Solar Energy + Energy Efficiency – time to sing the Duet?

Energy Efficiency + Solar Energy work in conjunction allowing you to SAVE ENERGY

Solar Energy + Energy Efficiency Services – to DO or NOT to DO – is no more a Shakespearean dilemma!

The SMB solar installer finds himself in a challenging spot today

  • Profitability hurts, some operators are working on a negative margin
  • The bid:close ratio as per some surveys is now at 7:1 i.e. every eighth bid is successful.
  • There are a new set of players in the market – General Contractors who are bidding aggressively
  • Financial Supermarts like SolarCity who originate finance deals at lower costs & offer all inclusive services

Solar Energy is about Building Relationships!

Think Relationships & Not Transactions

Let’s take a leaf out of SolarCity’s book; their profits are back loaded i.e. recovered over the customer relationship spread over the average lease period of 20 years (the first hold on the cash flow is of the Financial Investors aka Tax Equity Investors who usually get paid off in 5-6 years); whereas many of the costs are frontloaded. In fact SolarCity is already thinking of year 21 to 30 (solar leases mature in 20 years); as there is a mismatch between the equipment life of 30 years and the lease which dies in year 20. So that is 10 years of additional revenues waiting to be earned which is not being discounted today. SolarCity views their customers through a prism of 30 years and focuses on up-selling & cross-selling opportunities through this journey.

General Contractors are the other players on the block who are foraying aggressively in the domain of Solar Installers – they already have the pipes laid to the customers backyards in terms of their relationship with customers and the frequency of their service to them over the years.

Note that in both cases – one is focused on building long term relationships; the other is focused on utilizing these relationships to fulfill the needs of their customers!

Energy Efficiency as a Service:

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So where does this lead the SMB installers – it is time to invest in customer relationships to be in the game for the long haul. Most installations are ONE-OFF sales, to build customer relationship it is important to diversify your services so as to offer some ‘stickiness’ component in order to ‘own’ the customer and address all his energy needs over the period of his solar installation of 20-25 years.

So the new mantra should be THINK 25 years! How will it be possible to generate recurring revenue with the association you have established with the customer, so that this association builds into a longer term relationship! Long term is win-win and profitable!

Energy Efficiency is one such service that works complimentary with Solar Energy installations. Though described as ‘unsexy’ and ‘boring’, this ‘bolt-on’ service have the following advantages:

  • It is the bottom of the barrel solution to address the consumers energy needs, energy reduction coupled with lower cost energy is surely a win-win
  • When you work with lowering of energy consumption (Energy Efficiency) and lowering of energy costs (Solar Energy) – this increases the Solar Energy investment IRR – which is a double win-win
  • The cycle of appliances and material upgrades of homes averages 3-5 years – thus increasing the probability of offering home audits services (recurring revenues) few years down the line.  Maybe even marketing some energy efficient products, or demand management solutions (aka smart grid)when they come online, now we are creating multiple opportunities to service this same customer over a 20-30 year cycle 

Of Requirements & Capabilities:

One often hears that Energy efficiency services require different set of competencies and capabilities; this is almost not true.

Energy efficiency encompasses a broad swath of activities right from; auditing to data analysis, to design, to installations, to appliances, etc. for which is required diverse skill sets. Some typical low hanging jobs include Duct sealing, insulation, new controls, new windows and new refrigerator

Many of these job skills can be leveraged by managers, plumbers and electricians with some on the job training.

 Operations Synergy:

There is a realization that Energy Efficiency programs blend well with Solar Energy Installations; recently SolarNexus a California-based business management software company, believe that more companies will start offering efficiency services if they have the right sales tools. This week, SolarNexus launched new offerings designed to help contractors manage leads for a whole range of products, including energy efficiency, grey-water management, and electric vehicle charging stations. The company had initially focused on the solar PV and solar thermal market, but is now expanding its software to give small and mid-sized solar contractors a chance to branch out and model new types of services.
Read more at http://cleantechnica.com/2013/03/30/solar-companies-ripe-to-add-ene...

Profits and Margins:

Energy efficiency services can be segmented into Energy Efficiency Evaluations is usually billed at $300-$500, and Energy Efficiency upgrades which programs which run in the ballpark of $500-$2000. Installers can also choose to provide Energy Efficiency Evaluations complimentary and as a gateway to selling bigger Solar Energy systems.

As this is a skills job; gross margins for such services usually runs at 35%+ depending on the job/s criteria.

Win for the Consumer:

Virtually every state encourages Energy Efficiency programs and supports them liberally with incentives to induce customers. A cursory look at California’s programs include a variety of incentives that range from:

•Property Tax Incentives •Sales Tax Incentives •PACE Financing •Soft Loans •Lease Financing •Etc

All these incentives are designed to reduce the cost of participation in Energy Efficiency programs for the consumer.

 Future Potential:

The Energy Efficiency Evaluations market is growing at a robust pace and is expected to be worth US$100 billion by 2017. One look at the recent SolarCity 2012 numbers only corroborates that view - revenue from sales of energy efficiency products and services increased by $6.0 million to $7.8 million for the year ended December 31, 2012 from $1.8 million for the year ended December 31, 2011.

So what may seem to be fuddy-duddy and boring may just be the catalyst to position you as an Integrated Energy Solutions provider.

Win Win for the Consumer

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Tags: Efficiency, Energy, PV, PV., Solar, System

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Comment by Bijou Lulla on April 28, 2013 at 8:59pm

Bob, Solar Energy investment usually have a payback period of 10-15 years, whereas the life of the equipment excluding the inverter ranges from 20-25 years. An inverter usually requires to be replaced in year 10 or 15, depending on the vendor, model etc. 

Comment by Bob Blanchette on April 28, 2013 at 10:04am

The problem with solar panels is payback time exceeds life of the equipment. Passive solar design can be implemented at the time of construction with energy savings that exceed the increase in the typical mortgage payment. Passive solar "cash flows" when included as part of major remodel or new construction.

Comment by David Williams on April 18, 2013 at 12:33pm

Do not forget to consider Passive Solar Design for heating and day lighting solutions.  We can offset 30 to 50% of the annual heating needs (depending on location) with common sense design.  A proper design will also temper the summer gains, helping to maintain comfort year round.  For too many Americans, Solar is synonymous with "panels". 

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