, creating more efficient homes and buildings. Not only is this beneficial for saving money, and raising value, but there is tremendous opportunity to help the environment and reduce our carbon footprint. I truly care about the well-being of our planet, and from what I see, many others do as well. Solar has the potential to attract more environmentally conscious customers as it is widely known as an environmentally friendly alternative.
Afraid of competition?
Don’t be. As it stands, the large companies don’t hold enough of the market share to effectively put a large amount of contractors out of business. You may ask yourself, “what about other contractors?” Many states require specialized licensing that may turn off some of the competition. Creating a solar company, or adding solar to an existing contracting business, though an investment, is also a high involvement commitment. Then comes marketing, arguably the most crucial aspect. Marketing can be your key to standing out from the competition in your service area. You need to make sure that you are effectively conveying the right message to your target market, and using the correct communication channels.
I find the solar industry fascinating given its rapid development. In part, because there now are lots of unique opportunities presented to contractors — like the anticipated increase in electrical power usage and predicted future growth. If you were to start a solar contracting company today, it would be like planting an acorn. It may be small at first and need a little bit of time to germinate, but with the proper care and attention, it can grow to be large and strong.
Throughout my time at Energy Circle, my interest in the solar industry has grown steadily. I’m so excited to watch the evolution of the industry and the emergence of more local long-tail installers. I will continue to watch and research the industry and I can’t wait to see what to see what the future will bring for solar.