On July 19, the Cleanweb SF hosted a panel on the current state of solar software at Smith Group’s offices in downtown San Francisco. Representatives from four companies talked about the software solutions they were offering to the solar industry and talking about reasons to stay optimistic as the solar industry goes through a tumultuous time. However, the solar industry has grown at a 30 percent compound annual growth rate for several years, so there is still a lot of opportunity available.
There is both good and bad news in the solar industry today. This past year was a tough one for most public solar companies. Sunedison, one of the most ambitious panel manufacturing companies, declared bankruptcy. In the residential solar market, two of the national solar installers no longer exist. Sungevity, the number four national installer, declared bankruptcy. Solarcity got acquired by Tesla, but the New York Times called it a “bailout of sorts”. Yet for the most part, the panelists were optimistic and encouraging. Almost all of them were in solar because they wanted their work to help address environmental issues, and they also saw a massive opportunity in helping give smaller mom-and-pop solar installers access to the same kinds of software and financing tools that the bigger companies have.
Page Crahan is the co-founder of Clarus Power. Clarus is focused on reducing the cost of acquiring residential solar customers. One way it does this is it helps interested residential home owners identify their financing options and provides an interface to choose the best one. Installers currently pay more to acquire a customer now than to obtain all the hardware for a panel installation, so Clarus also facilitates the user acquisition process by providing a referral platform. They are currently acquiring new customers through word of mouth and referrals. Both she and her co-founder came from Sunrun.
(A bit of a digression here: in 2008, a rooftop solar project cost about $20-30K to buy outright. Companies like Solarcity made solar accessible to more people by championed the leasing model: the panels would actually be owned by Solarcity, but the homeowner would, over the course of several years, pay back the cost of the installation in monthly payments. These payments would be about 20% less than their utility bill so they would still be saving money. Leasing is not the only financing option available, and is among the more expensive options. A homeowner could more cheaply finance their system if they took out a home equity line of credit, for example, which is one of the financing options Clarus offers.)
Teresa Zhang is VP of Operations at Folsom Labs. Folsom’s flagship product is Helioscope, a design and sales application for solar project development. HelioScope is currently being used by solar developers and installers in 70 countries, and it can be used for solar installations of all scales, whether residential, commercial and industrial, or utility-scale.
David Vallagra is VP of software engineering at Sighten, which provides an end-to-end solution for the residential solar software installer. On the financing side, they provide residential customers with three different financing options, along with an option to buy the panels in cash.
The panel was moderated by Elena Lucas, co-founder of UtilityAPI, now working as a consultant. UtilityAPI provides easy, consistent data access to utility customers’ data. Their company received funding from the Department of Energy’s Sunshot Initiative. The program specifically sponsors companies who are focused on reducing soft costs in solar installation, in the form of grants. (“Soft costs” refers to any cost for a solar project that is not hardware-related. It includes financing, design, and regulatory approval, for example. At this time, it accounts for as much as 64 percent of the cost of a solar install.)
The Solar Rollercoaster and Software
Elena began the discussion by asking each panelist what they thought of the current state of solar software, especially given the solar industry’s current tumult. Teresa began by saying that it is a great time to be in solar. The second annual Solar Software Summit, which Folsom Labs sponsors, had just concluded and its attendance has grown since last year. The opportunity for solar software is massive because the total addressable market for it is any part of the soft cost portion of installing solar. As the installation market shifts more to local and regional installers, there will be a growing need to supply solutions to these smaller firms. Most of the big firms, like Solarcity and Sunrun, are big enough to internally develop software to solve these problems.
David noted that most solar installers use Excel and Salesforce, tools which are not optimized for the solar industry. As the installation business grows larger, they will need to move beyond these basic tools to more specialized ones.
Claudia said she has been in solar since 2008, and contextualized the current cycle we are in. Back in 2008, solar was entirely focused on commercial installs. Residential installers at the time were mostly in the “socks and sandals” crowd. That changed with the rise of Solarcity; residential solar became the hot market. Today, residential is declining, but utility-scale solar is booming. She thinks solar will become more a la carte and less vertically integrated. Vertically integrated companies like Solarcity, Sunrun, Sungevity, and Vivint were started to create efficiency by putting all operations under one umbrella, but they all have to compete on price. In the current race to the bottom market, these companies had trouble turning a profit, or even went bankrupt. Having good solar design software is an acute need. Sunedison, a now bankrupt solar panel manufacturer and installer had a design team of 20. Not every solar installer can afford that, but better software may enable them to streamline the design process. In 2017, there has been a 14% year-over-year decline in residential solar installs, but Claudia said her company had grown fourfold on the strength of local installers.
Page said that when she was pitching her company to seed investors in 2015, everyone wanted to know about software. The software installers use is so crude and immature that we’re still in the very early days and she described it as “tumbleweed”on the frontier. Having previously worked for Sunrun, she initially thought that the vertically integrated model would be successful. She now believes purchasing solar and its services will look more like purchasing hot water heaters or plumbing services. As the industry has become more decentralized, it will need software products that can provide the same level of efficiency that vertical integration provides.
Solar’s Next Opportunities
Elena’s next question was how have the opportunities in solar changed, as the industry has changed, and where does the next big opportunity lie? Page said that millenials are starting to buy houses now, and an Accenture report on energy consumption reported that 83 percent of them would not buy an energy efficiency product if it introduced any friction into their lives. Solar and energy efficiency products today do introduce a lot of friction. Getting an install typically requires a home visit, and the leasing contracts are long and dense. The industry could use a lot more design and user experience thinking. Page asked, “What should it feel like to buy energy?”, and that it should be a frictionless, pleasant experience. It should also be tied in to products like energy storage and home energy management.
Claudia said the industry has a marketing problem. So much of it is business-to-business right now that whenever installers try marketing to consumers, they send them 18-page proposals. “[We] sell solar wrong”, she said. She said no one cares about energy, but they “want a cold beer and a hot shower.” What would it take to frame solar in the same vein? There is a lot of work that needs to be done on the customer acquisition side.
Installers need to figure out how solar systems can better integrate with the grid. Both SolarCity and Sunrun have been making major investments and hires in this area.
Finally, energy is a regulated marketplace, so the market moves with regulatory decisions. Even though Florida is the sunniest state and uses a lot of air conditioning, it has very low solar penetration due to bad regulatory policy.
Teresa said her company recently did a survey of over 800 solar software users (only half of whom are users of Folsom Labs’ HelioScope product). Currently, Excel is by far the most prominent software solution for solar. People are building models in Excel that calculate solar irradiance! She said there is a massive opportunity for software solutions that specifically address the needs of solar installers.
David thinks that anybody wanting to enter the space should focus on trying to incrementally reduce the cost of solar. He said right now the industry is at the small, pre-take-off part of the retail cost curve; solar is still too expensive for most consumers to take an interest in. Only the ones who spend the most on energy are purchasing it. If the cost can fall much more, it will eventually become cost effective for a lot more people, and that is when the market could really take off.
Advice For New People
Elena finally asked what advice the panel would give to people in the industry, who want to get into the industry, or advice for they wish they had when they were starting. Page began by saying there is lots of room for opportunity because solar is “all new”, we are still figuring out what the best model for solar is. Her advice was to be curious and figure out why things are done a certain way. If something does not make sense or does not jive with what you think would prevail under ideal circumstances, there is an opportunity there for you to exploit.
Claudia said that she believes the energy economy is going to shift to renewables, the only question is how fast. She says solar is in a race to deploy as quickly as possible so that we might all still live on a planet we still recognize. She said if you want to be in a mission-driven industry with complex technical and regulatory problems, solar is the place to be!
David said that if you choose to go into solar, it definitely is a roller coaster, so you will have to have a strong stomach for the ups and downs. He used to work in biotech, so he has gone through up and down cycles like this before. However, he said there are a 1,000 reasons to stay motivated and that the long tail of installers continues to grow.
Teresa said in solar, learners are welcome. If you’re new, don’t sweat it because the industry changes so much that everyone needs to be in learning mode. She also said there is a tendency at the peaks and the valleys of the solarcoaster, and points in between, to sacrifice oneself. She reminded us that we should all try to manage our own energy and take care of ourselves.
Elena said that the sector really needs specialized skill expertise; people with marketing, sales, finance or software experience, especially as the industry matures. You do not need to know anything about solar to get into the industry. She also said there are different paths to growth: not everyone company has to go raise venture capital. She said the decision about whether to get venture money or bootstrap is an important one.
Is there solar unicorn?
I got to ask a question that had been bugging me for a long time. At a cleanweb event a year ago, cleantech entrepreneurs and investors had been discussing whether a billion dollar company could arise in the solar software industry. The consensus seemed to be that it might be possible, but that venture capitalists would not be interested because there was probably not enough upside and it probably would not arrive quickly enough. For my part, I have often told people in the software and internet industry that they should consider working in cleantech, but a lot of them are interested in companies like Stripe, Slack, and Uber because they see them as opportunities to get into companies which will go public at high valuations. I wondered what everyone thought about how to sell cleantech to these folks.
Claudia and Page both said right away that the idea of making a lot of money from companies like Stripe is probably misguided. Such companies are already big enough that the slice of equity an employee gets would be small. Moreover, each new round of VC investment would result in more share dilution and put more parties in front of employees to get paid first. At the end of it all, the amount that an employee would get from this would probably not be life-altering. To give an example from cleantech specifically, Claudia said when a local vertically solar developer went public for $300 million, only the first dozen or so employees probably walked away with anything meaningful. Claudia also framed it as a difference between being a big fish in a small pond or a small fish in a big pond. A solar company which gets acquired for three to twelve million dollars would still provide a good cash exit for early employees, especially if it had bootstrapped and focused on profitability, rather than sought out VC investment.
A number of panelists returned to the idea of solar being a mission-driven industry. Page wanted to work with people who believed in the mission of solar, who were not there primarily for the prospect of a big pay-day. David has told his recruiters to reject people if they were not passionate about the mission of the company.
Finally, David and Elena re-emphasized that solar is ultimately part of the energy industry; Elena quipped, “The largest industry is war. I did not want to be a war monger, so I wanted to be in energy.” As my friend Daniel Roesler puts it, we are going to have to decarbonize everything in the economy that runs on fossil fuels, and some people and firms will have a chance to capture a piece of that very large pie. So the market opportunity for cleantech could be very large.
Another audience member asked about the lack of affordable energy storage. Is that currently hampering the industry? Most of the panelists agreed that while energy storage is important in the long-run, the economics currently do not work out. Both Teresa and Claudia pointed out that while lots of customers expressed interest in storage, they had yet to see financial models where it made sense for most projects and that costs were still too unpredictable.
In certain markets, solar and storage does make sense: Hawaii’s solar market cooled off in 2014 after the local electric utility changed the rules to require approval before installing rooftop solar. However, Hawaii is coming back with solar plus storage since electricity rates in Hawaii remain so high.
Investors: What Are They Excited About?
Another audience question: What are the investors excited about? Where do they think the next unicorn will come from? Page said that commercializing batteries is certainly one area of interest. Understanding and streamlining regulation is another. Distributed solar allows us to fundamentally rethink how consumers get energy. For example, in California, until cities began introducing community choice for electricity, all of us had to purchase from a monopoly utility. In New York and Texas, it’s possible to change who provides your electricity. The startup Drift is taking advantage of that to deliver consumers more choice and control over who they purchase electricity from. Going forward, there will probably be even more opportunities for the energy market to shift from central utility monopolies to empowering consumers.
David commented that right now is an uncertain time for solar investing. If you have not seen a solar downturn like the current one, it seems like doomsday. He thinks outside investment will not be flocking to solar. Instead, his advice to everyone is to just focus on the fundamentals of the industry, get as quickly as you can to revenue and become profitable.
Another audience member asked about the current state of the energy marketplace, and whether any company represented was thinking of selling packaged solutions in solar, efficiency and storage. Unfortunately, Claudia said that right now, solar installers are in a race to the bottom in terms of price. At some point in the future, it might make sense to compete on brand and additional services. Solar has to get to the right price point before it becomes mainstream enough for companies to differentiate in that way.
Teresa hopes that one day the financing options for solar would be available all in one place. She also envisioned the possibility for an installer to have the ability to click a single button to purchase all the materials needed for an installation or to evaluate multiple financing options.
Page thinks there is an opportunity for a “Kayak of solar” to rise up that would allow customers to easily compare. She also noted that there are lots of people interested in solar who cannot necessarily have it: they rent, they don’t have a high enough credit score, their roof is shaded, for example. What kinds of products should be made available to these people?
Finally, an audience member asked about community solar. Do any of the panelists see it as a threat? Almost everyone said they would be interested in community solar. All of them noted that their goal was to achieve ubiquitous solar deployment, so community is certainly part of that. Moreover, a community solar project is a commercial or industrial solar project - the design process is identical.
Future Meetups and Cleanweb Directory
Thanks to Elena Lucas, Page Crahan, Teresa Zhang, and Claudia Eyzaguirre for providing edits and feedback.