By Robert Schaefer
The solar industry has long had a simple business model that generated steady revenues and modest margins. The new reality is that prices and profit margins are sliding and companies are risking being squeezed out of the market by fully integrated rivals who are investing billions of dollars in energy technology. Many stand-alone businesses are forced to form partnerships and diversify at a faster pace to stay in business.
Opportunities within Existing Markets
Unless solar companies can scale quickly and slash costs, stand-alone businesses will have a hard time competing against bigger integrated players on price. These companies will face a tougher market in the next three to five years as big solar firms continue to expand despite slowing demand.
Solar firms traditionally exist in separate silos. For example, there are solar panel and inverter manufacturers, developers of solar systems, and financiers. These separate, stand-alone business models worked well for many years because early adopters of solar technologies were primarily concerned with environmental impacts of traditional energy sources. They were not focused on efficiency and economics.
Today, the solar market’s environmental motivations and visionary risk-taking are giving way to maturing markets motivated by prudent economics. The future for the solar industry is to provide synergies between traditionally disparate groups to offer a 360-degree view of solar system monitoring, performance and financial data.
In business, what matters gets measured, and renewable energy now matters to business. Leading the way, solar power is rapidly setting industrial practice standards in a mainstream market where performance metrics must be assured before making new energy investments.
PV Energy: The Big Picture for Meeting Demand
As the solar industry gets more commoditized, the market is maturing and later adopters buying solar projects are changing the economics of system design and building.
Partnerships with solar monitoring software can become a market differentiator to manage a portfolio of projects across a region or a country. Knowing where the best system performance will occur helps investors and developers understand which markets have the best profit potential. For all parties involved in PV expansion, integrating a monitoring component into PV system development is becoming a requirement for most buyers and helping solar businesses explain what the value-add is to their customer base. A partnership between monitoring, investors, manufacturers and developers are helping all those involved in a new system development understand how capital investments line up with technology.
The emerging industry trend is for developers of PV systems to use software tools to understand and estimate the predicted value of an installation. Software provides the analysis tools necessary to obtain a consensus as to how systems should be built and financed. Software tools that offer a customized user interface, as well as a customizable user experience will dominate the marketplace because of its ability to give each of its customers, as well as the end-user, a chance to be much more in touch with their own energy profile.
All PV systems should be monitored, however the motivation for monitoring is different for manufacturers than it is for developers or financiers. Likewise, energy monitoring requirements will differ for utility systems than they will for commercial systems, or even monitoring at the residential level.
Utility-grade systems require energy monitoring and cost analysis from the panel level all the way up to assessing operational performance. Large-scale PV projects have to consistently monitor systems to maintain performance and integrate with financial predictions. Even a one-percent gain in system performance can equate to a six-percent increase in utility profits over a year’s time.
At the commercial level, businesses need to know that their energy costs can be stabilized. Equally important is knowing they will have a consistent level of supply. PV monitoring provides that assurance while helping them understand their return on investment.
As residential customers begin to adopt solar energy at a greater rate, they will want to know that their investments are performing as expected. Today’s state of the art energy monitoring systems are real-time and provide a simple communications interface for residential customers to understand how their investment is helping their pocketbook.
Meeting Long-Term Demand
Return on investment will always matter to any manufacturer, developer or investor in renewable energy markets. PV market expansion and the monitoring tools necessary will vary from country to country and even region to region across the globe. Nowhere is this gulf more apparent than in emerging developing nations like India.
One thing that is clear is that demand is growing, which requires a view into all costs of developing new energy assets. The installation costs of transmission lines are different when you are looking at roadless areas in rural villages.
This is the position that India finds itself in. Unlike China, that is primarily working within their own country to develop new sources of energy, India is looking to outside investors and private corporations to bring new energy technologies to them.
India’s energy demands are fierce. With a population of 1.2 billion and a growing middle class, the energy demand is expected to increase 105% in the next five years alone. Over the next 20 years, India is expected to add 40 to 80 quadrillion BTUs, far outpacing the expected demand growth in China.
“We currently have 400 million households without access to any electricity,” Shaski Shekhar, Joint Secretary in the Indian Ministry of New and Renewable Energy, recently told an American group of energy officials. “That is our biggest challenge to meet and we cannot sustain the cost of building transmission lines to each one of those homes. This means that off-grid applications of renewable energy are key. A number of studies have proven that renewable energy can take care of this demand in a more affordable and sustainable matter. Technology and its continuous operations are the keys.”
The technology that will sustain the continuous performance of those renewable assets will come from affordable and user-friendly energy monitoring software. In order to attract investors to these types of projects, installed system must show that the hurdle rate--the minimum return that investors require before jumping into a deal--is getting better for photovoltaic projects. The next opportunity for this stage of PV industry growth will be energy monitoring solutions that provide vision into cost controls and performance, from residential to the grid. Making solar affordable is the game changer, and affordable monitoring software solutions are now making this possible.
Fending Off Competition through Expanded Partnerships
Solar companies are beginning to target certain markets (such as Canada or the United States) for expansion as demand slows in their current business markets and countries such as Italy cut solar incentives. By diversifying the breadth of their product and service offerings, emerging solar companies are expanding across the supply chain, while keeping their foothold in their current market. That is clearly a sound business practice in order to increase revenue and hit targets.
In order to understand how these system expansions should be developed, maintained and made profitable, solar companies will need to implement some sort of on-going system performance monitoring. AlsoEnergy’s software, for example, is designed to be low cost in order to keep operational efficiencies in balance with profit models. Essentially, solar companies can use the data collected from the software to build lower cost systems that are more reliable and increase profit margins. Even companies that are already operationally efficient are using monitoring software to confirm their business performance models and find new areas to become more effective in the marketplace.
As the PV market continues to mature around the world, costs are coming down and affordable energy solutions are becoming available in every market--from highly sophisticated demand requirement in Europe to emerging market potential in India. All users want to understand the economics of a PV system and make sure they are driving the most effective system performance.
While energy monitoring software does not replace meeting environmental concerns that drove many early adopters of solar energy into investment, economic factors are now driving market expansion. The only way to leverage economic purchasing decisions is through measuring and monitoring. It’s becoming a requirement for all facets of the PV industry. We have the technology available today. Affordability and knowing the economies of scale are made possible through software.
With nearly 30 years’ experience, Robert Schaefer holds degrees in Electrical Engineering from Massachusetts Institute of Technology and Control Systems from University of Colorado and led operations at companies including Digital Equipment Corp., MaxOptix and Hertrich Development. Prior to founding AlsoEnergy (www.alsoenergy.com), he was CEO at storage systems and software maker, Breece Hill Technologies.
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