The solar industry is heading towards convergence that will reshape solar retailers.
Why consolidation hasn’t happened, but that’s about to change.
For a long time, people have predicted the consolidation of the solar industry.
While there’s been some noteworthy buyouts and attempted roll-ups, the top solar retailers still hold a tiny market share. Some consolidation has come from small retailers exiting the industry during a downturn… but many more re-enter the industry when the good times return.
The reason for this industry structure is the low barrier to entry, combined with the low overheads of small installers.
Practically speaking, it is very easy for an electrician to do the odd job here and there. That same electrician can switch back to installing air conditioners or other general electric work.
And whereas medium and large solar retailers have considerable overheads, most sparkies who sell & install solar power systems trade their time for a day’s wage.
Because of this, our industry is characterized by a long tail. In fact, one-third of solar retailers do 5 jobs or fewer each year.
This shapes the industry into three segments:
- large solar retailers, who typically have a high-volume low-margin approach and tend to compete on price;
- medium-scale retailers who have existed for many years and who typically concentrate on service and upselling to higher-quality equipment;
- micro-retailers which largely consists of electricians who sell their own jobs, and whom typically compete on price. Though they have reduced purchasing power, they remain profitable on account of their small overheads. (This makes it difficult for micro-retailers to grow into medium-scale retailers, who are now reasonably entrenched).
The retailer of today will be a very different beast to the retailer of tomorrow.
The frequently changing installation and programming requirements of various inverters are already quite complex. Adding a battery adds further complexity to sales and installation, even before VPP options are considered – this is one reason why most solar businesses only occasionally install batteries and the bulk of their volume is due to specialists.
Now solar retailers face pressure to sell and install heat pumps – which are taking DER market share from solar power systems. Notwithstanding the added complexity of dealing with plumbers, those heat pumps should ideally be running when there is surplus energy being produced by solar panels.
Add into the mix EV chargers and you’ve got a whole raft of challenges (and opportunities).
Integrating these things together into one central point of visibility, control, and automation is no easy feat. Particularly when many homes will have a pre-existing home automation platform (Apple Home, Google Nest, Alexa) that will influence the consumer’s outcomes.
This isn’t something that’s easily scalable. So high-volume businesses may struggle to succeed in this space. They’ll more likely stick to supplying and installing solar power systems, a commodity which will still be needed, albeit at commodity prices and margins.
Medium-scale businesses will be able to gain sufficient experience and expertise in all the various permutations of brands and apps, particularly as they quickly evolve. That won’t be possible for small players, who are more likely to become installers for those medium-scale businesses.
Solar retailers are facing a fork in the road. Do they double-down on commodity solar? Evolve their offerings into unified solutions providers? Or work for someone else? (Other alternatives include still dipping in and out of the industry… or specializing in commercial EV & ESS)
The Good News
The good news (for medium-scale businesses) is:
- You’ll have a higher Average Sale Price, as you’ll be bundling multiple technologies into each sale.
- You’ll have higher margins, as you’ll be delivering a solution rather than displacing a commodity (electricity) with a cheaper commodity (solar panels).
- You’ll have repeat customers, as customers progressively electrify their homes
- This will raise the value of your business.
It’s time smart solar businesses became smart mid-scale solutions providers.