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What's holding back European rooftop solar?

The European residential PV industry may seem in rude health, with more than 1.6GW installed last year — but the sector has an inherent problem that is holding it back.

The fact that the vast majority of the continent’s rooftop panels are installed by thousands of small firms means there is little chance of achieving economies of scale that can bring costs down.

Marie Donnelly, head of renewables at the European Commission, describes rooftop installation as “one of the key areas for cost reduction”.

“This is something we really have to look at — [the installers’] capacity, skills, knowledge and the efficiency of the installation of PV,” she told a recent solar conference.

And with 9,198 companies carrying out solar installation in Europe, according to online directory ENF Solar, there is an additional credibility problem.

Consumers simply have no idea which installers are reliable. And with initial outlays of thousands of euros and payback times of eight to 12 years, that lack of trust may be putting off tens of thousands of potential customers across the continent.

James Watson, chief executive of SolarPower Europe, believes this is a major problem for the industry. “People at home see [installers called] Solar this or Solar that, and it’s like, ‘who the hell are these guys, and who have they got their modules from?’” he says.

Consumers would feel “a lot more comfortable”, he adds, if they could buy their PV systems and installation services from trusted brands with good reputations.

Third-party ownership

In the US, a handful of solar installation companies have become large enough and well-respected enough to become trusted brands.

SolarCity, the market leader with 1.1GW of residential PV installed last year, grew rapidly by buying up a plethora of small installers. Its size, plus its forthcoming 1GW module factory, is leading to huge economies of scale that will cement its leading position.

SolarCity grew to prominence as a specialist in third-party ownership — installing PV systems for free or at a small upfront cost, then retaining at least part-ownership and generating income from the sale of the modules’ energy to the customer and/or the grid.

Its main competitors, Sunrun and Vivint Solar, followed the same path, achieving much of their sales through marketing campaigns and door-to-door salesmen — something that European installers rarely, if ever, do, largely due to the high costs involved.

The fact that SolarCity’s largest shareholder is the billionaire Tesla boss, Elon Musk, and that the company is run by his cousins Lyndon and Peter Rive, has undoubtedly helped it gain brand recognition among the public and attract millions of dollars of investment from a range of high-profile financial institutions.

But the chances of a SolarCity-style giant in Europe seem slim.

“You don’t get good enough margins [in Europe] for the financial community to be interested [in investing in them],” says IHS senior analyst Josefin Berg. “In the US, there are net-metering schemes and tax credits, which make this model a lot more interesting for the financial community.”

Her colleague Ash Sharma, a senior director at IHS, told a recent solar conference: “The SolarCity model doesn’t work in Europe, mainly because the margins are too small. I could see a variation of that model working in Europe, with utilities leasing PV systems to their customers, but in terms of third-party financing, it’s hard to make it work with the figures.”

And as Watson says: “Who’s the Elon Musk in Europe? We don’t have one.”

The game-changer

So will Europe ever have large residential solar companies that can achieve the much-needed economies of scale and consumer credibility?

There is one company that kind of fits the bill, but it’s not a solar company. It sells Swedish furniture.

“Ikea is moving in a direction to mass-provide consumers with solar,” says Watson. “If you go to your Ikea in the UK you can get a system from them, so you don’t have to trust the mom-and-pop shop anymore — you can just go to Ikea and they’ll do it all for you.”

A spokeswoman for Ikea tells Recharge it is expanding its customer solar offering beyond the pilot countries, the UK, the Netherlands and Switzerland, “but at this point we do not yet have a detailed roll-out plan to share”.

At the end of April, Ikea UK launched new “solar shops” in its stores, saying that despite the British government’s recent feed-in tariff cuts, homeowners can still make a 6% annual return, paying off their investment in about 11 years.

And crucially for the solar installation community, although Ikea sells the panels in-store, their customers’ contracts will actually be with long-established UK installer, Solarcentury.

For installers to gain brand recognition and trust among the public would require a massive investment, says Susannah Wood, head of residential solar at Solarcentury. “Obviously, Ikea already has that trust with their customers.

“Ikea is the game-changer.”

Wood explains that Solarcentury is expecting large economies of scale through its Ikea partnership. “That’s why we’ve invested in a new IT system that can handle a large number of customers. You wouldn’t build it for ten customers, you’d build it for many thousands.”

However, for the time being, significant economies of scale are unlikely to come through the bulk purchase of discounted modules due to the EC’s minimum import price on Chinese panels. Removing these would instantly lower the cost of PV systems by 10%. But savings have already been made by bulk-buying other system components.

“For sure, when you’re able to say, ‘We’re working with Ikea’, that causes suppliers to take note in terms of thinking about volume,” says Wood.

Many in the solar industry believe that the future of residential PV in Europe lies in such partnerships with large, respected brands. Solarcentury, for one, is actively courting other retailers and utilities, as well as social housing providers and even banks (some have looked into offering solar mortgages that include the purchase and installation of PV systems).

Utilities

Many experts expect utilities to become major players in residential PV. After all, they already have millions of energy customers and need to diversify as their income from centralised power shrinks due to the rise of renewables.

Some of the largest utilities, including E.ON, EDF and RWE, have already begun selling rooftop PV to their customers — but not at a significant scale.

“I do expect utilities to become more active in this segment,” says Berg. “It’s a way of working with their clients, getting them to stay with them.”

Watson adds: “If you have a broad customer base, such as E.ON, RWE and so on, you have much easier access to consumers, you might have lower [customer] acquisition costs [than pure-play residential installers]. Then this will drive costs down.

“Plus, I expect that we will see more and more partnerships between utilities and installers that can then really combine their knowledge and reduce costs.”

E.ON — which is arguably the most forward-thinking European utility major, having spun-off its fossil-fuels business at the start of the year — has recently begun selling PV systems with battery storage to customers in Germany.

But E.ON’s Brussels-based public affairs manager, Marcus Franken, tells Recharge that his company is currently more interested in servicing and upgrading existing residential solar systems than installing new ones.

“Obviously, the capabilities are there [to install new residential PV systems], the knowledge is there, but sometimes, in comparison to smaller players and start-ups, we have to be very cautious in the market [because we have to] follow the rules and the regulatory requirements,” he says. “I think there are other players who can take more risks than us.

“We have a very good team in Munich, which made a very deep analysis — especially of the German market because it’s one of the biggest in Europe — but it was not their conclusion [that E.ON should] try to find clients who want to install rooftop solar.”

Watson says utilities do not yet have the confidence to tackle the sector with any vigour. “They ask us: ‘What are the different business models you’re working on?’ The fact is that I don’t think they have all of that information yet, and this comes back to the point of utilities being behind the curve.”

Franken says that E.ON’s residential solar offerings will grow, “but it’s not really foreseeable how the growth will be”.

Wood is convinced that the utilities’ cautiousness will soon disappear.

“I’m sure utilities will definitely get there because they’ve all got to rethink what their purpose is,” she says. “They’ve all got retail customer bases and it’s a fantastic opportunity for them.”

In the meantime, there is plenty of room for outsiders — supermarkets, chain stores and other big-name companies or entrepreneurs — to enter the market.

“The industry needs brand names associated with it,” says Wood. “There’s Ikea and that’s it, really.

“If Ikea shows it can make it work, others will follow.”

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