In some developed economies around the world the solar business is getting tougher, much tougher, as policy support ratchets back.
In Australia this has been well underway for 3 years, and the number of rooftop solar installations in 2015 was roughly one third of what it was in 2011. Sure, the average system size has gone up, but as prices have dropped the market value is much smaller than what it once was.
The marked decline has largely been caused by drops in the feed in tariff (FIT), which across most states is now less than USD $0.04/kWh.
The UK is from this month (January 2016) reducing its FIT from its current 12.47p/kWh down to 4.39p/kWh. Higher that in Australia, but then again it’s not as sunny in the UK, and annual solar production per kW installed is less.
For any solar business to survive it has to be ruthlessly focussed on increasing the financial benefit of solar whilst reducing costs in order to provide a reasonable payback. I personally believe that the acceptable payback should be no higher than 7 years, largely based on observations in the Australian market where the industry boomed when paybacks were around 5 years, went OK as paybacks dropped to 7 years as incentives were lowered, and has then shrunk substantially once paybacks went above 7 years.
So if you can’t deliver a real payback of 7 years or less (and not a marketer’s 7 years payback) my frank advice would be to get out.
The bottom line in the view of many solar buyers is the payback.
Simple payback = the value of solar production divided by the cost. To decrease payback you have to maximise the value of solar production and minimise your costs per watt installed.
Below I provide some suggestions on doing this:
Maximising the value of solar production
There are five factors that you have control over which can increase the value of solar production:
- Panel selection: Which will determine the watts/m2 you can achieve, the temperature coefficient (which will impact on annual production) and the annual degradation factor (which progressively will have a larger and larger impact on production as the years roll by)
- Panel positioning and orientation. What you can do with the available roof, including working with its shading and structural limitations and any access constraints. How can you get as many panels as possible with optimal orientation?
- Shading management. If you will install micro-inverters or optimisers, how strings are configured.
- Inverter selection, which will impact on shading management, and with inverter efficiency over a range of loading conditions also important.
- Managing the system when operational. Making sure the panels are clean. Picking up on faults. Real time monitoring with automatic fault identification and alerts.
Additionally there are two other factors where you may be able to have some influence to increase the value of solar energy produced.
- The tariff structure. You may be able to help your client move to a tariff that provides a better payback. The sort of tariff is one with a high FIT, low fixed connection charges, and a relatively high consumption change.
- The way energy is used in the premises. You may be able to influence patterns of usage, which, depending on the tariff, could increase savings. For example with a low FIT moving usage to the daytime could increase savings. This could include adding low cost controllers etc. In some cases batteries may make sense to shift the load.
By and large rooftop solar companies don’t talk much to their prospects about lifetime electricity production and the value of that. Instead its just about kW. But as the old Castrol oil add used to say “Oils ain’t oils”. Educating your prospect about lifetime kWh and the factors discussed above can be really useful, especially if you can boost production at relatively low cost, for example by perhaps spending say 10% more on a panel that gives you 5% more electricity per year for the same wattage (or 35% more over 7 years).
You really want to minimise upfront costs and any operational costs over the 7 years. The factors you have control over are:
- Your sales and marketing costs
- Your business processes and systems
- Your technology/component selection and supplier
- Installation costs
These are each discussed below.
Your sales and marketing costs include everything from the cost of setting up and maintaining your website through to system design and the time spent closing a deal and addressing all your prospects concerns.
The key metric is sales and marketing cost per sale.
To get this down you need to focus on:
- Cost per genuine lead. You can either buy leads or generate your own leads or do both. There are various companies selling leads, and believe me, the quality of these leads varies a lot. You want to be buying leads where the leads return your calls and engage with you. Referrals can be a very cheap source of quality leads, so you need to make it very easy for your customers to refer you. If doing your own advertising and promotion test and measure everything you do to generate leads and fine tune to get the cost down.
- Your conversion ratio. Basically your conversion ratio will depend on how good an impression you create, your ability to persuade and close a sale, and of course the value you offer in comparison to your competitors. Sharpen up your sales skills. They need to be really good. If you aren’t good at sales, get someone who is, or get out of solar. This covers everything from your presentation, through to your product knowledge, ability to establish trust, consistency, etc.
- Getting quoting and design costs down. How can you design a system that maximises the lifetime output, whilst spending the least time doing the design? What tools can you tap into that don’t cost much? Think pvwatts and other similar tools.
- Knowing when to walk away. Hard as this may sound, you don’t want to be wasting time where you know you simply can’t provide a good payback. Understand your market and focus on where you can provide real value.
- Your sales and marketing consistency. People will buy when they are ready to buy, not when you are. So if they said they won’t be doing anything for six months, make sure you are following up. Easier said than done unless you have systems in place and are working your systems.
Business Process and Systems
Ultimate everything you do in your business is paid for by your clients, and to keep your costs down your business needs to be run efficiently. The goal is to reduce the amount of time spent. Some of the key systems are:
- Accounting systems. You need to keep this as efficient as possible. Right down to your payment terms. You don’t want to be wasting time chasing money.
- Sales systems. As discussed above. Build systems to get your sales cost down. And to do this you need to be testing and tweaking your sales techniques on an on-going basis.
- Design systems. Also as discussed above. How can you organise your design and quote sheets so that you can pull together a customised quote in 10 minutes?
- Common tools. As simple as having a common calendar system for you and the people you work with, and being highly committed to keeping all appointments on time. You see not turning up on time not only frustrates your prospects and clients, you also have to waste time advising you’ll be late, apologising, etc. Scheduling also means making sure that the person you are visiting is available, by automating reminders etc. A little bit like the SMS your doctor or dentist probably sends you before the day of your appointment.
- Ordering systems. Your stock management needs to be great. Anything you can do to standardize on stock, negotiating long payment terms with your suppliers, getting just in time delivery to reduce your inventory costs will help your business run more efficiently.
- Project review. Often forgotten, but incredibly important for continual improvement. You should have a system in place so that every job is reviewed, with the aim of learning what mistakes were made and how they could be avoided in the future.
- Warranty management. Clearly you don’t want these. What can you do to avoid them? What QA checklists can you use? And what should your sales contract have in it, in plain English, that has also been verbally explained to your customer at the time of sale, that explains what you will charge for in case of a warranty claim? What responsibility can you transfer to your supplier, in a contract or similar?
- Keeping up/learning. Technology continues to get better. If you aren’t learning and keeping up bit by bit your competitiveness will slip. So your business needs to allocate time for learning, in a way that is as efficient as possible.
Put your effort into systems and be really strict about following them. It will enable you to employ lower skilled people, whom you pay less, giving you time to do what you are best at, whatever that may be.
Technology/component selection and supplier(s)
As discussed earlier, your technology selection will impact on the lifetime value of its solar production. In the geographic areas you serve, you should be running simulations based on local climate data to identify the technology/component mix that provides the best ratio of lifetime PV output to upfront installed cost.
As technology changes quickly, you may want to run this exercise routinely every 3 to 6 months. Set up a system to make this fast to do!
There are probably a large number of suppliers you can purchase from. Try and get them to compete with each other.
If you aren’t buying large volumes, can you form a buyers group with other solar installers (preferably ones you aren’t competing with) to get a better deal? Especially if you are competing with larger companies with big buying power.
Its said that every installation is different, every roof is different, every fuse board is different. In the interests of getting costs down you have to put this thinking to one side, and start to think about what’s common, and what can be better systematized and standardized to cut installation times.
Being able to install a system in 6 hours instead of 9 hours could mean that in summer you could install 3 systems in two days instead of just two. With no change in your labour costs.
Some suggestions are below:
- Balance the cost of the mounting system you use vs its cost. Is the easiest to use framing system on the market saving you enough time to warrant its extra cost, or not?
- Use jigs and tools. For example to hold frames in position, to cut racks to the right length, to speed up cable termination.
- Prepare beforehand, not on the roof.
- Toolbelt/toolbox. How much time are you wasting going back to your vehicle to get tools? How many minutes does this waste on a two storey roof?Are your tools, cables, connectors well organised and easy to find?
The honeymoon is well and truly over for rooftop solar across many parts of the world now. Its not just a matter of having a good understanding of solar technology, you need to be good at sales, at implementing and using systems, at business operations and managing people, at sourcing low-cost tools and techniques, at negotiating with suppliers. If you aren’t, you need to be willing to learn how to, or be willing to spend to bring in expertise (such as that provided by 8020Green) to help you.