Why the residential solar market is saturated, and commercial untapped

Part 2

This is the second of a two-part series on the residential and commercial solar markets in Australia. In part 1, we learned that you must tackle the commercial market (profitably):

  1. The residential market is dying; the commercial market is thriving
  2. Commercial’s competitive advantage: cheap operators can’t afford to master Commercial PV
  3. There’s no margin for error (but this acts in your favour)
  4. Its a numbers game, maximise your efficiently and efficacy

In part 2, we’re going to see more reasons and resources to tackle the commercial market profitably

The residential market is saturated; the commercial market is untapped

The residential PV market will inevitably face a perpetual decline because of a high and ever-increasing penetration rate. While we still haven’t hit saturation point where every suitable roof is covered in PV (one of my life’s missions will be complete on the day that this happens), most of the quick pay-back roofs (i.e. unshaded north-facing owner-occupied) have already been taken up. This leaves the remaining housing stock facing a poorer financial return, which makes it harder to sell residential systems. There will be upgrades, maintenance, and repairs for the solar industry to perform, but this won’t sustain the industry at current levels.

The charts below show that residential penetration already exceeds 35% of suitable residential building stock in South Australia and Queensland. By contrast, the rightmost graph shows the penetration rate for commercial solar is just 3%. The great thing about this low saturation rate in commercial is that you have the opportunity to define the terms of engagement.

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You have the opportunity to define the terms of engagement

Residential solar customers are extremely wary. Most potential customers you speak with have already been approached fifteen times in shopping malls, been harassed by tele-sales calls, or have formed a hard-to-shift opinion about solar (like we’re never home during the day, so what’s the point?). In the process they will have received conflicting information from unscrupulous salespeople, and will be confused and distrustful.

In contrast, potential Commercial customers are a wide open book. Sure, you’re going to have to work hard to educate them, but at least you can do so without pre-formed judgements getting in the way. The great thing about reaching the customer first is that you have the opportunity to shape their entire solar experience, and to define the terms of engagement with the competition. After all, they’ll probably shop around for prices soon after you’ve done all the hard work educating them. But if you do it right, when they look elsewhere at cheaper prices, all your customer will see is that other companies are “risky”, and risks they don’t want to take. They will see that your price is a fair and reasonable price that will ensure a great outcome.

The challenge here is how to educate your customer effectively, a) so that it doesn’t take up too much of your time, and b) so that they trust what you’re telling them (which they will know has some inevitable bias). Educate your customers well and and you can afford to charge more than your competition and sill win plenty of work.

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Commercial is where all the profit is

The residential market is price-focussed and highly competitive. This is because there are low barriers to entry (and exit) – it’s easy for small players to jump in and offer cheap prices to customers who typically perform little research. And the large PV retailers have unbeatable economies of scale that also push down prices. In some recent research I conducted, some retailers couldn’t afford to increase their gross profit above 12%, for fear of losing business.

A 12% profit margin is barely enough to cover office overheads and warranty services. In comparison, commercial buyers are business-minded people with an ingrained ability to evaluate risk, who consequently spend more time considering and comparing offers. This means its not as easy for a man-and-a-van sparky to sell commercial PV on-the-side, and the intense short-term pressures faced by big PV retailers mean they don’t naturally have the attention span required to get commercial sales over the line. All of these reasons means there’s less of a price war in commercial PV. Which means there’s more profit in commercial PV.

However, while commercial PV involves higher profits, it also requires greater investment. Commercial sales are notorious for being long-gestation, as there are invariably multiple decision makers for whom PV is non core-business. Apart from taking more time, PV retailers also need higher quality tools to make a commercial sale. One look at a shoddy website, unprofessional proposal, or back-of-the-envelope calculation, and the MD, CEO, or Accountant will never spend tens of thousands of dollars with you. SunWiz has extensively reviewed PV companies’ marketing material and even the best companies need to refresh their collateral to target the business sector. The good news is that best-practice in proposals and websites take less effort than you realise.

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We think this company’s #1 position in Commercial PV has a lot to do with an excellent website.

 

8. Get in on the Commercial Snowball – (“keeping up with the Jones Pty Ltd”)

Because business owners invest a lot more money in a commercial system than householders, they do a lot more research and due diligence. Demonstrating your commercial experience is hugely important in commercial, far more so than in residential. The benefit of entering the commercial market is that your increasing experience acts to further increase your conversion rate – so you build up size like a commercial snowball. So too, business owners will take more interest in PV as they see their peers and neighbours taking it up – which I phrase as “keeping up with the Jones Pty Ltd”. So the commercial market will experience some compound growth and you need to be a part of it.

The best thing to do is become the ‘go-to’ guys for solar in a particular business sector and region. The important thing is become the ‘go-to’ guys for solar in the best business sectors and regions. Targeting the best sectors and regions will maximize your conversion rate and your profitability will snowball. To profitably become the go-to guys, you really want to target the businesses most likely to buy PV in the regions where there’s a large volume of commercial PV. As an example, the image below is a screenshot from SunWiz’s commercial solar database listing six commercial projects in Hindmarsh South Australia.

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Summary: How to profitably tackle the Commercial PV Market

  1. Play the numbers game: fill your pipeline (as there are more renters than in residential), and fill it with high quality leads
  2. Operational Efficiency: Find customers most likely to buy; find the decision maker, automate early-stage sales process
  3. Sniper-like precision: Be efficient and effective in your customer acquisition strategy
  4. Professional service: maximise the service you give to the customers most likely to buy
  5. Commercial Snowball: Become the go-to guys for commercial PV in the best regions and top-buying business categories
  6. Best-practice marketing: Your commercial website and brochures must be up-to-scratch
  7. Concentrate on the high-profit customers

ProfitVoltaics: Putting the Profit back into PV
ProfitVoltaics is based upon months of research into the Commercial PV market, identifying who the leaders are, what they do well, and how solar businesses can outperform the market.

ProfitVoltaics helps solar businesses to:

  • Tackle the growing part of the industry: the commercial market
  • Increase profits while improving the competitiveness of your offer
  • Become the go-to business for solar in the best sectors and regions
  • Ensure your marketing material and website aren’t turning customers away, wasting all your hard work
  • Reach the decision maker and access customers sitting just beyond your reach
  • Improve your conversion rate using SunWiz’s unique advantage

ProfitVoltaics includes these tools, tailored to your circumstances:

  • The best places for your business to target for commercial sales in your service area
  • The best businesses for your business to target, where you can harness your natural advantage and become the go-to guys
  • A review of your sales material with recommendations for how to bring it up to best practise
  • Psychological solar collateral that harnesses humans’ most powerful subconscious buying motivation
  • A process and material to help you effortlessly educate your customer

Warwick Johnston is head of SunWiz. Find out more about ProfitVoltaics, which advises on how best to tackle the commercial market; bbecome the go-to business for solar in the best sectors and regions; reach decision makers and access customers sitting just beyond your reach; and improve your conversion rate using SunWiz’s unique advantage.

Comments

19 responses to “Why the residential solar market is saturated, and commercial untapped”

  1. patb2009 Avatar
    patb2009

    i’d say that residential has a lot of room left, as the probable level is some 70% of homes, plus upgrade of the existing base to bigger panels.

    1. Andrew Woodroffe Avatar
      Andrew Woodroffe

      I agree, we are nowhere near saturation. Cheap, small storage can only help, too.

      1. Raahul Kumar Avatar

        I’m not sure the current Australian grid can support 90% solar panels, so there are limits other than cost on how many solar panels can be installed.

        Have to toss in the money for a smart grid upgrade before a solar panel on every roof is possible.

        1. Andrew Woodroffe Avatar
          Andrew Woodroffe

          I did mention small storage – behind the meter, which will help shift midday generation into afternoon/evening demand. This will make a huge difference. Because it is small, any growth will be small and not lumpy like the very big projects.

          1. Andrew Woodroffe Avatar
            Andrew Woodroffe

            I meant, any growth will be smooth (not small).

            Advantages of big solar are that they;
            – can be located where there is lots of sunshine (northern and eastern edges of the grid in WA),
            – are not where most PV is currently located (capital cities),
            optimised panel orientation,
            – have no shading,
            – are cleaned
            – are transparent to the grid operator,
            – can be turned down.

            Disadvantages of big (no behind the meter loads);
            – transmission is required (huge capital and operating expense),
            – expensive and time consuming connection process
            – framework required (smaller expense)
            – income is based on wholesale prices
            – land cannot be used for other purpose
            – requires financing and planning permission

          2. Raahul Kumar Avatar

            Storage can be done for cheaply at low cost via solar thermal power stations.

            Greater Penetration of Solar Power via the Use of CSP with Thermal Energy Storage

            http://www.nrel.gov/csp/pdfs/52978.pdf

            That’s a vastly cheaper option than fitting out millions of homes with battery storage, and quicker to rollout. It is also important to note that unlike batteries, solar thermal can store much more energy for much longer. Long enough to last the night.

            Solar power can break out of a ghetto and hit the mainstream.

        2. Ronald Brakels Avatar
          Ronald Brakels

          With the right inverters there’s no particular reason why Australia couldn’t get 90% of its daytime electricity use from solar power with little modification of the grid. This would involve a significant amount of curtailment, but if the cost of installing point of use solar was low enough this curtailment would be worth it. At one dollar an installed watt people are going to have an incentive to install a lot of solar to maximise their self consumption, and this applies even if there is no feed-in tariff. As a result, their will be a lot of cheap solar electricity fed into the grid during the day as these systems produce much more electricity than the households and businesses consume on average. So rooftop solar can technically get us to 90% solar electricity use during the day, while utility scale solar could only realistically do that with large subsidies.

          1. Raahul Kumar Avatar

            Can you provide a citation? The most optimistic figure I have seen claims 30% is only possible.

            “Watt said it was clear – and a CSIRO study had also pointed to this –that solar PV could rise to 30-35 per cent penetration with only a minimum amount of adjustments and investments being made. ”

            https://reneweconomy.wpengine.com/2013/magnetic-island-pushes-solar-penetration-limits-61291

            There is also no empirical evidence backing that claim up, only computer models. To date even the 30% claim remains untested.

            It is realistically possible to power all of Australia with only a handful of mega scale solar power plants, like in the Beyond Zero Emissions plan. Unlike solar pv on rooftops, this is a cheaper faster plan that maximises the use of solar.

            Citations

            http://www.ceem.unsw.edu.au/sites/default/files/event/documents/April2012BruceHighPentrationAustCaseStudies.pdf

            Utility scale solar is the only practical way to achieve large scale solar, in a short time period. Australia has most definitely missed the boat. While other countries are building large amounts of solar, like Bharat with 100GW, Australia is stuck going nowhere.

            http://media.bze.org.au/zca2020_statenergy_poster.pdf

            http://media.bze.org.au/ZCA2020_Stationary_Energy_Report_v1.pdf

          2. Ronald Brakels Avatar
            Ronald Brakels

            If 90% of Australian homes, businesses, industry, etc. simply flicked their main’s power switches to off at sunrise, the grid would be able to handle that. It would be a bit of a shock, and not the sort of thing that grid operators would expect, but it’s not something the grid couldn’t handle. And then when they flick the mains power back on at sunset, then the grid could currently handle that too if they knew it was coming. So, technically, there is no reason why all those buildings with their main switches off couldn’t just use point of use solar power during the day without any requiring any real changes to the grid. And if instead those buildings didn’t flick the main’s swich off and instead stayed on grid during the day and exported whatever amount of excess solar electricity the grid could handle in its current state, that would also work. So there no particular technical reason why Australia could not get 90% of its daytime electricity from rooftop solar with little or no change to the grid.

            Now just to make myself perfectly clear, like a jellyfish, I’m not saying this is what will be done, or that it makes sense to do things this way, but it is something that could be done.

    2. JohnOz Avatar
      JohnOz

      Agree, nowhere close to saturation. In the small houses of inner city Sydney even there is still considerable scope for solar installation, particularly as costs are falling and sub-optimal space a few years ago is now cost-effective.

    3. Ronald Brakels Avatar
      Ronald Brakels

      There are a lot of 1 and 1.5 kilowatt systems out there that will be expanded as soon as their high feed-in tariff comes to an end. A considerable number of these arel be owned by environmentally minded early adopters who are likely to be interested in installing more panels.

  2. Raahul Kumar Avatar

    Glad to see someone expanding into the commercial market as well. But the market for really big solar power plants hasn’t even been tapped in Australia either, while that is all that is built in Bharat.

    There is room for Elephant scale plants here as well.

    1. Andrew Woodroffe Avatar
      Andrew Woodroffe

      This is Australia. It is not dissimilar to why wind is no longer happening; 1. we have too much generation so no retailer will sign off on a PPA and 2. massive
      uncertainty remains with green certificates.

      Behind the meter solar (residential or commercial, it matters not) does
      not have these issues (with over a million houses with rooftop solar, STCs are too politically tough to take on), which means it is unstoppable, Tones & Co. Also, solar at this scale does not require transmission nor ties up land – not that that is an issue here.

      1. Raahul Kumar Avatar

        There is a 2GW power plant being constructed in Toowoomba, QLD right now. I”m not convinced by your argument that transmission issues or land rights are showstoppers.

        https://reneweconomy.wpengine.com/2015/council-approves-2gw-mega-solar-project-plan-in-queensland-20827

        I’m dubious about the need for green certificates or the need for retailer PPAs. There are two alternatives to that

        A “pass-through” PPA, which is one that is designed to match the generation capacity with the demand needs of a bankable customer, or customers, most likely large industrial or manufacturing loads.

        The third option – though one that is likely some way into the
        future, and dependent on getting costs down to the levels of the US and Middle East where solar plants cost less than $100/MWh – is to sell the output into the wholesale market. This is already happening in Chile.

        If the January 2015 award in Dubai of a 260MW PV project at $US
        0.0585c per kWh is any yardstick, the latter prospect may not be so far away as many think.

        Large scale solar is an idea whose time has come. Stop fapping about with small scale and go for the big time.

        1. Ronald Brakels Avatar
          Ronald Brakels

          That 2 GW solar farm is not being built. What has happened is that permission has been given to build it, but it’s not actually being constructed. And it’s not likely to be constructed because the government support that would be required for it to be built is not likely to be forthcoming from the current mob in Canberra. Currently wholesale electricity prices in Australia average around half the cost of the Dubai solar and because of rooftop solar daytime electricity prices continue to fall. For example, today in South Australia grid electricity use was about 18% lower in the middle of the day than the minimum demand in the early hours of the morning. For several hours around noon the wholesale electricty price was under 1.5 US cents. As rooftop solar continues to expand daytime electricity prices will continue to fall and it’s going to become harder and harder for utility scale solar to make a buck. Without very large political changes utility scale solar is not going to get built.

          The good news is that feed-in tariffs for rooftop solar have almost been cut as low as they can go. Provided politicians can refrain from behaviour such as killing a koala on national TV every time someone installs rooftop solar, further declines in cost will make installation more attractive rather than the benfit of price drops being lost to feed-in tariff cuts.

          1. Andrew Woodroffe Avatar
            Andrew Woodroffe

            Indeed, planning permission is not the same as construction and uncertainty around RET was mentioned in the article. RET (or similar) is required as the impact of both wind and solar is to push wholesale prices down. And wholesale prices are what the big projects get paid. The only way around is for the generator to also be the retailer. Finally, big has risk, small does not.

          2. Raahul Kumar Avatar

            Managing Director of Solar Choice, Angus Gemmell, says 2016 is the likely construction date.

            “We believe that large-scale solar is on the right side of history – it’s not a matter of if these projects will be built, but when,” Gemmell told RenewEconomy in an interview.”

            He also mentioned two ways of financing solar power projects minus the RET.

            Gemmell says there are three avenues to market – the traditional PPA route with large energy retailers – which would likely only happen with a binding RET or once aging coal generators are eventually taken off-line.

            The second option is a “pass-through” PPA, which is one that is designed to match the generation capacity with the demand needs of a bankable customer, or customers, most likely large industrial or manufacturing loads.

            The third option – though one that is likely some way into the future, and dependent on getting costs down to the levels of the US and Middle East where solar plants cost less than $100/MWh – is to sell the output into the wholesale market. This is already happening in Chile.

            http://www.solarchoice.net.au/blog/news/solar-choice-2gw-bulli-creek-solar-farm-receives-planning-approval-toowoomba-regional-council-100215

            There are alternative funding options if the Federal Government refuses to cooperate.

            Solar power on rooftops is exceedingly niche. If Solar power future is confined to the roof, it will never be more than a bit player.

            Australian rooftops are some of the worst sites for solar available. When there are much better choices, why bother?

            Ultra mega scale power plants are the current reality of solar, as witness in plants like Ivanpha, USA, Chile, Bharat, and most other countries. Go Big.

            https://reneweconomy.wpengine.com/2014/worlds-top-ten-markets-utility-scale-solar-99039
            http://www.ivanpahsolar.com/
            http://www.nature.com/news/india-to-build-world-s-largest-solar-plant-1.14647
            https://en.wikipedia.org/wiki/Solar_power_in_Chile

          3. Ronald Brakels Avatar
            Ronald Brakels

            I admire Angus’s optimism. Good luck to him.

            But you do know that rooftop solar currently outcompetes coal, while currently utility scale solar currently doesn’t come close to doing that in Australia, right?

          4. Ronald Brakels Avatar
            Ronald Brakels

            And I’ll mention that electricity prices just went negative for almost an hour here in South Australia in the middle of the day. It is a public holiday, but it’s still not a good sign for people who want to make money from daytime wholesale electricity prices. Meanwhile rooftop solar here continues to save people about 32 cents for every kilowatt-hour of grid consumption they avoid.

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