Opportunities and Challenges in the 2012 New England Solar Market

The New England solar market is extremely strong. But even with these strong existing players, there is still room for more competition and new players enter every day. With that said, there are number of opportunities and risks that have the ability to impact industry growth and profits.

In December and January, I spent a lot of time talking with a long list of HeatSpring alumni in small, medium and large solar firms to see what the industry is viewing as opportunities and potential risks. While I cannot and would not share exactly what I heard, here is what I learned.

Lesson 1: There is a growing opportunity in the middle market

There is a growing opportunity in the middle market between 10-kw and 100-kW systems. The large players, we can call them the big four, are getting larger. Nexamp is now in the IPP world signing (publicly) two megawatt-sized projects, Borrego and groSolar are exclusively focusing on large projects, and American Capital Energy continues to chug along.

But there have been other newcomers focusing on commercial, most notably Mercury Solar Systems and REC Solar.

Expect to see more companies flooding into Massachusetts if other markets around the region actually develop. New York has expanded their solar PV program, Connecticut created ZRECs, and a feed-in-tarriff was recently passed in Rhode Island. These announcements, alongside a faltering New Jersey SREC market are making New England more attractive.

The risk in Massachusetts is that while 400 MW seems like a huge sum, we could get there fast as the benefit, and potential downside, of solar is that it can be installed quickly. From 2007 to 2010, the state went from 3.5 MW of installed capacity to 77 MW, according to the Massachusetts Clean Energy Center. Also, with a 6-MW site cap, the news from Nexamp and SRECTrade are both showing that many huge projects could be in the pipeline, and many more could be built quickly.

Lesson 2: Residential Competition is Heating Up.

At the same time, residential competition is heating up. SolarCity, Sungevity, and Real Goods Solar have all started to actively promote and grow their operation in Massachusetts alongside another 40 or 50 lesser known solar installers that can be found easily on getsolar.org.

Next Step Living has recently entered the solar game with a SunRun partnership. This is significant for one simple reason: Next Step Living is one of the few companies that are actually fulfilling their promise to be a full service residential energy company. It has performed thousands home energy audits and I can only guess that a fraction are good solar customers. Another notable trend is that general and electrical contractors are beginning to offer solar in their suite of services. I interviewed Jamie Leef, a general contractor, with S+H Construction in Cambridge that is actively selling solar to their existing customers.

Both Next Step Living and general contractors signify an important shift of the solar industry; it is no longer an industry of specialists. Everyone is learning how to design and install solar. It's now a true race to the bottom: financing, installed costs, and customer acquisition costs are all being driven down. Whoever can decreases these three elements the fastest will win. Until 2011, there were only a few firms who were actively installing solar. They by default were the ones who were installing project. This is no longer the case. When general contractors and electrical shops begin installing solar, pure play solar providers are going to have more competition.

According to BrightGrid Renewable Energy Finance, as the solar market continues to shift from early adopters to mass market customers, consumer financing will become the norm. BrightGrid feels that small installers will need to successfully deploy a solar financing or lease product to be able to compete.

Lesson 3: Profitable Companies Tend to Have Four Things in Common

Residential and Light Commercial Businesses have four critical aspects to their sales processes. When we spoke with our alumni we noticed that there were four areas that companies that claimed they were profitable. On the flip side, I noticed struggling companies tend to not do these things well. Again, I can't share specific data on this, but just general trends. Here's what the most successful solar companies tend to do really well.

1. Lead Generation mainly comes from referral and word of mouth. In the day of sophisticated google adwords, social media and the like, no company reported that lead generation was based on these tools. On the contrary, successful companies generate their leads from relationships between their companies and the community and past customers.
2. Clear and defined systems for handling leads. Leads come in two major forms — phone calls and a website.
   1. Phone Calls. Successful companies tend to have very specific phone scripts that would quickly qualify a lead and rank them in order of importance for a sales person. This is key for one simple reason: as competition is heating up, the firm that can understand which leads are more attractive then others, and close deals will have an advantage. For example, it's critical to know whether a sales person should visit a house in one week or two. If you can't make it in week one, there's a large potential someone else will beat you.
   2. Website Converts Readers to Site Visits or Subscribers. Profitable and growing solar companies tend to copy their phone tracking system online. People who were interested online would go through the same qualification process. If a lead was very hot, they would often be called back the same day to schedule a site visit as soon as possible.
3. Profitable Companies Make One Sales Visit on Average. If the average number of sales visits is more than one, then there are a few things wrong. First, the company is not qualifying them correctly upfront. Second, the company does not have a standard process for collecting data at the site or it gets captured inaccurately. Third, site visits take a lot of time. With shrinking installed costs and margins, that can add up.
4. Profitable Companies Stay on Top of Regulation to Streamline Permitting, Warranty and Design. The profitability of a solar project, most notably light commercial, can hinge upon how quickly the project is permitted. There are numerous regulations, both formal and informal, through the supply chain.

There are two significant regulation trends to watch for in 2012:

Increased fire and safety regulation. Due to a number of solar related fires, fire departments are becoming strict during the permitting process. SEBANE, the Solar Business Association of New England is hosting a solar PV and fire safety seminar on February 29th to address these issues for their members and the public. Here's a little highlight about who will be speaking and on what topic. It should be a who's who is the New England solar PV industry.

• Dan Leary, Nexamp
• Steven Strong, Solar Design Associates – Importance of 3^rd Party Commissioning
• Matt Panadosio, Cadmus Group – Solar Electric Installations
• Chris Towski, Cambridge Fire Department – Fire Safety Perspective
• Chris Derby Kilfoyle, BPVS - PV and Firefighter Safety
• Paul Lyons, Zapotec Energy – Site training for Firefighters
• Mike Ware, D.F. Murphy Insurance Agency – Business Liability

Increased Attention on the Roofing Industry. The roofing industry hates headaches and leaky roofs. Due to a number of voided warranties in New Jersey, the major manufacturers through their respective industry associations have created the RISE Certification for roofing professionals working in the solar industry. According to the executive director of RISE, major roofing manufacturers plan to specialize in the RISE Certification for major solar installations under their warranty.