Navigant Research Blog

Sunrun: The Large Solar Provider Dilemma

— September 19, 2017

On August 24, Sunrun—the last of the large independent US solar providers—announced an agreement with Comcast, a leading cable provider in the country. The two companies plan to launch a strategic partnership to offer Sunrun’s services to Comcast’s clients.

Sunrun was founded in 2007 and found success innovating new ways to finance residential solar installations such as solar leases and power purchase agreements (PPAs). It created the solar as a service (SOaaS) business model, which became the foundation for the growth of the sector between 2010 and 2015. Until 2014, it seemed that solar leases and PPAs—grouped as third-party ownership in California’s Interconnection Applications Data Set—were going to be the winning business model in the SOaaS industry. These leases allowed large players to both increase the market size and displace local installers.

Changing Solar Market

In 2015, the market share of solar leases and PPAs in California—which itself represents around 60% of the US market—plunged to under 50% from 75% in 2013. Data for 1H 2017 shows third-party ownership at close to 30%.

Third-Party Ownership Market Share, California: 2005-1H 2017

(Sources: Navigant Research; California Distributed Generation Statistics)

The collapse of third-party ownership has weakened large solar providers compared to local installers. Large solar providers relied on their access to cheaper capital backed by significant margins in their leases to run large business development teams and finance the installations. As residential solar customers moved into cash or loan buys, local installers became competitive again, reducing the profit margin per installation in the industry. This left large solar providers like Sunrun with high customer acquisition costs relative to profit per installation.

Under these circumstances, it is not surprising that Sunrun is looking for new and cheaper ways to attract customers. Even if this partnership with Comcast costs Sunrun its independent status, it may be worthwhile if the strategy is successful.

What Is in It for Comcast?

Comcast has shown interest in the energy sector in the past, and its Xfinity Home service includes a smart thermostat as one of the offerings. However, scaling it into a full-fledged energy solution would be costly, as Comcast would need to build a new team from the ground.

For Comcast, this partnership offers a relatively cheap entry into the solar and energy markets in which it can rely on its core skills (customer acquisition and management) without having to invest significantly in a new product. If successful, Comcast can push a more aggressive strategy into the energy sector either through Sunrun or with its own product.

Benefits and Potential

Customers of Comcast and Sunrun could also benefit from this partnership. The companies can put together a convincing solution for home automation by tapping on their offerings on the two main services around home automation—security and energy.

The success of this partnership will depend of Comcast’s ability to cross-sell energy services to its current customer base. Comcast operates in a market with limited competition and high barriers to entry, which is different from the solar market. The sales process of solar is also different from that of cable. Solar is a long-term investment (even leases and PPAs require long-term contracts). Therefore, customers take long before making a final decision and, in some cases, it will require home visits before the deal is closed. This means that Comcast cannot simply add solar to its bundles. It will have to invest in training its sales force if it wants to sell solar services effectively. It won’t be easy, but if Comcast succeeds, it may signal a new era for energy.

 

Home Energy Management Is the Tip of the Home Automation Spear

— April 27, 2017

Anyone who has recently swiped through the App Store could tell you that home energy management (HEM) apps have become as ubiquitous as instant messenger apps. While these energy saving apps can’t put your face on a cute dancing dog (and Millennials may not be as interested), they do have the ability to monitor, schedule, and reduce appliance energy consumption. Mobile solutions for HEM are continuously evolving and companies are trying to expand to new niches of the fledgling industry. But HEM is really only the tip of the larger home automation spear.

Power to the People

One of the core tenets of Navigant Research’s Energy Cloud framework is that the electricity industry of the future needs to be customer centric—which means access to data at any time from any device. The market for these applications has grown as customers have become increasingly aware of the capabilities, convenience, and savings the apps can provide. The global market for residential HEM systems has grown nearly 1300% since 2011, up to $2.3 billion in 2016.

Energy Management Giants Are Acquiring HEM Startups

But few companies are solely focused on HEM. Many smart home/home automation/security companies offer some energy management solution. It is increasingly common for small startups focused on HEM to be quickly acquired by larger companies looking to expand their reach across the Internet of Things (IoT) market. Devices such as smart thermostats are increasingly being bundled as connected home solutions, and as these solutions become more affordable and mainstream, energy management is expected to see increased uptake. Take, for example, the recent activity among several HEM companies:

  • Comcast recently completed its acquisition of iControl Networks, an IoT technologies and connected home security company. Comcast specifically went after the Converge business whose platform powers Xfinity Home.
  • As covered by my colleague Paige Leuschner, Google, Apple, and Samsung have all launched forays into devices that will give them a window into HEM and the full home energy automation market.
  • Startups are also getting involved in the energy app space. Eyedro, a software and electronics design company based in Ontario, Canada, offers an electricity monitor that provides real-time data via a web portal and mobile app called MyEyedro. Toronto-based Wattsly, a personalized energy butler mobile app, offers a tagging feature that allows users to tap a point on their energy usage Smart Graph. It also enables tagging activities like laundry, which helps the app generate advice for further savings and challenge homeowners to be more efficient.

Fortunately for customers, as HEM capabilities are expanding, the costs of HEM and home automation devices and solutions are dropping. Creativity and competition provide an optimistic outlook for the HEM market, and adoption is expected to continue to grow over the next decade as a result. Navigant Research projects the HEM market will reach $7.8 billion annually in 2025.

 

Builders Use Energy Efficient Technologies to Construct Better Homes

— March 31, 2017

Home builders today have many options for creating more efficient and smarter homes, and a survey says builders are actually using these products. According to a recent National Association of Home Builders (NAHB) survey, single-family builders in the United States are using an average of 10.2 different green products or practices, and 22% always or almost always have their home certified to a green standard. Energy efficient windows ranked at the top of the list, commonly used by 95% of builders, followed by high efficiency HVAC systems at 92%, programmable thermostats at 88%, and ENERGY STAR-rated appliances at 80%.

(Source: National Association of Home Builders)

At the bottom of the list are smart appliances at 16%, energy management systems at 11%, and passive solar design at 8%, among others. While these concepts are certainly growing in popularity, this survey is a reminder that in reality, energy efficiency in new construction still largely relies on more traditional energy efficient products. These more traditional products are not only tried, tested, and trusted by builders, but can also offer a clearer prospect for energy savings potential, as can be seen in the ENERGY STAR window savings estimates figure below.

(Source: ENERGY STAR)

A Step in the Right Direction?

The industry still has a way to go before smart home and Internet of Things (IoT) technologies become more viable options for home builders. Yet, the fact that energy efficiency products are being more commonly accepted and used among builders is a step in the right direction toward advancing the efficiency of newly constructed homes.

On the other hand, other builders are using much less practical methods for constructing more efficient homes. Apis Cor, based in Irkutsk, Russia, has developed a mobile 3D printer, which it used to print a 400-square-foot single-family home within 24 hours. The company argues that its printer not only produces more affordable homes, but is also more resource efficient. It uses geopolymer, which consists predominately of byproducts from other industries, and avoids the use of traditional materials like wood, which has led to extensive deforestation and environmental erosion. While this company’s methods are much less practical than utilizing energy efficient products in more traditional construction, it shows that the new home construction industry is moving forward in implementing more advanced technologies for building better, more efficient homes.

 

Inexpensive Offerings Driving Deeper Penetration of Efficiency Technologies

— March 22, 2017

Technological development is evolving quickly in all areas of the energy efficient buildings market. From HVAC systems with advanced controls to building energy management systems (BEMSs) that can drive deep efficiency gains, it is possible for commercial buildings to reduce energy consumption by up to 50% or more in a well-conceived project. Software has become a ubiquitous and necessary piece of almost every building component.

Most connected, intelligent devices of all types were devised to accomplish a defined purpose while gathering volumes of data along the way. But according to IBM Research’s Global Technology Outlook 2015, 90% of the data collected in the 10 years prior to 2015 was abandoned. Additionally, 60% of sensory data collected at the edge of intelligent systems loses its value in milliseconds. Like the parable about the tree falling in a forest, if these advanced digital tools collect data but nobody uses it, does it really add value? It may … eventually.

Early Adopter Phase

A large segment of the overall building stock is still managed using older technologies, with little or no digital data to support efficient operations. Some building owners and operators have the necessary sophistication and resources to proficiently understand and utilize more advanced digital toolsets, while many others do not. It is still the early adopter stage for much of the sophisticated new technologies. This dynamic, however, is feeding other emerging trends on the energy efficient buildings landscape.

So many buildings operate inefficiently that even the most basic forays into gathering data and understanding operational efficiency can lead to significant savings. Many of the initial efficiency activities can also be done at low or no cost by simply understanding operational setpoints and other characteristics. This simple understanding can lead to energy savings from 5% to 25% or more and provide enough information to lead to more significant projects and savings over time. This trend has been identified as a valid business model in its own right, and it serves what has been recognized as a valid market need.

Innovative Business Models

EnergyAI is an example of a company that offers a no touch analysis of a building’s performance at a very low price point—approximately $25 per report. EnergyAI utilizes a company’s utility interval data and produces a comprehensive report on the buildings energy consumption patterns with a simple, itemized list of suggestions for improvement. Gridium is another company with a similar utility data approach, but with more of an ongoing presence in the building. Eco-Energy works with larger clients and annual energy spending (+$10 million) and utilizes a sophisticated software package, but it sells energy savings, not the software itself.

These business models eliminate large upfront expenditures, work within the resource and experience constraints of a typical building, and identify meaningful savings at a lower cost. They are also enabling greater penetration of efficiency initiatives in a larger portion of the global building stock. The energy efficient buildings market continues to evolve.

 

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