A Banner Year
By Bill Sendelback
A recent survey of hearth and patio retailers by Hearth & Home revealed that many dealers are diversifying into counter-seasonal product categories to bring in additional sales and profits. Most have taken on more familiar items such as grills and Outdoor Room products. But a growing number of hearth dealers have found that photovoltaics – using the sun to produce electricity – offer a profitable new market that fits right into the mantra of hearth products – environmental friendliness.
That market is showing very strong growth.
Through the first half of 2014, more than 500,000 homeowners and commercial customers installed solar photovoltaic (PV) systems, according to the Solar Energy Industries Association (SEIA). The number of installed PV systems in the U.S. was up 21 percent in the second quarter of 2014 compared to 2013. In the last two years, the U.S. solar market has more than doubled as solar power has become more price competitive with electricity produced by burning fossil fuels.
“By all accounts, 2014 will be another banner year for solar in the U.S.,” according to the SEIA. “We forecast that installed megawatts will be up 36 percent over 2013, and more than 650 percent over 2010. The residential market has seen the most consistent growth of any segment for years, and its momentum shows no signs of slowing.”
Even with such strong market growth, the potential seems almost unlimited since “Less than one percent of homes nationwide have installed solar,” according to Jonathan Bass, vice president of Communications for Solar City, the largest installer of residential solar systems in the U.S.; it now has 141,034 customers nationwide and is shooting for one million by 2018.
Early on, the high costs of solar PV installations were holding back the solar market in North America. However, dramatic price reductions for panels and parts from China have continued to reduce installed prices. The average cost of a solar panel in 1972 was $75. per watt produced. Today that cost is down to $.73 per watt produced with solar panel prices down by two-thirds since 2010, according to an article in The Wall Street Journal (July 27, 2014).
|Powerhouse Solar Shingles from Dow Solar.|
Solar PV systems can add three to four percent to the value of a home, according to a 2011 study by the National Bureau of Economic Research. A May 23, 2014, Wall Street Journal story backs that up by saying that homes with a solar PV system sell for an average of $24,705 more, with an average lifespan of the system of 25 years. The article also claims that 32 percent of total solar PV systems in the U.S. were added in 2013.
California has accounted for more than 50 percent of solar PV installations for four consecutive quarters, according to the SEIA, driven in part by the state’s high electric utility prices. Other top-ranked states for residential solar PV are Massachusetts, New Mexico, New Jersey and North Carolina, ranked in that order.
In 43 states, electric utilities must buy back unused power produced by the homeowner’s solar PV system at the same rate at which the homeowner would have purchased electricity from the utility. These rulings are being challenged by most utilities.
With an average residential solar PV system installed-cost ranging from $15,000 to $35,000, financing is a major sales point for solar PV systems. Solar City offers its Power Purchase Agreement under which it owns and maintains the system while the homeowner leases the system and purchases the PV-produced electricity from Solar City. Installed at no cost to the customer, Solar City claims the consumer buys the PV-produced electricity at one-half the rate of retail electric providers.
Other installers nationwide are now offering similar rent or lease options requiring minimal initial outlay by the consumer. Many installers have partnered with local and national banks to provide loans, says the SEIA.
“The costs of electricity produced by solar PV and that produced on the grid by utilities have now crossed as the cost of electricity from solar continues to drop and utilities’ costs continue going up,” says George Briewa, a very active proponent of solar PV.
Briewa is chairman of the United Buyers Group (UBG), an organization of hearth and solar PV dealers combining their purchasing power to purchase hearth and solar PV products as a group. The UBG also includes the United Buyers Group Solar Training Institute in Madison, Wisconsin, established to offer comprehensive training and certification for installers of solar PV. Briewa also is president of retailers Chimney Specialists in Highland, Wisconsin, and Dubuque Fireplace & Patio in Dubuque, Iowa.
“The cost of an average solar PV installation today has dropped to one-half to one-third of that of a couple of years ago,” Briewa contends. “That installed cost was $8 or $9 per watt produced, and it’s now about $4 per watt. Customers today can expect a return on their investment in six to 12 years.”
Collier’s Fireplace Shop, Warsaw, Indiana, has sold solar PV for three years after having its installers trained by the UBG Solar Training Institute, according to Joe Collier, vice president.
State Rankings by Q2 2014 PV Installations
“We’re seeing 30 to 35 percent gross profit on PV installations.” he says, “Maybe not as much as hearth, but it’s a much bigger sale and a quick three-day installation.” Collier doesn’t use return on investment as a sales tool because that ROI might be 13 years, he claims. So he sells on independence from the utility grid and the rising prices of that utility.
“It can be a really long selling process” says Collier, “because even though the customer is interested, he gets sticker shock with our installed costs running $4 to $4.50 per watt produced. So he wants to put it in his budget for the future. We get a lot of sales leads, but we close only a few.”
Helping Collier to close even those few sales, and helping all solar PV dealers, is a federal tax credit of 30 percent on the total installed costs of residential solar PV. That federal tax credit, however, may be over at the end of 2016 if not renewed, and Collier is concerned that will slow solar PV sales.
“We’re glad we are in solar PV;” says Collier, “it has diversified our sales. But if I were thinking of going into it now, I would be cautious and do my homework.”
“We’ve been in solar PV for four or five years, and it’s getting better and better for us,” says Roy Mjelde, president of Top Hat Heating, Fireplace & Chimney Specialists in Madison and Baraboo, Wisconsin, “but over those four or five years the prices for solar PV have dropped in half.”
Mjelde says that even with prices going down and customers hearing that solar PV is expensive and the payback period quite long, they like the idea of going Green and are very accepting of it.
“We’re getting more and more interest in it,” he says, “but folks don’t make an immediate decision on it.” The average hearth sale for Mjelde is $4,000 to $5,000 with an average gross profit of 50 percent. His average solar PV sale is $15,000 to $25,000, with a 35 to 40 percent gross profit. “But that solar PV sale is much, much larger,” says Mjelde, “and we’ll be in and out in one day, maybe two.
|Solstice from Certainteed.|
“We recently had a customer whose latest monthly electric bill was $144. After we installed his solar PV system, he came into our store to show off the $44 credit he received from the electric utility company because of the excess electricity his solar PV system had produced. Now he looks at the power company as the mint!”
Mjelde relies on his customer base of 10,000 for most of his solar PV sales. “They are used to us, and they trust us. So they come to us.” As far as competition, Mjelde points out that “most of the guys selling solar out of a pickup truck are pretty much gone, and we’re now established as the experts.”
The main reason many hearth dealers don’t get into solar PV is that it can be so confusing, especially knowing how to get started, says Mjelde. As part of the UBG, Mjelde’s crew took the six-day, hands-on solar PV training to become certified PV installers. Then they installed systems on their stores to get up and running.
Higgins Energy Alternatives in Barre, Massachusetts has been selling solar PV for three or four years. “It’s still small with us, about 10 percent of our business, but we’re crawling with it and just starting to walk,” says Ron Higgins, president. “We’ll be very prepared to more than walk in 2015. We’re seeing consumer interest, but it takes time for them to decide and commit.”
Higgins pushes the process along with solar PV open houses a few Saturdays each year, handout brochures and e-mails to his existing customers.
“Our average sale is $30,000,” he says, “and that cost plus the economics of it are the biggest problems we face. People think nothing of spending $30,000 on a new car that depreciates while their electric bills continue to go up.” Along with the federal tax credit, a solar renewable energy tax credit from the state of Massachusetts helps relieve consumer sticker shock for Higgins.
Solar PV sales have helped Higgins’ counter-seasonal sales with most sales occurring in the spring and summer. His gross profit on solar PV is 20 to 25 percent, less than that of his hearth sales, but he faces stiff competition from Solar City’s lease programs.
Higgins bypassed the solar PV installer training by hiring a qualified installer from a larger solar PV operation.
“My advice for hearth dealers looking at solar PV is to be committed to it and be persistent,” says Higgins. “It takes a few years, and you need a dedicated, solar-oriented staff, but it’s a good, counter-seasonal product.”
2014 PV Installations By State
Some Canadian hearth dealers have also taken on solar PV.
Brad Leonard, co-owner of Friendly Fires with three stores in Ontario, has been into solar PV since 1993 when he owned Renewable Energy, a retailer concentrating on renewables such as solar, which later merged with Friendly Fires. While still Renewable Energy, Leonard did $3.6 million in solar PV sales in 2010 at the height of the government incentives programs.
“We’ve seen good response from customers with our number of jobs increasing five to 10 percent a year,” he says. “They want energy independence, and they like the idea of solar PV, particularly with the cost of hydro (electricity produced by hydroelectric power) going up. But the upfront costs of solar PV can be a negative to the sale.”
Leonard has seen the costs of PV material drop by two-thirds in the last five years. “In 2009, the cost of an average 10 kilowatt system was $100,000 to $120,000. Now, for that same system, the average cost is $30,000 to $35,000 with an eight to 10 year payback.”
The Canadian federal government and Ontario provincial government are certainly helping Leonard with his sales efforts. “These governments are actively promoting solar PV, the federal government by giving tax credits, and the Ontario government by paying solar PV users $.396 per kilowatt hour produced.” Ontario is the biggest solar PV market in North America because of these incentives, says Leonard.
Leonard’s installers learn their solar PV skills at a local college, and these installers are then cross-trained for both hearth and solar installations. “It’s no big deal since today our hearth industry is also very technical.”
Solar photovoltaics may not be for every hearth retailer, but it may be worth a look when searching for new markets, new sales and counter-seasonal products.