Energy generated from solar has increased dramatically in the last decade, even as the industry has seen some significant wins – increased state requirements – and losses – several high-profile bankruptcies. This article looks at the current state of the solar industry and the roles distributors are playing.
This article is the first in a series examining the alternative energy market in the U.S.
Thirty states have standards in place that require a certain percentage of energy generation to come from renewable sources by a given date, according to the U.S. Energy Information Administration.
The specific standards vary widely, but they have had a significant impact on the adoption of alternative energy sources across the U.S.
As such, people looking for consistent information on the U.S. market may be out of luck. “I tell them there is no U.S. market,” says Michael Barker, senior analyst with reasearch firm NPD Solarbuzz. Thanks to the wide-ranging requirements in each state and the added complications of municipal requirements, the U.S. market is really thousands of markets. And to be successful, you really have to understand them at the local level, Barker says.
In a recent survey from MDM and Robert W. Baird & Co., two-thirds of respondents – primarily distributors and manufacturers – said they had some involvement in alternative energy markets today. That level of involvement is little changed when compared with a survey from MDM in 2009.
But for those who said they had moderate or high involvement this year – 27 percent of respondents – most said that involvement had increased over the past two years.
Forty-one percent of respondents said they were involved in the solar energy market. (MDM will be examining other alternative energy markets in future issues.)
Solar requires a clear understanding of the market you wish to be a part of, says Andy Behr, director of marketing and business development for Hisco Inc., a distributor based in Houston, TX. Hisco launched a corporate initiative to serve manufacturers of solar modules in 2007.
The Battle over Subsidies
In today’s economic climate, the alternative energy industry often comes under fire for its reliance on subsidies and incentives to survive. But that is a bit disingenuous, Behr says. “There are hidden subsidies in traditional energy generation, as well,” he says. “We’re just not talking about them as much.”
In most markets in the U.S., solar energy generation has not reached “grid parity” yet – the point at which the cost of generating energy from an alternative source is equal to or less than generation from traditional sources. But it is getting close in certain markets, such as California and New Jersey.
The average residential rate for electricity in Long Island, NY, is more than 20 cents per kilowatt hour, says Gabe Wilson of Clean Energy Distribution, Denver, CO, meaning that market is pretty much at grid parity. Savings from solar generation can pay off an installed system within seven or eight years, he says, well short of the 25-year warranty that most systems come with.
It’s not true in all markets, of course. Low-cost states such as Montana, where average cost was less than 10 cents per kwh in 2011 (the latest data available), have a bit more work to achieve grid parity.
The other complicating factor when discussing incentives is that “we’ve nurtured a culture of subsidies,” Wilson says. “If you look at the prices today without subsidies versus the prices five years ago with subsidies, today is a better deal – with no subsidies. We have developed a mentality for ourselves that without subsidies it’s too expensive. You have a lot of potential customers who just turn away if they hear that either there are no subsidies or that subsidies have been reduced, not knowing what the actual cost of the system is.”
Over the past two years, the industry has seen a significant decline in the cost of polysilicon – the primary component in traditional panels. This decline has pushed the price of panels down significantly. “It can’t go much lower at this point,” Wilson says. According to Bloomberg New Energy Finance data, the price of polysilicon fell 40 percent in 2012. This year, producers have reduced output to offset the oversupply, and prices are rising to reflect that change, but they remain low.
In addition, there is a glut of solar panels on the market today, as supply has far outstripped demand. And that oversupply is expected to be in place for at least the next 18 to 24 months, unless something dramatic happens.
The Role of Distribution: Manufacturers
While the solar industry has been around for a long time, distribution’s role in the U.S. is still relatively small for solar modules, Barker says, especially when compared with other countries. In 2011, only 10 percent of solar modules in the U.S. went through the distribution channel; in Japan, more than 50 percent went to market through distribution.
The oversupply of panels and components and its impact on prices may be good news for
the end-user, but it is wreaking havoc on manufacturers within the industry – and the distributors that supply them.
One of the most infamous manufacturing failures within the solar industry was the bankruptcy of thin-film solar technology manufacturer Solyndra in 2011. More recently, China-based Suntech Power Holdings announced it would file for bankruptcy.
“We’ve definitely moved from peak to trough,” Hisco’s Behr says. “We’ve seen an incredible amount of consolidation. Probably half of the companies that were manufacturing or pre-manufacturing in the U.S. have gone out of business in the last two years.”
As such, the role of the distributor in this space is becoming “more problematic,” Behr says. There’s more competition for customers. And you have to be very clear in demonstrating your value-add. “It’s not an artificial pressure, it’s really there,” he says. “So if you’re going to depend on it, you really have to understand the market you’re participating in.
“It’s a very tough market in which to be a generalist type of distributor.” To that end, Hisco focuses on providing “mission critical materials” with a value proposition of making sure their customers can keep production running efficiently. You have to make sure you’re reducing the manufacturer’s price per watt with everything you do, Behr says.
The Role of Distribution: Installers
While the manufacture of materials is facing significant challenges, installations have increased significantly in the past two years. The U.S. is currently the third largest single-country market in the world, Barker says, accounting for about 10 percent of total global demand for solar energy generation. California accounts for more than one-third of that demand.
As a result, distributors serving the installation and integration market have also seen a boost in business. But where they fit within the industry is still evolving.
“In many ways, we’re still trying to find our niche,” Clean Energy Distribution’s Wilson says. While solar components are often lumped in with electrical distribution, many of the components are actually electronic.
And then there are the dynamics of the installation, which may involve more roofing expertise. “In fact, the third largest installer in California – by far the most mature market in the U.S. for solar – is a roofing company,” Wilson says.
Wilson has also seen interest in the solar market from HVAC and plumbing houses because the product lines are closely tied to other efficiency products that they carry. Growing interest in solar water heating systems ties it even more closely to that sector.
Clean Energy Distribution is a distributor of solar products, from photovoltaic panels to inverters to solar thermal components. The company founder, Jesse Stubbs, started out with an interest in being an installer but couldn’t find a consistent supplier of the necessary materials and decided to fill that need instead.
“Right now we are absolutely a separate sector,” Wilson says. “Compared to other sectors, solar is a very immature industry made up of a lot of very excited and amazing people. But for the most part, we don’t have a lot of distribution background. We don’t have a lot of intelligence as far as how did electrical do this 80 years ago? How did the plumbing and pipe-fitting guys do this 100 years ago? All the little things that they went through when they began, that’s exactly what we’re going through right now. And I think solar can benefit immensely from sharing best practices from some of these other industries and trade groups.”
The oversupply of product currently on the market is also creating challenges for distributors to installers and integrators, as manufacturers are selling more direct to move the product off their shelves. As a result, it’s imperative that distributors prove their value-add to customers and potential customers.
Distributors can play several roles that manufacturers may not want to bother with, according to Wilson. The first is providing a consistent product line. “Right now, anybody can get just about anything from anywhere,” Wilson says. “But if you want to plan for any sort of consistency for the long-term, you need a consistent supply of materials for the long-term.”
Buying into the “fire sales” from manufacturers or jumping on lot closeouts may get you a cheaper price right now, but will you be able to get those same products – or compatible products – in the future?
Another important role distributors can play is in financing. In the current market, some smaller installers may not be able to get financing, Wilson says. Have an expert on staff that can help arrange the financing and educate the customer on what they need.
Distributors can also provide shipping expertise and other ancillary services that don’t come with product line liquidation elsewhere.
The Future of Solar
Since 2004, global demand for solar-generated power has doubled every two years, according to NPD Solarbuzz. Global solar demand is expected to increase 7 percent in 2013. With more states implementing more comprehensive renewable standards, demand in the U.S. is expected to remain “consistently positive,” Barker says, and will maintain its position as the third largest single-country market, behind China and Germany.
While most of the renewable portfolio standards across the U.S. allow for a variety of renewable sources, solar is a common key component of many of those plans. In New Jersey, for example, solar is required to account for 4.1 percent of energy generation by 2028.
Distributors that can identify their niche in the diverse market can capitalize on the continued growth.