Are there fortunes to be made in solar? It depends if you are making the gear or installing it. Even then it’s hard to tell. The market values of the manufacturers of the hardware – panels, inverters, batteries – can be measured on the various stockmarkets around the world that host them. As for the installers, it’s a lot harder. Most are private concerns. Financial results aren’t shared around.

Todae Solar had been in business 17 years and installed hundreds of megawatts for large commercial and industrial clients, some taking Clean Energy Council awards, and risen to top place in the commercial and industrial league tables.

Its Sydney headquarters in Camperdown was close to the inner-city action, far from the vast industrial zones out west. A black Mercedes sedan was often parked outside. On those simple criteria, it looked as though hard work was paying dividends. Todae dealt in big projects and had been recognised as number one commercial solar EPC for systems between 101kW and 1MW for five years running, as measured by SunWiz, a consultant in the sector.

Todae had ambitions about stretching into the realm of utility-scale projects, with all the complications that would have brought. Seventy staff in six offices around Australia had to be kept busy.

That was the past. Today, the company is in voluntary administration, victim of circumstances common to a sector that is always stressed. As uncertainty about covid-19 – a black swan event that has unfurled its leather wings to cast us all in its shadow – caused sales in March and April to fall short, it all fell apart for Todae when a nervous financier pulled funding. Caught of capital, the business couldn’t go on.

Todae Solar CEO Danin Kahn, who piloted the company to the top spot in the C&I sector.

Pressure mounts

The C&I solar sector has never been an out-and-out gold mine, but the outlook is looking darker these days. Wholesale electricity prices are falling, as is the spot price of large-scale generation certificates. The entire business case for solar is harder to sell. On top of that, energy managers are hearing from aggregators of power purchase agreements that they don’t have to buy rooftop PV to lock in low-priced, certified clean energy.

Companies that are banking on C&I solar projects may be backed into a corner.

“The days of just sticking panels on rooves and offering the client very little else are more or less numbered,” says GEM Energy CEO Jack Hooper. “If you can’t differentiate your company or your offering you’re going to end up, unfortunately, in a price war. Everyone’s going to be in a race to the bottom to win business because there is no value proposition.”

Hooper admits GEM’s sales over the June quarter were down year-on-year although annual growth tipped 15%. It helps to have a diversified revenue stream, he says, which in his company’s case includes battery storage, residential solar, commercial PV, LED lighting and consulting engineering. “In terms of the amount of commercial projects being sold there is a substantial reduction; it is more challenging getting projects over the line,” he says. “The business case isn’t as attractive as it was when electricity prices and LGC prices were higher.”

The companies that are willing to do what it takes to rack up annual sales and that top the league tables for volume of installs make it hard for the others, Hooper says, and margins are tight. “Nobody wins,” he says. “The customer is unable to differentiate between a solution proposed by a company with no track record and no in-house engineering or project management and a company that has all of that. The customer just sees kilowatts and they see price.”

GEM has often picked up customers in the midst of a rollout of PV across properties where phase one has been completed somewhat unsatisfactorily by a competitor that lacks resources in engineering and project management, Hooper says.

“It’s a constant struggle of, do we go in really cheap and make low margin and keep our resource base really low, or do we invest in our resource base, give customers a better experience and hope they’re willing to pay for it,” he says. “The reality is if you keep going in cheap to win volume that you think might create a platform for you to leverage from and get more market share, you’re wrong.”

It’s a seesaw, he says. A company can explain why it’s charging a premium price for a premium solution but if no-one’s placing orders then it won’t be long before it plays the same discount game as the others.

GEM gets by without debt, Hooper says. “We’ve got a lot of retained equity; we’ve never had a loan, we’ve never had an overdraft.”

Solgen’s David Naismith, left, with CEO David Brown.

Capital is king

The covid-19 pandemic has shown up deficiencies in all businesses and solar is no exception, says Solgen chief commercial officer David Naismith. “The size of the projects flowing through large C&I players now are such that you need to be fairly well capitalised,” he says. “If there is a potential hole in working capital then that can lead to much more serious implications.”

For large contracts there may be instances where financing is required to cover payments for equipment before the next milestone is reached to trigger a payment. “That’s what you need to be able to weather through any project that you’re doing,” he says.

Falling wholesale electricity prices affect the case for solar, as do declining LGC prices, and forecast payback periods lengthen. “But that’s only half of the energy bill,” Naismith says. “How do we get into the other half of the energy bill – demand response, monetising export, moving towards virtual power plants, those sorts of set-ups.”

A company must learn to adapt to shifting conditions. “You need scale in this business to make it work,” he says. “Then you add to that scale by looking to the future … ‘We’re a solar EPC today but in the future we need to be a lot more than that.’”

With regulatory support, distributed energy resources are poised for exploitation and the C&I market will be a prime beneficiary. If anything, it’s a great time to be selling the case for battery storage.

If PV system designers can show a client a way to achieve savings they hadn’t imagined, a bidder will be able to defend what might look like a premium price. “If the client is purely looking for a sticker price today, then it’s probably not our client,” Naismith says. “If the prevailing price for a 100kW system is $1.35 per watt, we’ll probably be able to sell that as low as $1.20 per watt. But it you want it for $1 per watt there are plenty of people who will install it for that but it’s not going to be our business.”

Solgen is owned by private equity firm Anchorage Capital Partners.

Epho Commercial Solar Power is expanding its services as the market tightens, including its Bright Thinkers Power Station solution that allows exports.

Extend your offering

Not all C&I solar players have been caught short. The financial year just past saw growth around 40% for Epho Commercial Solar Power, down year-on-year but who’s complaining against “the background of the pandemic,” says managing director Oliver Hartley.

“We were a bit worried about supply of components when the pandemic started but after a couple of weeks things settled,” he says. “On the backdrop of that we managed to carry on with most of our projects. We are reasonably bullish on the commercial and industrial space at the moment.”

Large corporate clients committed to long-term energy plans, sometimes within the parameters of lease terms, have not changed course, he says, and the pipeline for 2021 looks “very solid”.

There is still hot competition for new business and customers are assessing an investment in solar against a backdrop of falling electricity prices, softening LGC prices and the emergence of third-party power purchase agreement aggregators. It’s a tough industry.

Solar companies that offer more than one service will be better prepared for shocks, he says. “Epho also provides PPAs; we own some of the assets; our flagship project the Bright Thinkers Power Station is proprietary technology that allows export to the grid – that gives us a cutting edge,” Hartley says. “That’s helping us.”

An outlook for falling LGCs is accepted and factored into bids, he says, and the net effect of behind-the-meter C&I solar systems on network charges and demand charges still see them stack up as a viable investment. “All of these add up to allow [PV] to be competitive.”

Not many companies have the credit limits or capital available in their balance sheets to take on the very large end of the solar installation market. Hartley sees huge potential in the C&I sector – perhaps up to 30GW – with the right technology seeing generation from urban rooftops able to fill the void left by utility-scale projects struggling to connect or run at full power.

Approval for 1MW in or near the city, for example, might take six months or so, not three years. “We have no issues with environmental approval processes and our MLF is 1 every year, so there are fundamental advantages that play into our hands every year.”

Solar is a flexible energy solution. Companies that sell and install it must be just as flexible – but tough, too.