California -- A few months ago, we wrote about the troubles of the early solar-services company Citizenre – an aspiring nation-wide installer that made big promises about revolutionizing the solar business, but failed to deliver on them. The article assumed that the company had faded away, never to be heard from again. It turns out we were wrong.
Last week, Citizenre announced that it had secured $20 million from the investment firm Adam Capital to begin installing 15 MW of residential solar PV systems around California (and possibly in other states) over the next 18 months. Citizenre suggested there could be more funding rounds in that time frame.
A funding announcement like this – while significant – would not ordinarily be front-page news. But for those who remember the highly-charged debate around Citizenre's business model and claims, it's a very surprising development.
First, a little background on the controversy surrounding the company.
In late 2006, Citizenre unveiled a solar PV rental program called RenU, which offered a 10-year lease, with the option to extend the lease for another 10 years or purchase the system at the end of the contract. A customer would pay a monthly fee based on the size of the system, the solar resource and the average price of electricity in the area. Citizenre would own and maintain the system over the life of the contract.
Simple enough. This model has been successfully proven by solar-services companies like SunRun, SolarCity and Sungevity. Since 2007, these companies have been among the fastest growing in the industry – collectively raising hundreds of millions of dollars and installing more than 14,000 solar systems in nine states.
However, Citizenre approached the model in a much different way: Instead of taking small steps to build the business in local markets, it made grandiose claims about the size and scope of its operations, raising lots of skepticism and criticism from industry professionals.
There were major concerns about Citizenre's multi-level marketing model (the company prefers the term “direct sales”), a structure that rewards sales associates for not only selling product, but bringing more people into the company. At that time, the model had a negative impact on Citizenre's credibility: Dozens of associates, dubbed Ecopreneuers – many of whom had little to no experience in solar – fanned across the internet peddling “free solar” and signed people up for a service that hadn't even been rolled out yet.
Much of the hype coming from associates was encouraged by the drumbeat of announcements from the top of the company. Executives stated that in 2007 that they were negotiating more than $650 million in financing in order to build a 500-MW module manufacturing facility (at that time the biggest in the world), install 100,000 PV systems annually (at that time more total systems than had been installed in the U.S.), and roll out the service to 40 states (a greater geographic scope than any company in the installation business).
But the funding never came through, the manufacturing facility was never built, and only a handful of solar systems were installed. Many Ecoprenuers gave up on the model.
Some observers called Citizenre fraudulent. However, as was pointed out in last fall's article, those assertions were unfounded considering the company never took money from customers or investors. It was simply a story about hype and false expectations.
Meanwhile, the solar-services sector has taken off at lightning speed. Companies that were quietly rolling out localized programs in 2006/2007 are expanding nation-wide and hiring hundreds of new installers each year.
Aside from a random press release and some scattered posts from Ecopreneurs on chat boards and Youtube, almost nothing had been heard from Citizenre since 2007 – until last week's $20 million funding announcement.
The news has many people in the industry surprised. Upon reaching out to numerous players in the solar business (all of whom declined to be quoted or named), we found a mix of shock and wait-and-see attitudes about what Citizenre can deliver.
But according to the investment firm Adam Capital, the company is already delivering services. We reached out to the CEO of Adam Capital, Adam Boucher, to get his thoughts on the company's game plan. While we were unable to get a phone interview after multiple requests, we got this email response:
Over the last year Citizenre has under-promised and over-delivered in their relationship with Adam Capital. Together, we've successfully completed 150+ projects in the last six months, in a timeframe where the wheels have fallen off many other companies.
The commitment from Adam Capital isn't a test of the waters...we've already done that. Their IT approach, commitment to systems, and flexible attitude have been terrific for us to work with.
The facts are Citizenre is executing for hundreds of consumers. This company is out there getting the job done right now.
Under-promising and over-delivering: The exact opposite of Citizenre's original effort.
At least in its messaging, Citizenre seems to have learned some lessons from its past experience: The company has installed systems under the radar, rather than making big announcements; Rob Styler, the company's former President and lead hype-man is no longer with the company; executives say they are being much more careful about the type of sales associates they bring into the network; and the installation goals have been lowered to a manageable number.
In order to hear more about Citizenre's future plans, we asked for an interview with the company and received another email response, collectively written by the management team. Here are answers to a few of the questions we asked:
What is the exact new business model of Citizenre? How different is it from the previous?
Our business model has many facets, including a re-focused direct sales organization, high-volume installation process, and streamlined IT systems now in their second versions. Franchises, commercial installations, manufacturing and assembly still remain possibilities for the future but are not our primary focus at this time.
If this is still a multi-level marketing model, how are you going to ensure that associates and installers are well-trained and reputable?
A single component of our company—the direct sales organization—incorporates a multi-level compensation structure in order to take advantage of a viral customer acquisition machine (our sales associates are not installers; our installers are not our employees, but that of our installation partners). However, what makes us different from a typical MLM company is that there is no cost to be a sales associate (other than time, of course), and the only way anyone earns money in our direct selling organization is through making a sale to the customer.
Like most sales organizations, a base of knowledge must be attained by all our sales associates. They must then pass a test (no less than annually) before independent selling can begin. More advanced subject matter is provided to sales associates who wish to deepen their understanding of the field. Some go on to obtain HERS or NABCEP certifications—industry standards for residential energy auditors and for solar installers. Our objective is to have our sales associates understand the full lifecycle of solar from concept to commissioning—from top of mind to actual rooftop. In addition, Citizenre’s sales associates receive ongoing training, and are coached to be teachers and managers of other sales associates in turn.
Is a manufacturing facility still part of the business model? Or are you only working on solar services?
We focused on manufacturing in 2006 because industry capacity was very limited then. As a result, costs were very high, and rental options were not possible without controlling the cost of components. These conditions have all changed since 2006: industry capacity has grown dramatically and, for a variety of reasons including the recession 2007-2010, PV component costs have all dropped. We will continue to keep manufacturing on the table, however, as any of these supply conditions may change in the future. It is not, however, our primary focus at this time.
How will you overcome some of the stigma associated with the company's previous experience? (Not securing financing, not building a manufacturing facility and accumulating Ecopreneurs who hyped things).
We expect to replace the old inaccurate and negative reporting with information that is grounded in verifiable fact. We took very seriously the feedback from the industry in 2006-07, and since then, have accomplished a lot. In the last year, we have installed more than 700kW in four separate utility territories. In addition, we currently have more than 500kW in additional distributed generating assets ready for installation next month.
We expect to enter a handful of new markets this year. These will be announced when we are ready to begin doing site visits and installations in the areas themselves. Due to the competitive nature of, and limited renewable incentives, we will not be announcing sales areas until we are ready to deliver there.
Moreover, the industry-at-large has proven the value of the residential rent/lease model. We’ve proven the value of the direct sales force and seen examples of residential, lead-generating sales arms elsewhere in the industry.
Although the business model is very similar to the original, the company is clearly being more reserved and grounded in how it sells its services to the public.
Curiously, the manufacturing facility is still potentially part of the plan. That's a very questionable goal, given how tough the space is today. Due to a rapidly increasing supply of panels – driven by heavyweights that are squeezing every efficiency possible out of their lines – the price of PV modules continues to drop. That is putting intense pressure on manufacturers of all sizes and making it difficult to set up shop in the U.S.
We spoke with Shyam Mehta, a senior solar analyst at Greentech Media Research, about the viability of setting up a manufacturing plant in the U.S. to supply an installation business like Citizenre's. He had no comment about the company's intentions specifically, but said there are “a lot of people who would think it's a crazy idea.”
Being a vertically integrated manufacturer that produces its own wafers and cells would be completely cost prohibitive. However, a vertically-integrated module assembly/integration/services model could theoretically be possible in a state with three things: A long-term incentive like a Feed-in Tariff, a local content requirement for equipment and strong manufacturing incentives. Since no state currently offers that suite of options, says Mehta, “it probably doesn't make sense.”
“There's just too much risk right now for a downstream player to move upstream into manufacturing,” he says.
Aside from emerging companies with novel technologies, PV manufacturers aren't really taken seriously without a clear path to GW-scale. Setting up a manufacturing business with no previous experience in the business is a difficult move, to say the least.
Admittedly, email correspondence is a very poor way to gauge the legitimacy of a company. But proof of Citizenre's viability won't come from a press release or funding announcement; it will come when the company meets its realistic installation objectives, efficiently builds a customer base and raises more money from investors at a low cost, say industry players who were interviewed about the story.
Indeed, a lot of people in the solar industry who remember the history of the company will be watching closely to see what happens.
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