What SolarCity's Zep Acquisition Says About Residential Solar

analysis solar deals

I'll admit it much like Eric Wesoff did this morning. I was completely blindsided by SolarCity's acquisition of Zep. However, I was not surprised. For a company that has become the dominating force in driving residential solar - not just in numbers of sales, but in the entire lexicon of industry evaluation (the change to looking at MW growth quarter over quarter as opposed to number of sales per month/quarter), this is a pretty amazing move. Looking at their stock price, I'm actually a little baffled why it's not up (at this penning, current down 2.25 from open on 10/9).  Maybe the marketplace just doesn't understand why this matters. Let's explore a little.

I will resist the urge to launch into another rabid soft cost rant. But this will be related. Wesoff's article already did a nice job laying out all the details of why this matters about streamlining installation in the eternal quest to reduce installation labor-related soft costs. Installers who can show crews installing more kW per day will start to win the soft cost reduction battle. SolarCity could now tie up Zep's integrated mounting and grounding innovation and remove it from play for other installers, creating a market advantage for proprietary hardware and installation technique that only SolarCity can employ. Well played on their part if that becomes the decision.

It will take many innovations to reduce soft costs. Streamlining supply chain through equipment partnerships is a solid strategy. SunPower and many other larger developers leveraged this vertical integration strategy for years to weather the ups and downs of supply chain woes, of which the solar industry has suffered consistently for over 10 years.

When the going gets tough, it's time to realistically review what we can control and what we cannot. Great solar entrepreneurs will win the soft cost game by working around the behemoth AHJ infrastructures.

  • They'll create and maintain massive database-driven rulesets of design requirements and permit requirements that, frankly, only a call-center worth of researchers will ever be able to stay on top of.
  • They'll design software to streamline and automate much of the proposal-to-engineering value chain on top of these rulesets, which many of the top residential solar companies have already done, or have licensed.
  • They'll squeeze out the waste from as many of the other parts of the value chain as possible that they can control; cost of capital (tax equity, corporate equity), marketing, sales, design, customer support, supply chain, labor, and long-term operating and maintenance (monitoring, warranty calls, etc).

The perpetual struggle to reduce permit and regulations-related soft costs in not an effort one company will win. It's not a battle SEIA will win. And bless the hearts of those who are tirelessly lobbying for it, but only a massively major political shift and unification on the individual AHJ level will make that happen. It may not even be possible with that. America is very geographically diverse and politically and ideologically fragmented nation. One federal policy to rule them all may not be feasible. Just look at what's happening in D.C. now during the government shutdown. Is that going to streamline solar permitting for the industry? Doubtful.

But keep your eye on the interesting acquisitions on the horizon in the solar industry. Monitoring, operating and maintenance (O&M), and fleet optimization are all ripe for development, innovation heroes, and acquisitions.

Posted on October 9, 2013 and filed under analysis.