Residential solar is fast approaching the gap between early adopters and the mainstream market.
Geoffrey Moore’s business classic Crossing the Chasm identifies the process of moving from early adopters — the small segment of the population that is excited about innovation and tends to overlook minor glitches as long as the product is relatively proven — to the mass market of pragmatists — who demand a fully finished product that is easy to buy, easy to use and worry-free — as the most difficult stage of a high-tech product’s adoption life cycle. This chasm between innovators and pragmatists is where countless technologies and companies have failed.
Given the growth of the residential solar market in the last decade, it is easy to forget that the industry is still in the very early stages of customer adoption. Only one state, Hawaii, has "crossed the chasm," which is due to uniquely favorable conditions that other markets don’t possess. According to GTM Research, several states are in the early-adopter stage (defined as between 2.5 percent and 13.5 percent market penetration) of their lifecycle and will be approaching the chasm in the near future.
While the industry has continuously improved the experience for the customer — from system design, equipment efficiency and reliability, installation, and flexibility in financing — solar PV remains a complex product that is not easy to sell. As demonstrated by customer-acquisition costs still hovering around $4,000, according to GTM Research, residential solar as it is offered today is not ready for mass-market adoption.
In short, the low-hanging fruit is getting harder to come by. The next wave of residential solar customers will demand a money-saving, polished product that is easy to buy, low risk and provides assurance that they won’t be left holding the bag if their long-term investment is not performing as advertised.
More risk-averse customers are being offered a riskier product
Complicating matters is the fact that the business model of residential solar is shifting from primarily low-risk, third-party-owned systems and service agreements to direct consumer ownership. The direct ownership model is usually a better deal financially for customers in the long run, but it also places more of the technical and performance risk on homeowners. The majority of residential PV installations sold directly to homeowners do not include the service protection and production guarantees that are often built into leases and power-purchase agreements.
For a long time, marketers and sales professionals have presented solar as extremely low-risk — a maintenance-free product with no moving parts and equipment that carries long-term warranties.
Solar marketers continue this line of reasoning at their peril. The truth is, solar is complex and not maintenance-free. Inverters and modules fail. Thermal expansion and contraction can cause mechanical and electrical connections to loosen and wiring to break over time. Roof penetrations can cause leaks, while soiling and shading can reduce performance. With system life estimated at more than 20 years, something unexpected will likely happen with the performance of these systems.
Passing these risks onto consumers is precisely the kind of challenge Moore identified when talking about technologies that could not "cross the chasm" into mainstream adoption. The burden is simply too high for the majority of consumers. Most homeowners do not understand how PV systems work.
Common questions received by call centers include, “Why is my system not producing at night” and, more fundamentally, “Is my system performing normally?” That, incidentally, is a complex topic that the industry at large still has not yet fully addressed.
This lack of technical sophistication puts a severe constraint on the customer. Even in the event that they are covered by a particular type of equipment or workmanship warranty (by no means a given in a solar industry plagued by bankruptcies and market exits), the onus is still on the customer to detect a problem and drive a claim. While early adopters may be savvy enough to navigate this process, the majority of consumers are neither willing nor qualified to do so. And warranties typically only cover straightforward failures. They rarely protect against underperformance, a much more common problem with complex systems like solar PV.
Mainstream customers want to buy solar without fear. It is a challenge for the industry to solve, and the answer won’t come from simply marketing solar the same way we did to early adopters.
The California mandate: How can the industry meet the needs of mainstream customers?
With the new mandate in California to require most new housing builds to include solar PV, customers from across the adoption curve will be entering the market — many of them earlier than they would have otherwise.
Despite these new customers being a captive market, this situation does present brand reputational challenges for the industry as a whole. Will we be ready to serve and meet the expectations of these customers who are so different from the ones we have accommodated up to now?
Poor experiences for mainstream customers from a non-polished, high-risk product can threaten the entire industry’s brand reputation and have the potential to hurt sales across the board. The solar industry needs to rise to the challenge and embrace a new vertically dis-integrated business model that enables each actor in the value chain to focus on its core competency, especially as the direct customer ownership model increases in popularity.
Take, for example, the consumer’s relationship with the lender. If they financed the purchase of their home PV system, they are now in a relationship with the lender, but this relationship is often purely financial and disconnected from the physical solar system that will live on their roof for 20 years or more. Banks are good at facilitating transactions, but you wouldn’t trust your car loan provider to be responsible for your oil changes.
To meet the preferences of risk-averse mainstream customers, a new dedicated, end-to-end asset management business model needs to replace the in-house, vertically integrated model favored by leasing and power-purchase agreement providers so far. Under this new model, all aspects of the customer experience after installation are rolled into one simple service offered by one provider, with a single point of contact. This includes billing and payment, 24/7 system monitoring and proactive service alerts, service and repair calls, and a financial guarantee of promised energy generation.
Asking customers what they value
Consumer research confirms that this assurance and simplicity is what mainstream customers want out of their solar experience. Omnidian, a third-party solar protection service provider, recently commissioned Model People, a consulting firm that researches consumer behavior, to test how the inclusion of a comprehensive protection plan would impact the purchasing behaviors for potential residential solar buyers. The research included nearly 800 U.S. consumers nationwide, geographically spread in proportion to the size of residential solar markets. Some respondents already owned PV systems, while others intended to purchase one.
The results were eye-opening: Customers are looking for a product that allows them to go solar without fear. Among intenders, the research found that the inclusion of protection plans increases purchase intent by a factor of two to three (depending on level of service). Even more interesting, current owners of solar systems said they would be more willing to pay for higher levels of protection than intenders, indicating that these consumers are familiar with the performance risks of solar PV and desire a higher level of protection based on their experience with solar.
This survey points to a clear path forward for residential solar providers. Marketing to mainstream customers the same way we have marketed to early adopters will not work. The next wave of residential solar consumers requires more simplicity and more assurance that their investment will perform as advertised. The firms that make solar as simple as possible, with the lowest risk for the customer, will be best positioned as residential solar markets rapidly approach and prepare to "cross the chasm" into mainstream adoption.
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Cedric Brehaut is VP of products for Omnidian, a nationwide provider of residential solar energy protection plans and performance guarantees. He previously authored several GTM Research reports on solar O&M and asset management, and is the founder of solar consulting firm Solichamba.
