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Lower solar customer acquisition costs with…. microinverters?

Lower solar customer acquisition costs with…. microinverters?

I spent several years at SolarBridge Technologies, an AC Module company (acquired by SunPower in 2014). So, disclosure: I may have some bias. Microinverters and AC Modules generally cost more than the competing solutions – they are a premium product that provides unique benefits. You need to get very good at explaining those benefits to customers in order to close deals. Most advocates talk about better energy harvest due to module-level MPPT, higher system reliability due to no single-point-of-failure, and perhaps reduced design and installation costs due to the simpler architecture. I truly believe all these things are true.  And, the sales pitch seems to be working. Ten years ago, microinverters had a zero % share of the US solar market. Today, Module Level Power Electronics (MLPEs), including DC Optimizers, have well over a 50% share of the US residential market.

One benefit of MLPEs that I stumbled upon, and that nobody seems to talk about, is their ability to reduce your cost of customer acquisition. “Huh?” you say? This connection is not obvious to the casual observer. Here is the kind of feedback I got from customers at SolarBridge that let us know we might be on to something (paraphrased): “We love the AC Modules – we can get more solar up on the roof because I don’t have to worry about string constraints.” Or, “We went back to a house that we couldn’t make work with string inverters due to the broken up roof faces, and our designers figured out how to make it work with AC Modules.” I heard a lot of that – it made me feel good. I also got a lot of negative feedback when our stuff didn’t work well, but that’s a topic for another blog.

We started thinking about this. Getting a solar customer is expensive. The latest data I’ve seen is that it’s anywhere between $0.20 to $0.85/W to get a solar customer. $1,200 to $5,100 for a typical 6 kW system. It is a big target for the solar industry, as it is one of the most expensive line items in the solar cost stack. There are two fundamental ways to reduce customer acquisition costs ($/W):  spend less money to acquire the customer (lower the numerator), or sell more Watts to your customers (increase the denominator). MLPEs do both. Really.

  1. MLPEs enable more homes to go solar. Say you are running a marketing campaign. You spend money to reach customers – flyers, door-to-door, advertising, whatever. Some fraction of those customers that respond are going to drop out of your sales funnel because their roof is not suitable: shading, odd angles and roof sizes, complexity. MLPEs enable more of these roofs to go solar, increasing your conversion rate. For the same amount of marketing dollars, you will get more customers, reducing the $ per customer cost. Lowering the numerator.
  2. MLPEs enable you to put more panels on a roof. String inverters can be tricky. Strings need to be a minimum size. All the modules in a string need to be facing the same direction. This places constraints on how you can design a system. Microinverters, and to some extent DC Optimizers, eliminate those constraints. You can put any number of panels, anywhere you want. This lets you get more solar on a given roof. More Watts per customer. Raising the denominator.

All of this can be difficult to quantify – but, we tried to at SolarBridge. We did this by surveying 32 of our US installation customers across 16 states. What we found was that 25% of the sites they installed would not have penciled without microinverters. And that on average, they could fit 7% more modules on their AC Module sites vs. their string inverter sites.

The net result of this study showed a 22% potential reduction in customer acquisition costs. $/W.

Look, I know we weren’t exactly an unbiased third party at SolarBridge. I don’t know if our study met the standards of a peer-reviewed scientific journal. But, I know there is something there. Because I heard it from my customers.

 

Where are the big brands in solar?

Where are the big brands in solar?

In 2006, I was working at design firm IDEO on a research project for newly-IPO’d First Solar, who was interested in getting into the residential solar market. We talked to early adopters, tech luddites, installers, and everyone in between, to understand how they felt about home solar. Few people understood, and fewer cared – it was ugly, confusing, and niche. The market was measured in thousands of homes – it was by any definition, a cottage industry.  First Solar went on to invest in SolarCity, but never really participated in the sector.

Fast forward a decade:  In 2016, the industry installed nearly 3 gigawatts of residential solar in the US, many hundreds of thousands of homes, representing nearly $10 billion in market value. Most of these systems were built by companies that did not exist in 2006. The industry has grown up quite a bit, and today solar is one of the fastest growing parts of the economy. Recognizable brands are starting to emerge, financing has become commonplace, marketing is more sophisticated, and as in every other industry, software is eating the world.

So, why are there no big consumer brands in residential solar? With $10B up for grabs, the commodification of hardware, and prices down by at least a factor of three since 2006, where are the home services providers and product companies? AT&T? Comcast? Google? Apple? Amazon? Anyone? Even the consumer companies that produce solar panels – LG, Panasonic, and Sharp — have not really gotten “in” to solar. Their efforts are isolated manufacturing businesses within global conglomerates, with little ties to their strong consumer brands.

There are plenty of good reasons for the leading consumer brands to be interested in residential solar.

  1. It’s big
  2. It’s profitable (if you are not in the commodity business)
  3. They have an unfair advantage that today’s biggest solar companies do not: customers.

These companies have already acquired millions of customers who are buying things, consuming content, and signing up for long-term services. They have deep data on those customers, have been in their homes and wallets for a long time. They have effective, nationwide sales, marketing, logistics, service, and operations teams. They could potentially slash the biggest remaining cost in residential solar – customer acquisition. And, today’s solar companies represent an emerging threat to them – everyone wants to own the home.

It’s not easy… Some have tried – sort of. Comcast has played in energy retailing, and has a smart home energy offering. And they have partnered with SunRun to deliver solar to their customers, in what appears to be straight lead-generation. Vivint has a thriving solar business, but it is decoupled from their very successful and larger alarm business (I am a Vivint alarm customer, and have never been approached by a Vivint Solar salesperson!). AT&T has partnered with SunPower and DirectTV with SolarCity (again, lead-gen). Google has SunRoof. I can buy solar panels on Amazon.

Many would argue that home solar is not conducive to a national strategy, and is destined to be a regional, long-tail industry. I believe that is true, as long as solar is delivered to homeowners as a construction project, and not a product. But, solar doesn’t have to be a project. And, the battle is ultimately going to come down to customer acquisition.

The real opportunity for the big brands lies in an integrated offering – another line-item on my bill, a quadruple- or quintuple-play. But, this time, an offer that saves, rather than costs me money.

There are two significant technology trends that have now made it possible for these companies to participate at scale, if they choose to:

The “productization” of solar – Microinverters and AC Modules have nearly succeeded in turning solar from a project into a productmaking it possible to standardize offerings, and safe and easy for non-specialists to design and install a system. SunPower has moved much of their residential business to AC Modules because of these benefits. This is really the only way to scale the industry from hundreds of thousands of homes a year, to many millions.

Software-enabled solar – the tools to do remote evaluation, design, financing, and closing of solar deals have never been better. A decade ago, the state-of-the-art was an elaborate Excel spreadsheet. Today, you can go end-to-end in the cloud with offerings from Aurora Solar, Enact, Sighten, Helioscope and others. Technology from companies like Google and Geostellar avoid the need to get on the roof to quote. And, drones are coming.

So, the market is big, the timing is right, and the technology is there.

But, I’m not seeing much movement. And, I’d love to know why.