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Will You Survive Grid Parity?

survive-plant

For many years, the solar energy industry in the U.S. was criticized for being impractical and too expensive. This is no longer the case. Recent falling hardware costs and innovative financing methods are expected to grow the residential solar market from $1.3B in 2012 to $5.7B in 2016. The companies that are in the best position gain market share during this growth period are those who can profitably install retail solar at $2.50 per watt. This rate is considered to be the benchmark for solar grid parity for many residential consumers throughout the country. Mass consumer adoption will separate those contractors who are able to reduce their development costs to at or below grid parity and those that cannot.  The key to achieving these prices is to leverage internal efficiencies to reduce soft costs like project acquisition (CPA) and permitting costs to remain profitable.

What would it take to get your company to profitably sell at $2.50 per watt now? That will depend on your organization’s structure and business model. An example of this business model is the e-commerce platform innovation by GreenLancer.com of Detorit. GreenLancer.com offers a set of predefined technical and engineering services that speed up project development by eliminating bottlenecks in PV system engineering. GreenLancer.com works with installers and contractors nationwide to help them gain efficiencies and reduce ‘soft costs’ associated with these projects. Some of the most profitable residential solar companies we see are owner operators with a small operation. That’s because fixed costs for employees that are not fully utilized result in high overhead and makes it difficult for most installers to profit without inflating prices.

To be profitable in the solar industry, you need the smallest team possible in order to leverage standardization, business infrastructure, and operational efficiencies to focus 100% on closing customers and installing high quality projects. This team needs to be able to build sustained project pipelines and reduce inventory and wasted time. From what we’ve seen at GreenLancer.com, the fastest ways to grow pipelines is to get deep into a community and offer attractive financing programs. The best way to maintain margins is to have all the engineering and permits delivered right the first time.  This can be done by standardizing the material selection used in the installations, pre-designing system kits that can be installed quickly. Fewer kit configurations empowers the entire team, from inside sales to installation, to be become experts on application. This also streamlines document flow which can be automated or externalized.

Develop and budget digital and direct marketing campaigns that don’t rely on passive lead generation. This means you need to have a strategy that not only identifies ideal customers, but also proactively targets homeowners that don’t realize they are candidates for solar.

Leads should flow directly into a sales funnel managed from a customer relationship management system (CRM) where prequalification screenings and preliminary proposals can be created efficiently by an internal sales team. Sales personnel should only go onsite when they have the information necessary to close the sale in the first visit.  Collecting detailed information and pictures facilitated by mobile devices streamline the communication of project data to the designers instantaneously. Once a deal is signed, the utility interconnection applications and the permit drawings must be submitted to the authority having jurisdiction (AHJ) immediately to take into account the inefficiencies of bureaucracy. Coordinating these technical documents can be labor intensive, especially if operating in several different cities with vastly diverse permit procedures and familiarity. These are the exact types of activities that can be externalized to specialized firms like GreenLancer.com in order to simplify the internal workload, increasing throughput and successful submission rates.

Pathway (or subway map) to profitability

The Solar Foundation estimates that there are over 5,600 solar installers in the country.  Often, the smallest solar installer can be the most profitable, but they must optimize operations and logistics to keep employees fully utilized. In order for installation crews to be a profit center for your company, project managers must have a tight grip on logistics and minimize installation times. Crews should be efficient and well scheduled between new installations and existing system maintenance.

Most small installers are reluctant to reduce their prices for obvious reasons, but today we have the tools to make these small installers the most profitable.  To reach $5.7B in residential sales by 2016, each of the industry’s 5,600 current installers have to install about 80 solar PV systems – or less than 7 systems per month.   Finding the formula will allow every installer to succeed at selling solar profitably for $2.50 per watt by 2016 and the resulting standardization will bring more financing to the table as the industry grows.

Key Takeaways:

1.     Tools exist to bring operational efficiency

2.     Standardization leads to repetition which lead to lower costs

3.     Profits come from subscribing to best practices and achieving an optimal volume of sales

4.     Lead generation is important and every installer has to control their own destiny

5.     Financing will always be paramount to gaining mass consumer acceptance of residential solar energy

By Patrick McCabe, co-founder and CTO, GreenLancer.com

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Climate Change. A $10 Trillion Opportunity

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Many of us, who have been on the ground floor of the renewable energy business are secretly experiencing the warm fuzzy feelings that precedes explosive global growth. Economic opportunity of this scale happens very rarely. Recent history tells us that nothing changes on this scale ‘peacefully’ until the economics are in alignment with necessity and invention. This is a true test of a new energy reality, where climate change hits head on with abundant, cheap renewable energy. This collision translates into a $10 Trillion industry that will transform the current geo-political narrative (energy, water, climate, etc…) as we know it, and offer unprecedented opportunity for those who are on board when this train leaves the station. So how, you ask, is this going happen …and how can I get on the train?

First, allow me introduce you to Mr. Jigar Shah, who will guide you on the path in his just released book, Creating Climate Wealth.  He offers his reader a clear, engaging, easy to understand conversation about seizing this moment to make climate change a huge business opportunity – whether you work at the top, or in the trenches, and anywhere on the planet.

In this fast paced, straight forward read, he describes in detail the opportunity in front of all of us – how to turn the biggest challenge of our lifetime – climate change – into a $10 trillion dollar new economy. He actually presents a New Economy Plan that identifies 100,000 businesses selling $100 million in climate change solutions by 2020 — $10 Trillion!

If you don’t know Jigar, I recommend you get to know a little about him. He has revolutionized the solar industry by deploying the Power Purchase Agreement (PPA) solar-as-service business model. This business model used 30-year old solar technology to be the catalyst for a multi-billion dollar solar industry. Even if you are skeptical of the $10 trillion opportunity Jigar portrays, it’s worth reading to understand the power of innovative business models.  Jigar’s crucial message is that we need business model innovation, not just technology innovation to unlock the deployment of clean technologies around the world. Shah makes a compelling case for reaching our 2020 climate change goals through 100,000 companies worldwide, each generating $100 million in sales.

I recommend you buy the hard copy so you can share it. Do this at Amazon; https://www.amazon.com/Creating-Climate-Wealth-Unlocking-Economy/dp/0989353109/ref=sr_1_1?ie=UTF8&qid=1381373019&sr=8-1&keywords=Jigar+Shah

By Douglas Elbinger, Energy Policy Analyst, GreenLancer.com

Jigar ShahJigar Shah is author of “Creating Climate Wealth: Unlocking the Impact Economy” and an entrepreneur. Shah helped to unlock the multi-billion dollar worldwide solar industry with a business model innovation (Power Purchase Agreement), not a new technology. This model created SunEdison, the largest solar services company worldwide. Jigar Shah has shown that business model innovation applied to the biggest challenge of our lifetime – climate change – will unlock a $10 trillion dollar new economy. 

After SunEdison was sold in 2009, Jigar served through 2012 as the first CEO of the Carbon War Room –the global organization founded by Sir Richard Branson and Virgin Unite to help entrepreneurs address climate change. SunEdison and Carbon War Room proved that we could make positive change through business and financial model innovation in many industries. Today, as CEO of Jigar Shah Consulting, he works with global companies in a multitude of industries to deploy existing clean energy and resource efficiency solutions fueled by new business models.

The 100th Anniversary of the Invention of the ‘Assembly Line’

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“Innovation can come in a variety of forms, but it’s particularly powerful when technological innovation and procedural innovation are combined. In 1913 in Highland Park, Michigan – a city within the city of Detroit – Henry Ford debuted the first moving assembly line.  The automobile was, in its own right, one of the most miraculous technological advancements of the 20th century, but without parallel innovation in the production process, the automobile never would have transformed the US and global economy the way that it did. One hundred years later, we’re again seeing rapid technological advancements such as solar photovoltaic panels. However, it is the emergence of a parallel innovation in the production process, a virtual assembly line, which will bring solar to market in a way that will transform America’s clean energy portfolio.”
 – Cory Connally, Research Associate at Environmental Law Institute, 2013

 Few historical sites in the world can claim to have influenced the course of the 20th century as much as the Ford Piquette Plant, on the corner of Piquette and Beaubien in the center of Detroit. From a historical perspective, Detroit, by it’s very location was destined to be the vortex for political and economic revolution. When it was founded in 1701, by the French explorer, Antoine de La Mothe de Cadillac, he situated Fort Pontchartrain du Détroit, the beginnings of modern Detroit, at the narrowest point between lakes Erie and St Clair, so that he could fire a cannon shot across the Detroit River. In the geo-politics of North America at the time, whoever controlled the straits of Detroit would control the Great Lakes.

 Flash forward two hundred years to 1913, and find that Detroit has transformed from a frontier outpost to thriving metropolis at the beginning of the second industrial revolution (for the first and third revolutions see: The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and the World by Jeremy Rifkin (Jan 8, 2013) ).

In the two hundred years that elapsed, the French have lost Detroit to the British, who in turn lost Detroit to the Americans. We also find Henry Ford working in his garage trying to connect a primitive gasoline engine to a carriage, creating an automobile that would change the face of word history thereafter. After a series of false starts, Ford conceived and first produced the Model T at his second factory, the three story brick Piquette Plant. The Model-T, known for its durability and relatively easier maintenance, the car would become the most popular vehicle in the world.

The Highland Park Plant

Prior to 1913, Ford and virtually every other automaker assembled whole cars at a station with a team of workers working together to complete a single example, usually from start to finish. Like other companies, Ford had made numerous refinements to the process, achieving impressive production totals at the Piquette Avenue plant where the Model T was born in October 1908.

The Piquette Plant in Detroit was only a few years old when Henry Ford and his staff realized the need for a much larger facility that could handle increasing output and take better advantage of the lessons learned from experiments to promote greater efficiency. The company found a suitable location for the new plant a few miles north of the Piquette Plant in the village of Highland Park.  For the monumental task of creating a state-of-the-art plant unequaled anywhere in the world, Ford chose architect Albert Kahn whose designs for the Packard Motor Car Company appeared to fit the approach the automaker wanted to apply toward the construction of this complex. Beginning in 1908, among the first buildings to be constructed included the Power House and Administration Building which fronted Woodward Avenue, as well as, a foundry, machine shop, and main assembly building made of reinforced concrete that would draw international attention.  Unlike other factories of its day, the main assembly building had no interior dividing walls, was well-ventilated, and boasted 50,000 square feet of glass that allowed an abundance of sunlight. All of the buildings were installed with a sprinkler system activated if the temperature reached 160 degrees. When the Highland Park Plant officially opened on January 1, 1910 it was the largest auto plant in the world and contained Michigan’s largest building under one roof.

The Moving Assembly Line

Led by Ford manager Charles E. Sorensen, the creation of a continuously moving assembly line for mass production was the result of, at least six years of experiments in assembly and production techniques at the Piquette and Highland Park Plants. Ford and his managers were aware of the latest in line production techniques and time-motion studies. Initially, the company practiced stationary assembly techniques. The unit sat in one place, while skilled mechanics built the car with parts brought to them by helpers and stock runners. Under this system at Ford’s Mack Avenue factory, at best the company could only produce fifteen cars in a single day.

Ford’s transition to moving assembly lines began in April 1913 with the integrated (and complex) flywheel/magneto.
With each worker assigned to complete a few specific tasks rather than build the entire unit, Ford reduced magneto
assembly time from about 15 minutes to 5, and the required workforce decreased from 29 to 14. Photo courtesy of the
Ford Motor Copany archives.

This process required many hours of skilled labor, which kept production costs high. Consequently, these expenses had to be passed on to the consumer. In 1905, the price of Ford’s Model C car – $850 – was beyond the capacity of the average citizen whose annual earnings were only half that amount. At the Piquette Plant, Sorensen and another manager, Charles Lewis, spent many hours rearranging the workspace so that men, machine and materials were better placed in the sequence of operations. This led to the development of a system of moveable benches to take the chassis from one workstation to another. Sorensen continued the experiments at the Highland Park Plant, whose pragmatic design better afforded opportunities to realize the goals of those trials. Here, he and company members studied current practices, then manipulated conditions to better enhance the successful application of the principles of mass production:

1. Accuracy – standardization and interchangeability of parts (machined at close tolerances)

2. Continuity – the moving assembly line, to which moving component lines are geared

3. Division of labor – the subdivision of work into smaller routines to be performed by a team of workers, machines, or a combination of both

4. Speed – the carefully timed orchestration of manufacture, material handling and assembly.

 

The flywheel magneto assembly – a component of the ignition system, became the first department to test the new system. Under the former practice, one skilled worker could assemble 35 to 40 magnetos in a nine-hour day. Managers and engineers subdivided the task into twenty-nine separate operations so that no one person would perform more than one or two tasks in constructing the part. Components for the magneto were placed on elevated ways or rails that carried them past successive groups of workmen who affixed various parts to the moving unit. Through trial and error, the timing of the component feed was adjusted for the most efficient result. Eventually, productivity not only quadrupled, but the system allowed a greater consistency in the product.

Ford Highland Park Assembly Plant in the 1920's. Photo courtesy of the Walter P. Reuther Library, Wayne State University

Ford Highland Park Assembly Plant in the 1920′s. Photo courtesy of the Walter P. Reuther Library, Wayne State University

After some tinkering with the line rate and other factors, Sorensen and his cohorts achieved results that were probably startling even to them. Starting with 29 workers performing 29 different tasks, the experiment reduced assembly time by about seven minutes per unit. And with more refinements, Sorensen was able to reduce the magneto-line workforce to 14 and cut assembly time to five minutes.  The system was next applied to the assembly of the motor, transmission and other units with great success. As a result, the output of the sub-assembly lines was so great it overwhelmed operation at the final assembly line where it still took 12 hours to complete one car. By the summer of 1914, the time to complete a new car had been reduced from 12 hours to 93 minutes. The rest is history.

Greenlancer co-founder and CEO, Michael Sharber stands in front of the historic Ford Piquette Plant, only a few blocks from where Michael and his team of Greenlancer re-invent the assembly line in the cloud.

Greenlancer co-founder and CEO, Michael Sharber stands in front of the historic Ford Piquette Plant,  only a few blocks from where Michael and his team of Greenlancers re-invent the assembly line in the cloud.

Flash forward another hundred years to the summer of 2013, and only a few blocks from the original Ford Piquette Plant, the assembly line has transformed again, from the mechanical to the virtual. GreenLancer.com, a Detroit-based solar energy technology company,  announced the launch of its comprehensive  virtual “Assembly Line” for quicker, more accurate solar engineering project documents.  Project developers can now order the entire spectrum of engineering documents needed to take a project from feasibility through construction via GreenLancer.com’s proprietary e-commerce platform. To lean more about virtual assembly line visit www.greenlancer.com

About the Author

Doug-NYC-2ADouglas Elbinger, is Energy Policy Analyst, for GreenLancer.com,  a renewable energy engineering and consulting firm in Detroit.  Doug’s career spans over 35 years as an innovator in corporate communications. His in-depth knowledge of technical achievements and investment strategy in the renewable energy industry keep Doug in front of ever changing opportunities.

For more information, comments, or dialogue, contact Doug at; delbinger@greenlancer.com

Original Article on Greenlancer

Using Technology to Reduce Solar Industry Soft Costs

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There is general agreement that ‘soft costs’ are hindering solar industry growth in the U.S. What people can’t seem to agree on is why this is happening, or what to do about it. In fact, industry professionals haven’t even agreed on a standard definition for the term ‘soft costs.’ From my perspective, soft costs refer to anything that doesn’t include hardware like panels, mounting systems and inverters. Instead, they usually refer to the costs associated with permitting, marketing, sales, labor (like design and installation), engineering, administrative, permits, and other “intangible” costs associated with a solar installation

According to a National Renewable Energy Laboratory (NREL) report, which analyzed data from the U.S. and Germany in 2010 and 2011, soft costs in the US are responsible for about 50 percent of the expenses involved in selling and installing solar PV systems. Some data sets that number even higher, at 60 percent. This isn’t the case in Germany.

The Lawrence Berkeley National Laboratory (LBNL) conducted an in-depth study of both the U.S. and German markets. They found that in Germany, a residential solar system costs $3.00 /watt. In the US, the price for an identical system is $6.19/watt.

Why are soft costs so high in the U.S.? There are a number of causes we can address. In the U.S., over 18,000 municipalities are setting their own requirements for permitting. This results in requirements that are dramatically inconsistent in every city. It means a solar installer may have to go through a long, drawn-out process with high fees, multiple inspections, heaps of frustrating and often unnecessary paperwork and more before they can begin installing a system. During that time, the end customer may grow impatient, question the installer’s expertise, or second-guess the wisdom of installing a solar system. This doesn’t even touch on things like labor, design or financing. LBNL’s study analyzed the issue from an exhaustive number of angles. Some of their conclusions explain the disparity between U.S. and German markets.

  • U.S. installers develop projects more slowly. (Projects take 126 days in the US, compared to 35 days in Germany.)

  • Customer acquisition costs (sales) are higher in the U.S.

  • Customer satisfaction rates in the U.S. are lower.

  • Marketing and advertising expenses are higher in the U.S.

  • US installers take a longer time to install systems.

  • Installation labor in the U.S. comes with higher wages.

  • The U.S. has higher fees for permitting and interconnection.

  • Sales tax on PV systems is higher in the U.S.

But the most impressive disparity between U.S. and German markets was in “overhead, profit and other residual soft costs.” In the U.S., these elements cost about $1.61/watt, while in Germany they come to $.29/watt. A 2012 study by Woodlawn Associates indicates that profit margins aren’t very impressive in the U.S., so these residual soft costs include things like property expenses (such as utilities and rent), administrative costs, extra fees and insurances, and inventory-related expenses.

There’s no single reason U.S. soft costs are through the roof. There’s no single action we can take to remedy the problem. So what can we do?

The administrative and bureaucratic structure requires solar professionals to take extra steps, jump through hoops, sit around waiting, and shell out money for unnecessary fees. But green technology professionals are nothing if not innovative, and many have taken upon themselves to reduce time and expenses associated with things like permitting, labor and site analysis.

Many companies are going ‘virtual’. The internet allows solar providers, engineers, and other professionals to expand their reach, and gives them greater access to a wide variety of tools that are affordable for both them and their end clients. It also allows professionals located in different parts of the country to collaborate with one another, creating greater efficiency and value for end clients.

For instance, the new Solar Site Design app makes analyzing site potential and financial feasibility simple and quick. It allows contractors to input specs into an iPhone or Android, then it sends the information off to experts who use satellite data and other tools to arrive at incredibly accurate estimations for pricing, feasibility, and ROI.

The ability to give end customers accurate answers about energy costs, installation and pricing in a short amount of time can help contractors close a lot of sales. Companies utilizing the cloud are also getting a lot of attention, as they innovate new ways to collaborate, analyze and deliver on solar projects. One such company is GreenLancer, based out of Detroit. GreenLancer has created a virtual platform in the Cloud where contractors and freelance green engineers can connect.

“We’re basically a platform connecting freelance green engineers with contractors around the country. A contractor or developer logs in to our site and orders from a set of predefined engineering services. The contractor knows exactly what they’re going to get, when they’re going to get it, and what they’re going to pay,” explained CTO Patrick McCabe. “Then our GreenLancers bid, and one of them picks up the project. Since everything is predefined, there are no surprises regarding turnaround time or pricing.”

GreenLancer has permits in all 50 states, which cuts down on the time and fees that can arise during that process. Accomplishing all this in the cloud allows them to keep costs low, and like the Solar Site Design app, technology makes it simple for solar professionals nationwide to get reliable answers about project specs and pricing very quickly. But GreenLancer takes it a step further by actually providing access to an accredited pool of freelance specialists who take care of the engineering and design.

This kind of accessibility and flexibility is breath of fresh air in an industry where costs fluctuate from city to city, and some regions of the country have a marked lack of local solar experts. For instance, an electrical contractor in an undeveloped solar market could turn to a virtual green technology company, and add solar installation to their services, without hiring local specialists or subcontractors, and without having to jump through a mess of permitting and administrative hoops.

It may take years to work out the kinks in state and national administrative structures, but by continuing to educate, collaborate, and innovate, the solar industry can make decent headway towards reducing soft costs for both commercial and residential installations.

By Douglas Elbinger Energy Policy Analyst, Greenlancer.com

Doug Elbinger’s career spans over 35 years as an innovator in management and corporate

communications. For many years, as an environmental journalist and producer for

ENN.com, he focused his efforts on acquiring an in-depth knowledge of advances and investment

opportunities in the renewable energy industry.

For more information, comments or dialog, please contact Doug Elbinger

delbinger@greenlancer.com – Energy Policy Analyst, Greenlancer Energy Inc. Greenlancer is a

renewable energy engineering and consulting firm in Detroit https://www.greenlancer

Doug Elbinger

Original Article on Greenlancer