Vertical Integration: The Only Way to Scale Residential Solar?

January, usually a slow month in solar, has been surprising for newsworthy happenings in the residential sector. The industry had chewed on SolarCity's Zep acquisition for a few months and, in the mean time, has pondered the deeper meaning of Vivint's acquisition of Solmetric, makers of the industry-standard Suneye tool.

But it wasn't over yet; this week SunRun announced their acquisition of some of Mainstream Energy's portfolio companies: the residential division of REC Solar, distributor AEE Solar, and SnapNrack. As Eric Wesoff, Greentech Media reporter, theorized in his roundup of the SunRun announcement, "You can't go public in solar without trucks." But is that true? Is vertically integrating to an IPO the only way to bring residential solar to scale? If we look outside solar to other industries that offer services at scale, we see a variety of business models. Many telecom companies (think: Comcast or Dish) have a hybrid approach where they control some fleet assets, some installations, some maintenance, but also employ contractors selectively for many of these services.

Solar has become an amalgamation of construction, financial services, and high-tech. Companies that do scale will have to deeply understand their particular intersection of these three areas and how to leverage ideas already proven out in each of these individual industries and manifest them as innovations that will lower soft costs. In solar, we spend a lot of time trying to reinvent the wheel when we need to look outside and apply best practices and lessons learned (like, say, lessons learned from the mortgage industry about how not to create a bubble by over-automating).

What Does This Mean for Mid-Size and Small Installers?

The biggest residential players are looking for ways to become more competitive across all soft cost regions. Bold moves like mergers or acquisitions to gain marketshare, lock up technology, or gain access to financial services aren't always available to mid-size and especially small installers. So what can you do?

The SunShot Initiative broke down soft costs visually from an earlier Lawrence Berkeley National Lab study comparing Germany's residential solar costs to those in the US:

  Source: DOE/NREL

Source: DOE/NREL

Starting at the bottom of the infographic and working up, you can see homework assignments for how to evaluate your operation for potential improvements. Maybe you need to use fewer vendors or simplify the variety of brands of components you are using (inverters, BOS equipment). Maybe you need to explore time-saving installation techniques like pre-assembly or integrated grounding.

In most cases, the acquisitions we began this piece exploring play out in the heaviest percentage areas of the soft cost stack. Obviously, your mileage may vary in your own company, so start there with an analysis of how your costs are breaking out. Your finance staff or an analyst can help you find out exactly what percentages of soft costs categories are plaguing you the most. Build your own soft cost stack and take a page out of the playbooks of the big guys- think outside the box about how to tackle bringing them down.