When solar first emerged as an energy source in the U.S. market, distributors were only big warehouses that served as the middle-man between the buyer and the manufacturer who handled the job-by-job logistics. Today, distributors have expanded their roles to much more, providing guidance, business support and design services.
“Anyone can stock products and sell them,” says Geoff Stenrick, president and CEO of SimpleRay Solar. “Today’s solar distributor is a partner to the installer, providing many strategic solutions to help their customer’s succeed.”
Many distributors who have been in business for years, like Soligent Holdings, find themselves expanding with the industry.
“[First], we brought in new investors and a management team,” says CEO Jonathan Doochin. “Second, we expanded our strategy with Solar Engine.”
Soligent’s Solar Engine offers independent dealers access to financing mechanisms, discounts on equipment, professional assistance on permitting and system design.
“The idea behind Solar Engine is that independent dealers need help, and they would all like to trim their soft costs,” says Doochin. “Solar Engine accelerates their business by letting them offload the things they don’t want to do. In turn, that lowers the cost of the solar [installation] and shortens the time from contract to completion. We believe Solar Engine can increase the net profitability of dealers by 10% or more.”
Other companies, such as SolarCity, are expanding their partnerships to include large energy suppliers, private developers and EPCs.
“We’re actively seeking to partner with those firms who value efficient execution and capital structure for credit-worthy commercial, industrial and municipal clients,” says Johnathan Bass, vice president of communications at SolarCity.
Photo courtesy of Affordable Solar
While Affordable Solar’s primary role remains sourcing, stocking and shipping equipment for just-in-time delivery, recently, the company added several services to help customers including payment options, project development support, and design and engineering services.
“In addition, we provide credit terms for our installers so that they can procure and install materials while maintaining operating cash flowing through their businesses,” says Nestor Tarango, director of sales at Affordable Solar.
While customers of solar distributors range from homeowners, to businesses, to solar installers who sell and build, and to commercial and residential installers, one thing remains the same: the distributor’s commitment to procuring high-quality products at a good value to the consumer.
“Before a project is even bid, a good distributor gets involved to discuss which parts to use for each specific job, what the best practices are for completing that job and how to do so in the most efficient, safest and most profitable manner possible,” says Stenrick (SimpleRay).
Another approach distributors are taking is custom design work.
“We create a custom design for each project to maximize efficiency and create the best possible value for our customers,” says Bass (SolarCity).
“We have a full-service design and engineering team that offers permitting packages with site layouts and line diagrams, conceptual designs and engineering stamps in-house for residential and commercial projects,” says Tarango (Affordable Solar).
Currently, solar is an established business in approximately 15 states, and Doochin (Soligent) believes it will become a national phenomenon over the next 10 years.
“That will mean electricians, contractors and security companies — people already providing household services — will become solar dealers. We will be there to educate and provide needed services,” says Doochin. “Some people theorize that independent dealers will start to get squeezed by the nationals. While they are facing pressure, we believe that independent dealers will constitute 50% of the market over time.”
However, financing a custom order can be troubling for solar contractors, including how each project is paid for because each one is different.
“Long ago are the days when customers would pay in cash and wait for their rebate to come back from the local rebate program,” says Stenrick (SimpleRay). “A good distributor will have solutions available [to] help close jobs and fit each customer’s financing needs.”
According to a report from Rock Mountain Institute last year, residential solar customers pay an average of 9% interest on financing. Doochin (Soligent) believes PPAs have been driven, in part, by the high costs of household financing.
“Homeowners have been paying too much when it comes to financing,” he says. “The price is coming down as banks become more comfortable with solar, but it is still too high. By aggregating financing through Solar Engine, we will be able to reduce the cost of financing.”
Furthermore, most consumers only receive a small selection of financing options when, in reality, most markets have multiple options available.
“These [options] [must] become more visible to consumers,” Doochin continues. “We have developed back-end systems that help us comb through different options so consumers can get the best deal.”
With the launch of its web-based investment platform, SolarCity will allow a broad range of investors, including individuals and organizations, to participate directly in solar investments that have previously been limited to large financial institutions.
Consolidation and bankruptcy among manufacturers are causing an array of problems in the solar industry: mainly stress on installers over selling outdated products as manufacturers continue to go out of business. As a result, distributors are conducting extensive research before choosing a product line.
“When looking for products to offer, we look at long-term stability first and foremost,” says Stenrick (SimpleRay). “This will ensure any warranties will be honored over the long-term. But we also look for innovation in a product to make sure we can offer [options] that create the most value for our customers. A good distributor who knows the product landscape should be involved. We vet every company we sell to ensure that our customers are getting both a great value and a long term partner.”
SolarCity says that in addition to relying on a variety of providers, it also looks for new ways to innovate itself.
“Reliability and cost per kWh produced are the two biggest factors in our decision-making process,” says Bass (SolarCity). “We use third-party analysis as well as our own research to make vendor decisions, and we’re constantly reassessing them.”
When deciding on a product line, distributors generally base their research on the same characteristics: quality, reliability, terms, product availability and innovation.
“We research our partners pretty thoroughly,” says Doochin (Soligent). “The research differs depending on the product line. One of the value-added functions of distribution and logistics is screening vendors, and one of the key elements of research is checking in with dealers. They know what is happening with equipment in the field.”
Manufacturers continuously enter and exit the market, which is why distributors place great importance on choosing a manufacturer who will be around to honor any warranties.
“When choosing components, we look for companies that are diversified and/or have substantial financial backing to survive turbulent times in the industry,” says Tarango (Affordable Solar). “For module manufacturers, we try to find publicly traded companies with at least a gigawatt of production capacity. Larger manufactures are generally less vulnerable and can withstand consolidation. They also place more emphasis on quality control and testing knowing they will be around for the lifetime of the warranty.”
Today’s distributors face many growing challenges. With so many manufacturers competing on the market, prices can only get so low, and installers are starting to look for more than just a good deal.
“[Installers] are looking for a partner who can deliver on time, causes little hassles and can help increase their value proposition against their competitors [including] free design support, engineering, financing, software, product vetting, lead generation and ease of use,” says Stenrick (Soligent). “The next trend of the modern solar distributor is adding value to their customer’s offerings, the engine that makes the modern solar installer run smoothly and efficiently from day one.”
With solar power being one of the fastest growing industries in the world, it’s no wonder distributors are finding it difficult to stay relevant in a changing market.
Tarango (Affordable Solar) identifies two main challenges. “First, oversupply in the marketplace has led desperate module manufacturers to skip a step in the supply chain by selling directly to installers,” he says. “This model is a sign of an immature industry and will start to disappear as we see more consolidation.”
“The second challenge is the rise of electrical distributors (EDs) entering the solar distribution business,” he continues. “EDs caught many of the traditional solar distribution giants sleeping and took advantage of their reputation for lack of responsiveness and poor service. In contrast to the first challenge, this is a sign of a maturing market.”
Bass (SolarCity) says the greatest challenge distributors face is educating the consumer. A recent national poll found that 62% of homeowners are interested in solar, but less than half actually know how affordable solar has become, compared with a few years ago.
“In the places where solar’s affordability is well known, homeowners have enjoyed not only saving money, but having choice and competition finally arrive in the electricity sector,” says Bass. “Our second most important task is to protect this progress from utilities, many of whom want to maintain a monopoly on the sale of electricity by undermining fair net metering policy, imposing punitive fees on solar customers and obstructing new distributed technologies like energy storage.”
At the end of the day, though, everything comes down to money. The greatest challenge surrounding distributors will always revolve around growing profit margins.
“We saw many solar panels makers have trouble with [profitability]: they had volume but not margins,” says Doochin (Soligent). “Solar dealers and other downstream parties will face this same dilemma. They are going to have to cut out extraneous costs and come up with ways to differentiate their services.”
Tarango (Affordable Solar) agrees. “Pure play solar distribution will always have a role in helping installers as long as they are providing financing, credit and services that help them become more efficient and control operating costs,” he says.
So, what do all of these trends and challenges among distributors add up to? What do they tell us about the solar industry? Doochin (Soligent) sums it up perfectly: solar is at a major inflection point.
“We will see a flurry of activity and a number of success stories, but it will require a tremendous amount of work to stay on top,” he says.
Indeed it will.
For more information on how distributors can help with your solar project, try these related posts:
2014 Trends: Solar Distribution
Solar Speaks: What Distributors Can Do For Solar
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