Image source: Rocky Mountain Institute
This post was originally published as part of a PV Solar Report Series
It’s no news to anyone in the solar industry that although module costs have plummeted, soft costs for solar — like permitting, installation, and customer acquisition — have remained high in the U.S. At over 50% of system costs, our soft costs are twice those in Germany.
We know what the issues are. But how do we bring down our soft costs and enable more people to go solar?
This series, based on sessions at Solar Power International 2013, sheds light on how we can reduce time and costs associated with solar permitting, installation, and customer acquisition.
Why customer acquisition costs are an issue
A lot of consumers express interest in solar, but close to 95% of those never follow through. It can cost thousands for a solar company to acquire each customer. That makes customer acquisition the largest portion of balance-of-system soft costs for solar.
Clearly, there’s room for improvement when it comes to solar customer acquisition.
Enter Clean Power Finance (CPF) and the National Renewable Energy Laboratory (NREL). Along with seven academic institutions, they’re studying the drivers and barriers to solar adoption. The group is analyzing data, interviewing installers, and conducting surveys with thousands of consumers and as part of a three-year project to lower customer acquisition costs.
At Solar Power International last week, James Tong of Clean Power Finance presented the issue and some preliminary results.
Tong began by giving some insights into the current lay of the land:
- The penetration of residential solar in the U.S. is at about 0.2% — leaving a large untapped market.
- Customer acquisition costs are at about $0.69/W. That doesn’t include general and administrative labor costs or sales commissions, which can take customer acquisition over $1/W. The total cost to acquire a customer is routinely over $1000, sometimes over $4000.
- Customer acquisition is the most important solar cost, because it covers all the others: predicting this cost better can help improve a company’s management of inventory and procurement. Unpredictable consumer demand creates other costs through the supply chain in a bullwhip effect.
What can we do to reduce customer acquisition costs? Making solar mainstream would go a long way. Solar’s challenge, Tong said, is “crossing the chasm” from early adopters to mainstream consumers. The typical adoption curve for technology starts with innovators and tech enthusiasts and then continues through these consumer categories:
- Early adopters, visionaries
- Early majority pragmatists (this is where we get into the mainstream)
- Late majority conservatives
- Laggards and skeptics
Some products, like the Segway, fall into the chasm and never make it past the early adopter phase. The trick is to keep solar from going that route.
Crossing the chasm for solar
What will it take to cross the chasm for solar? Making it into the early majority is about economics. A challenge is that many people don’t believe the economics — which after all have changed a lot in recent years — or trust the technology.
Tong identified the key barriers to solar adoption:
- Solar is not practical for many consumer segments.
- Solar still has a high price point and is a long-term investment. And it comes with many unknowns. We’re talking about something that is bolted onto a roof, usually people’s most expensive possession.
- Solar is “highly discontinuous” — that is, there is typically no trial period for consumers like there might be with a car or a phone.
To overcome these barriers, industry players need to collaborate. The current U.S. market is too fragmented. The top 20 installers own about 50% of the market, but the remainder of the market is segmented by 600 medium and small installers. There’s no Apple equivalent driving the solar message.
While it’s natural for each company to want to sell their own products and services, focusing on a specific sale or option can be detrimental to the industry as a whole. A consumer who’s not sure about solar might be scared away by talk of inverter specifics. So it’s better to sell the idea of solar first; the industry benefits most when more people see homes with solar on the roof.
That’s an important point. Solar is a big purchase with a big commitment. People are much more likely to make that commitment if they see their neighbors doing it successfully, so we need to focus on getting solar on as many roofs as possible.
Increased visibility and improved consumer understanding will lead to more predictable demand, which will help lower soft costs
The market, Tong said, is slowly figuring it out, with lead-generation companies stepping in to fill the gap. Companies like Sunible.com let consumers compare options and can provide neutral guidance through the process of going solar.
The companies that do best, whether or not they’re lead-generation companies, are the ones that know how to change leads into sales and generate referrals. Tong noted that referrals are the best way to get leads and advocated paying for referrals that lead to a solar sale. That may be an area to explore further. In a study they’re conducting on women solar consumers, Raina Russo and Glenna Wiseman are finding that women are key solar consumers and that they don’t tend to like being paid to give out their friends’ names.
CPF and NREL are continuing their study and looking for insights from both solar adopters and non-solar-adopters. They’re looking to answer these questions:
- Why do consumers express interest but not go solar?
- Can we still convince those consumers who don’t go solar right away, rather than treating as lost sales? How are their values and behaviors different from those of current adopters?
- What are the best ways to target prospective customers?
- What are the different types of solar customers?
They hope to have more comprehensive initial results early next year. NREL is creating a project website that will allow installers and consumers to participate in the study. More to come on that soon at PV Solar Report.
UPDATE: The Rocky Mountain Institute’s latest report on solar soft costs, “Reducing Solar PV Soft Costs: A Focus on Installation Labor,” was released on December 5, 2013.