Every year between Christmas and New Year’s I look forward to catching up on some reading. This year I’m reading Nassim Nicholas Taleb’s Antifragile. Looking for some suggested reading yourself? Here are my personal nominations for Best Business Books 2012:
Yesterday I read a Raymond James analyst report (by Pavel Molchanov and Alex Morris) mentioning a Financial Times report that a senior Chinese government official said the country’s solar industry was like a “patient on life support,” that it would have to go through a painful series of cutbacks that would need to take place through “powerful market competition and cruel elimination,” and that support from the central government would not be forthcoming.
That’s tough love, especially considering many feel Chinese solar subsidies (through loose credit terms) are what drove the industry to its current 2X oversupply situation. (To be fair, it didn’t help that many Western countries cut installation subsidies at the same time capacity was exploding.)
Unfortunately, as Raymond James and the FT also reported, it is local Chinese governments that have been giving manufacturers support lately. The cities of Xinyu and Wuxi have given LDK and Suntech $80 million and $32 million, respectively. This looks like a classic case of loss aversion, which as I explained in another post makes humans prone to make unfortunate gambles when facing difficult choices.
SolarCity, the largest residential and commercial solar installer in North America, has filed a public registration statement for its IPO (see it here). Here are a few observations we pulled from the document.
Installer Gross Margins
SolarCity reported overall gross margins of 21% for 2011 and 30% in the first half of 2012. However the really dramatic revelation in the S-1 is the difference in gross margins between systems they sold for cash and those they financed:
Residential solar dealer profit margins look at lot like those for conventional electrical, plumbing, and HVAC contractors. What should dealers do?
Over the past year, Woodlawn Associates has worked with nearly 20 residential solar dealer-installers on projects to optimize the costs of customer acquisition and installation. These projects were quite tactical, but it is worth considering some of the more strategic findings and their implications.
Today Woodlawn published the results of a multi-client project examining solar installation cost. We found U.S. residential PV dealers spent an average of $3.69 per Watt to perform installations. This includes all of the dealers’ installation-related costs. (Note: this is different from the price of residential solar to the consumer.)
In addition, we found:
- Dealer gross margins averaged only 20% (using a standard set of costs)
- By matching low cost dealers in each expense category, dealers could install for $2.13 to $2.59 per Watt
- Use of microinverters appears to decrease design costs by about $0.06 per Watt
The full report includes items such as:
- Dealer comparisons on key installation cost metrics (including average and range)
- Variations in cost as they relate to geography, scale, and microinverter use
- Installation schedules, including times to perform each step in the installation process
- 19 strategies for reducing installation costs
- What module, inverter, and finance vendors ought to do to help dealers reduce installation costs and distinguish themselves from their competition
You can view an extract here.