The inspiration for this blog comes from the increasing number ofphone calls HelioPower has received recently from orphaned solarconsumers. An orphaned solar power system is one abandoned by theoriginal installation firm.
A few years ago, an orphaned solar power system would have seemedunlikely if not impossible. The marketplace was swelling with well over a thousand solar companies and new entrants were popping up almost daily. Business was booming and bankruptcy was the furthest thing from solarcompanies’ minds. Fast forward to 2011, and the solar world, at least in California, is changing rapidly. We can see this playing out in thenumber of calls our service center receives daily from solar consumerswhose solar companies are missing in action or simply out of business.As the company goes, so goes the warranty on a solar power system.
Warranty and service are critical elements of the value add that SolarEPCs (this stands for ‘engineering, procurement, and construction’ aka‘solar integrators’) offer to their customers. If you’ve gone solar inCalifornia, the California Solar Initiative mandates that the Solar EPCprovides a 10 year warranty on all products and workmanship related tothe installation of your solar electric system. Such a lengthy warrantyprovides peace of mind to early adopters who are taking a risk on boththe technology and the company that they select to install it.
While government mandates can force companies to comply with allmanner of regulation, including warranty terms, they can’t guaranteethat those companies will remain in business throughout the term of themandate. So, what happens if a company goes out of business during themandated warranty timeframe? Keep in mind that in the solar businessthere is no such thing as ‘too big to fail.” While solar electricityadoption is growing at rates exceeding 20% annually, the solar industryis quite small compared to traditional energy businesses and the economy overall. Thus, it would be foolhardy to expect that your local solarcompany might receive a bailout should it go under prior to yourwarranty expiration.
The Solar Business in California
As the California Solar Initiative (CSI) enters its fourth year, we inthe solar business find ourselves humbled. With rebate money all butexhausted in PG&E and SDG&E, and on hold in LADWP until July2011, the go-go days of the early solar market are grinding to a halt.The result is that fewer new companies are entering the solarintegration space as overall demand for solar electricity in Californiaflattens out. Beyond this, many established firms are going bankrupt for a host of reasons. The San Diego region’s sudden drop off in demandafter the latest rebate drop and the killing of PACE in early summer2010 caused some well-established names to close their doors. Manycompanies had gotten ahead of themselves either in marketing spend, high end office space, market expansion, and accounts payable. Other largecompanies have pulled out of the residential space altogether whilestill others are closing offices to get expenses in line with revenues.Regardless of the reasons a firm might fail, the failure almost alwayshas the same result: the warranty, which is only as good as the companystanding behind it, goes away forever. What does this mean for you ifyou’re two years into a ten year warranty?
What We Hear from Orphaned Solar Power System Owners
While the casual solar energy consumer shouldn’t be expected to followthe ups and downs of the solar industry, the company you choose toinstall your solar power system will have huge implications on yourability to receive prompt, reliable, and consistent service in thefuture. The increasing number of phone calls HelioPower receives fromorphaned solar customers follow this typical dialogue:
Solar Customer (SC) – “Hi, I’m a solar consumer and I don’t think my system is working”
HelioPower (HPI) – “Ok, when did we install your system?”
SC – “Umm, actually you didn’t install my system, but I need someoneout here right away to troubleshoot it. I just got a $600 electric billfrom my utility!”
HPI – “Have you tried contacting the solar company that installed your system?”
SC – “Yes, but his number is disconnected and his emails are bouncing.”
HPI – “Ok, we’ll be happy to help you troubleshoot your system. I can have a technician out at your house tomorrow afternoon. You’ll need tohave a $200 check ready for the technician before he starts work.”
SC – “Two hundred dollars!! But I have a ten year warranty with CSI. You need to fix my system for free!”
HPI – “Actually, sir, your ten year warranty is with the company that installed your solar system. If they are unable to service your system, you’ll need to pay another company to perform the work whether that’sus or someone else.”
SC – “This is unbelievable! I got a bid from HelioPower when I wasshopping for my solar system, but chose the other company because theywere cheaper than everyone else.”
HPI – “I’m sorry that we weren’t able to earn your business earlier,but providing service after the sale is one of the reasons we need tocharge a little more for our products. So would you like us to come outand fix your system? If the problem is related to inverter or solarpanel warranty, the manufacturer will cover all parts and labor.However, we still need to charge you $200 to get the process going. Howwould you like to proceed?”
SC – “I guess I don’t have a choice. Everyday my solar system is down I’m paying the utility more and more money. I was told by my installer that my system would be maintenance and hassle free because it had ‘nomoving parts’.”
HPI – “Ok. Tomorrow then?”
SC – “Ok. Tomorrow.”
This call script is playing out in our offices with ever increasingfrequency. The issues range from downed inverters, underproduction, roof leaks, and the like.
Pete in the Pickup
Most of the calls we receive are from consumers who chose to have theirsystems installed by what we in the industry call “Pete in the Pickup”,“Chuck in the Truck”, or “Dan in the Van.” These are industry labels for the one man electrician or roofer working out of his garage or condo.
While Pete’s material costs are higher (because he has to buy through distribution) his overhead costs (including insurance, workman’s comp,warehousing, benefits, service department, etc.) are substantially lower than large established companies. As a result, Pete can undercut all of the big guys. Sometimes he’s able to do this by hundreds or thousandsof dollars.
In the four years I’ve been designing and selling solar electricsystems the story has played out with remarkable consistency. Petesells a few systems, installs them, and exits the business. For the‘Petes’ that stay in business, the service burden can soon overwhelmthem as more systems get installed and need service. Pete simply doesn’t have the resources to create a dedicated service department. This canresult in lengthy waits for system service.
While you may consider the Petes, Chucks, and Dans an easy mark for a blog of this nature, what’s startling is the number of well-established solar businesses closing offices, residential divisions, or shutteringtheir operations altogether. This is where multiple layers of warrantyprotection can benefit consumers long term.
CSI & Third Party Ownership Warranty Protections
If you live in California, your first layer of protection is CSI’s 10year warranty. Should your solar installer go under, you still can makewarranty claims to your equipment manufacturers. Your inverter or solarpanel manufacturer will dispatch an approved installation partner andpay for the service call if the problem is related to their equipment.In our experience, inverters (especially SMA) and solar panels rarelyfail. The failure is often in the B.O.S. (this is industry talk for‘balance of system’). BOS is everything else. It comprises racking, feet (we call these stanchions), conduit, wire, fuses, breakers,disconnects, etc. Unfortunately, these items are the ones coveredexclusively by the CSI warranty.
There is a third layer of protection available to solar consumers:third party ownership. Third party ownership is often associated withPPAs (power purchase agreements) and solar leases but have the advantage of making the solar energy system someone else’s problem.
The third party insures, warranties, and maintains the solar powersystem. You get to enjoy the benefits without the hassle. Third party‘solar as a service’ companies provide warranties up to 20 years. Onecompany, SunRun, has taken an interesting step toward long term customer protection. SunRun has set up a special purpose fund to maintain thesystems they own in the event they go out of business. Thus, withSunRun, your warranty is 20 years all inclusive. Should SunRun fail, the special fund covers all warranty and repair work for the remainder ofthe term of the agreement. In the event the special fund evaporates, the 10 year CSI/installation warranty takes over.
Lastly, should the first three layers of protection fail, you canalways fall back on the manufacturer warranties for your solar panelsand inverter(s).
When dealing with an industry in its infancy, the more layers ofprotection you afford yourself, the better the return you’ll realizeover the life of your solar panel system as you’ll avoid potentiallycostly out-of-pocket repair and maintenance work down the road.
Tips to Protect Your Solar Power Investment
While there’s no guarantee any company will remain a going concern inperpetuity (think Lehmann), here are a couple of tips that will help you to avoid the weakest players during this time of upheaval inCalifornia’s solar industry:
- Choose a company with lots of installations. Most solar companieshave fewer than 10 installations according to CSI data. You’d be wellserved to set the bar at 100 or greater.
- Don’t hire the ‘one and done’ fly by night solar installer. You’llknow who he is because he’s usually a couple thousand dollars cheaperthan everyone else.
- Take a hard look at third party ownership. After all, why not letsomeone else shoulder all of the technology and installation risk whileyou save money every month on your electric bill.
- Only consider third party owners who have established a maintenance fund in the event of their own mortality.
- Always check your contractor’s references, licensing, and insurance.
- Consider adding monitoring (standard with third party ownership). Monitoring is a critical performance review maintenance tool.
As the solar industry enters 2011, we expect a year of changes andsurprises. Some companies will be well positioned to capitalize on themyriad changes while others will fall by the wayside. More than ever you need to protect your solar electric investment from joining the everincreasing ranks of solar orphans permeating the marketplace. Towardthis end, a multilayered approach to warranty protection may very wellbe the best solar decision you make.
By Scott Gordon
Vice President, Sales Residential
You can reach Scott Gordon directly at SGordon@HelioPower.com
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