And sadly, I am increasingly convinced that solar consumers are more often than not the losers.
I’m getting close to celebrating twenty five years in solar and I’ve seen a thing or two in my time. I started out with a great pioneering company selling off grid systems, then worked for Australia’s only solar panel manufacturer, and then consulted to solar businesses for a number of years. A little over a year ago I jumped in head first to help develop a solar retail business.
After a twenty year hiatus at the pointy end of solar retail all I can say is Wow. Wow.
The good bits
There are some good – fantastic things – about Australia’s solar industry. A drive around many suburbs will blow your solar mind; there was literally solar on every third rooftop in one area I recently passed through. We’ve recently passed 1.5 million solar systems installed in Australia making us one of if not the largest residential solar market in the world.
In the projects we are involved with, I’m also really gob smacked at how powerful monitoring has become. We can solve problems fast and really help solar owners to understand energy flows and costs, not just solar. There really is a market hungry for smarter solar.
We are also using load controllers to great effect in many systems, soaking up excess energy and avoiding exports at low value. Really intelligent management of energy is here. And it works.
And of course, if you engage in social media you’ll see many examples of deep, resounding pride from (some) installers in particular who take huge effort to do awesome work.
Smarter, energy managed, monitored, optimised and installed really well. That’s good solar.
The less good bits
On the flipside, I have to admit to complete and utter dismay at some of what I see quoted, installed and the ensuring fallout and dissatisfaction.
Our industry sadly, continues to attract some companies and people who are greedy lying cheat’s, no less. There are companies who will happily fraudulently labels solar panels to make an extra dollar. There are companies who will turn up to solar community events and pretend to be involved, when they are not, blatantly misrepresenting. There are companies who hide the truth, over-sell the benefits of solar and promise results that just can’t be delivered.
The saddest part is, even though they are few in number, I would estimate that perhaps as many as 50% of Australian solar consumers are being duped into buying cheap, dumb solar by these carpet baggers.
There is much talk about the great, low price of solar in Australia. I’ve personally watched it drop from around $20.00/W to today’s levels of around $1.50/W – a thirteen fold reduction and economical solar is a huge win for solar consumers – to a point.
True cost reductions in component costs (mostly solar panels) have made the huge gains, and the supply demand balance means panel prices may fall even more in the near term due to a glut in China. That would be good for solar consumers but very bad for manufacturer’s profitability and thus ongoing consumer support.
Beyond this we have also seen birth of economy of scale in residential solar and valuable lessons in service efficiency. Aussie solar companies can smash out hundreds of thousands of relatively small systems a year, like no other country.
And of course there is always a range of quality to choose from. And we do love a bargain, especially in Australia and especially it seems, when it comes to solar systems.
The latest average price of a solar system according to Solar Choice’s index (which is slightly quality biased imho) is just over $1.60/W on average, for all sizes, and $1.33/W for the most popular 5kW size. However, if you hunt around the lowest price I have recently seen in the media it is a staggering $0.64c/W installed. At the other end of the spectrum, we hear regular stories about customers paying over $3/W, and most often for gear that is probably worth $0.64c/W.
I pity you, poor solar consumer.
Am I ripping you off?
Solar consumers are rightly dumbfounded and confused by this price differential and it’s my contention that an increasing amount of consumers just walk away confused and don’t buy anything out of fear.
The remainder make a choice between cheap and really good and try not to get ripped off.
It’s impossible to capture every variable, but below is an averaged example of how these price differences occur. These cost and price build up’s disguise a menagerie of problems and challenges for everyone – solar owners, wholesalers, manufacturers, retailers and installers.
As a solar consumer you would naturally be mad not to consider a bargain. However, as we all intuitively know you generally get what you pay for. In the case of an El Cheapo system you get the cheapest gear, potentially counterfeit, with loads of hidden, variable costs and installers who rush everything and couldn’t give too hoots about your roof or system performance.
Take a close look though because who’s probably making most of the money? Your El Cheapo solar retailer, that’s who. And he’ll be gone very soon when the warranty hits the fan
In the middle we have your median offer. Reasonable gear but limited features. Probably a decent install but not much room to use the best stuff or support the hell out of you post sale – because he’s feeling the price pressure and has had to drop his profit margin to compete.
At the premium end is your typical higher quality gear. Best of everything, feature laden and the best installers that can be found, complying with every regulation known to man. For them to try to compete, they need to squeeze margins even more. This is a small corner of the overall market but has higher revenues.
So who wins? That depends on your perspective of course.
|Cost and Price per Watt|
|El Cheapo junk||Median, some features||Quality, feature rich|
|Panels||$ 0.50||$ 0.70||$ 0.98|
|Inverter||$ 0.10||$ 0.14||$ 0.25|
|Racking||$ 0.08||$ 0.10||$ 0.15|
|Installation||$ 0.10||$ 0.25||$ 0.38|
|Monitoring||$ –||$ 0.14||$ 0.18|
|Metering||$ –||$ 0.10||$ 0.10|
|Hardware||$ 0.05||$ 0.10||$ 0.12|
|Profit||$ 0.40||$ 0.18||$ 0.20|
|Total||$ 1.23||$ 1.71||$ 2.36|
|Post STC||$ 0.53||$ 1.01||$ 1.66|
|Inc GST||$ 0.58||$ 1.11||$ 1.83|
|Cost and price build up|
|Panels||$ 2,500.00||$ 3,500.00||$ 4,900.00|
|Inverter||$ 500.00||$ 700.00||$ 1,250.00|
|Racking||$ 400.00||$ 500.00||$ 750.00|
|Installation||$ 500.00||$ 1,250.00||$ 1,900.00|
|Monitoring||$ –||$ 700.00||$ 900.00|
|Metering||$ –||$ 500.00||$ 500.00|
|Hardware||$ 250.00||$ 500.00||$ 600.00|
|Profit||$ 2,000.00||$ 900.00||$ 1,000.00|
|Total||$ 6,150.00||$ 8,550.00||$ 11,800.00|
|Percentage of total system price|
Mass delusion and confusion
I don’t blame solar consumers for being confused by all this.
I don’t even necessarily blame business owners for wanting to make money.
But here’s the deal – if solar consumers continue to buy solar with blinkers on, they will be sorely disappointed. They already are in fact, with far too many inverter and solar panels failures, let alone any after sales support. As other solar companies chase the super competitive prices down they get caught in a crap trap and have to screw everyone around them to make it work. It’s a vicious cycle and everyone is getting squeezed.
Sadly, a lot of the Australian solar consumer market place has been pummelled into a state of partial delusion about what it costs to do solar properly, in my humble opinion. Don’t get me wrong, I’m all for choice and people have every right to make their own decisions about cheap versus quality but I don’t believe for a minute that even the most price conscious solar consumer wants a fire hazard on their roof, water leaks in their home and zero support if something goes wrong. No-one wants headaches or to have to do things twice.
As you can see from the hypothetical scenario’s above however, the Australian solar industry works on far lower margins than the US market, as little as one quarter. It might look like a fair bit of money, but the cost of operating a proper technical business, or any business for that matter, is high. Design, compliance, electrical regulation, safety and remote monitoring to name a few add an additional layer of complexity and cost to your normal business operations. To put it in context, much like the retail energy business, solar businesses have to spend around $500 just to find and manage a customer, before anything else is paid for.
So, scale becomes key.
Volume v scale
The fascinating catch I have watched however, is this. As scale in solar grows and prices fall so does the price of a solar system. Each year, prices fall so solar companies make less revenue every year, even if they sell the same amount of gear. Meanwhile, CPI and other business costs are rising and gobbling away at the diminishing profit. An average solar company selling 200 systems a year is making around 20% less profit – for the same effort – compared to just three years ago.
I would argue that we reached a point some time ago where as an industry, the costs of doing it properly potentially outweighed the available scale and revenue in the market. This is exactly why it can be such a precarious and volatile proposition running a solar company – if the market goes cold, say for example when a senior politician says “solar is free loader” or “there’s no need to reduce emissions”, the phones can just stop ringing . If you are on your game and know your stuff and can ride the ups and downs, there is a decent opportunity – but it ain’t easy for many solar industry participants.
The value of great solar installers in particular, has been horribly eroded. I don’t want to pay an unreasonable amount to get a system installed, but way too many are apparently willing to do it at rates that defy logic. A 5kW install can cost you between $500 and almost $2000 in labour and travel fees only. I’m not an installer, but I have and continue to get my boots on from time to time and I know what’s involved in installing a good system well and safely. It takes a little time.
Now, let’s add energy storage and let’s see if that makes thing simpler and less dangerous.
So, regulate then
An rationalist might then say of these problems, “so, regulate the market then!”.
Although permitting costs are lower in Australia than the US, we have strong regulation in some areas’ – connection, metering and size remain tightly controlled by the incumbent energy market and regulators. If you ask me, as the head of a solar retailer I’d argue that the barriers are too high and often puerile in this area, even dangerously skewed in favour of incumbents, but that’s another story.
Installation accreditation and licencing are reasonably tight although auditing remains minimal. This area too is at risk of becoming over regulated on tiny nuances rather than focusing on real quality and safety issues.
Inverters and modules all have to demonstrate both International and local standards compliance too although virtually none of these standards guarantee quality, reliability or longevity and fraudulent labelling and product substitution remain open wound in our industry.
The CEC and to a lesser extent the ASC both have programs but equally, both come under fire from time to time for a “lack of real control” over these issues. Let’s just say I have huge empathy for both organisations in making this tougher, without stifling opportunity.
For decades it has also been highlighted that ultimately, at the consumer level “a higher bar and tougher consequences” is required for those companies who bundle and sell equipment – the Retailer. When it’s all said and done, that’s who your contract is with as a solar consumer and yet it’s the area of weakest regulation. Once again, there is a very delicate balance to be struck between encouraging free competition and innovation, and applying regulation and codes that tighten standards up.
I find it very telling that only forty or so solar retailers out of literally thousands, see value in signing up to the CEC’s Solar Retailer Code of Conduct. The CEC and to a lesser extent the ASC both have programs and codes of conduct for Retailers. Perhaps it’s a sign of tough times and balancing business costs versus value, and some just don’t like the idea if handing over more power to the CEC but 40? Out of 3000? Geeze, if our business can manage it what’s stopping others?
Both groups are doing their best with their own limited resources in my opinion.
I can say this with knowledge because I’ve worked closely with both in the past, including stints on the Code of Conduct panel as an industry rep (no longer the case) and I currently serve on the Panel Quality and Approval panel too. I see the tireless inside work of many dedicated people, who are genuinely trying to get the balance right and who have as many sleepless nights as anyone about these issues.
Ever the optimist
Someone once called me the “Big Kev of Solar” for my massive enthusiasm for solar, which was nice. I think.
I’m generally very optimistic but I think we are witnessing a horrible dumbing down and commoditisation of solar and storage in Australia, when it should be the reverse.
We have the perfect conditions for massive storage uptake and smarter, integrated solar and energy management systems, and I remain optimistic that ultimately, inevitably the market will move more towards these types of systems, but gee it seems to be taking a long time. They work better, save more and will last longer when done well.
I’ll also be blatantly honest and say that no company is perfect, not even the one I run. Mistakes, misunderstandings and unforeseen challenges arise for everyone occasionally even for those who really want to make every customer experience awesome – so I don’t want to come off suggesting that I have nailed infinite perfection.
But like many other well intentioned solar industry good guys, my team and I strive and battle in what sometimes seems to be a sea of crap solar, to slowly but surely bring about the great ship, smart solar.