Like many other executives in the electrical distribution industry, Burt Schraga is taking a wait-and-see approach to the solar market. As the alternative energy market heats up in California, however, the CEO/chairman of Bell Electrical Supply isn't simply sitting on the sidelines.
For the last two years, his Santa Clara, Calif.-based company has been busy breaking into the photovoltaics (PV) industry. If you walk into his warehouse, however, you won't find photovoltaic panels lining the shelves. Instead, you'll find the same electrical products the company has been selling over the last 30 years. Bell Electrical Supply, which caters to electrical contracting companies and OEMs in the heart of the Silicon Valley, took a more conservative approach to getting into the solar market. When the semiconductor market slowed down, the company's OEM customers began eyeing opportunities in the solar industry.
For the last two years, he has specialized in supplying equipment like circuit breakers, contactors, wire and fittings to OEMs. In addition, he's selling fuse disconnects and circuit breakers to manufacturers of combiner boxes, which link the photovoltaic array to the inverter. Up until this point, however, his business has steered clear of selling solar panels because he's not convinced there's enough margin in the panels to make fiscal sense for electrical distributors. “We're seeing how the market works out and observing before jumping in with both feet,” he said.
The majority of electrical distributors are taking this same approach to breaking into the solar industry, said Hank Bergson, the president of Henry Bergson Associates, Katonah, N.Y., a consulting firm now working with Sharp Electronics on solar-powered lighting and Ready Solar, a manufacturer of a pre-assembled solar electric systems. Here is a five-step approach that electrical distributors can use to break into the photovoltaics market.
- Know your market
The solar industry is growing by leaps and bounds and provides a good opportunity for electrical distributors looking to diversify, said Monique Hanis, spokesperson for the Solar Energy Industries Association (SEIA). “Distributors definitely have a role to play, and they can fit into the supply chain,” Hanis said. “We had a growth year last year in solar, and this growth creates an opportunity for a company that wants to expand into a new industry.” Case in point: the photovoltaic market grew by 80 percent from 2007 to 2008, and the number of installers jumped from 3,200 to 5,500, according to the SEIA.
In northern California, where the commercial construction market is flat or depressed, electrical distributors and contractors are moving quickly into the renewable energy industry as a way to diversify, said Todd Henry, electrical division manager for Ewing-Foley, a manufacturer's representative in Cupertino, Calif.
While the solar industry may be growing, Bergson cautions distributors that it's still not a mature market, and as such, it presents both opportunities and risks for electrical distributors. In his experience, the solar market is attracting entrepreneurs and risk takers, and like any kind of new business opportunity, it takes time to build a customer base. He also says it's important that distributors be able to work the numbers for payback analysis and financing of PV systems. This can be confusing because federal and local incentives and tax credits vary from one state to the next.
“A lot of people get into the electrical market, and they expect it to explode suddenly with all sorts of business,” said Bergson, the past president of NEMRA. “It's a relationship business, and you have to gradually build up customers.”
- Learn the ropes
Before blindly jumping into this market, distributors must learn its ins and outs and gain a firm understanding of how the technology works. Otherwise, they will face the same challenges as when they tried to break into the datacom market years ago, says Henry of Ewing-Foley. Years ago, when electrical contractors were first getting into the low-voltage side of the electrical business, they often turned to their traditional electrical distributors, who didn't have the knowledge, background or products to support them. Henry is seeing the same trend in the solar market.
To succeed in the competitive marketplace, distributors need to seek out training opportunities in their areas and provide educational workshops for their sales force. Ryan Seckman, business development manager for Border States Electric, Fargo, N.D., agrees with Bergson that it's important for distributors to go beyond the product training and learn about the payback on photovoltaic systems and the return on investment. In addition, distributors need to educate their contractor customers on what it takes to sell a solar project. For example at the Phoenix location of Border States Electric, a solar engineer from Ready Solar trained 21 electrical contractors on how to work within a customer's budget and employ effective negotiating and closing skills during a recent “Selling Solar” seminar.
Border States recently inked a deal with Centrosolar America Inc., a subsidiary of Centrosolar Group AG, Munich, Germany, to stock and distribute PV panels. The companies are working to target utility, commercial and residential PV solar projects expected to amount to 10 MW. As part of the agreement, BSE will stock Centrosolar PV panels at its Phoenix; Albuquerque, N.M.; and Austin, Texas, branches. Ron Tovella, Centrosolar's CEO, says selling through distributors is a good option for his company in states that lack a critical mass of solar installers to justify a direct presence.
“Distributors provide the advantage of having an established base of contractors that look to them for their expertise and product support,” he says. “The key disadvantage, of course, is that distributors are not focused on the solar business alone. Given the size of the industry, solar makes up a small portion of their current business, yet requires a lot of attention. Many distributors are not willing to commit sufficient resources to provide such customer attention. Electrical distributors need to make a commitment to the solar market with dedicated resources, application specialists, contractor training and access to financing programs. The distributors also need to partner with major OEMs that can work with them. Unlike other electrical distribution products which are very mature, solar PV is still a novel product for most contractors and the sales process involves a lot more training and service support.”
Centrosolar helps distributors by providing them with complete PV systems — CentroPacks — that come ‘pre-designed’ with panels, inverters, wiring and balance of system (BOS) products and all necessary engineering support and training. “Such commitments from systems-focused OEMs can help distributors break into the market quickly as they can train electrical contractors on the whole system, who in turn can focus on selling and installing these systems,” says Tovella.
- Repackage your electrical line
When most electrical distributors think about the solar market, they first see PV panels. But there are actually many more sales opportunities for them in strut, cable, fuses, circuit protectors, wire and switches, which they may already stock. During a seminar on the solar and wind markets at the recent NAED Western Conference in San Diego, Fred Paris, Paris Consulting Associates, Plymouth, Mass., told a roomful of electrical distributors that these traditional electrical products actually make up a substantial piece of a PV system. “More than 70 percent of renewable energy systems and solutions consist of the same products you now sell — pipe, wire, panelboards, breakers, switches, surge suppression, tools, devices and more,” he said.
Some distributors and manufacturers representatives are capitalizing on new solar opportunities with these traditional legacy products. This has become a significant niche as well as a significant marketing opportunity for Ewing-Foley. For the last few years, the company has become active in the alternative energy market and has provided electrical supplies to solar manufacturers for large, utility-scale solar projects as well as commercial jobs. At the same time, Ewing-Foley has also trained its distributors on how to sell electrical items to manufacturers of specialty solar items. “There's a lot there for our electrical distributors to sell without having to make any more investment in the inventory than they already have,” Henry said. “We want to educate the distributors and open their eyes to the opportunities right in front of them.”
Once distributors are successfully supplying electrical items for PV projects, however, then they can look for more specific selling opportunities, such as stocking panels or inverters.
- Stock specialty solar items
While electrical distributors will only scratch the surface of the PV market, others will take the plunge. For example, some distributors are creating renewable energy divisions and stocking specialized solar equipment.
One such distributor, Border States Electric, has spent the last year stocking 70kW modules for grid-tied photovoltaic systems and inverters and racking to support 100kW systems. The company, which has focused mainly on marketing to commercial contractors and end users, has sold about $100,000 in photovoltaic grid tie modules, $225,000 in grid tie inverters, $150,000 in grid tie PV racking and $375,000 in off-grid, stand-alone solar products. The lion's share of the distributor's PV sales, however, have been in BOS (balance of system) electrical products. The company sold $500,000 in disconnects, panels, enclosures, roof jacks, fuses, conduits, conductors, fittings and mounting products.
Griffith Electric Supply Co., Trenton, N.J. is getting into the solar market by capitalizing on an opportunity created by a mandate for 30 percent of the state's electricity to be provided by renewable energy by 2020.
About nine months ago, Griffith began investing in the solar market and partnered with integrators and solar specialists. The company is hoping to sell everything from 1kW home systems to 100kW commercial systems to electrical contractors, but at this point, the distributor is not stocking any solar panels. Instead, the company is focusing on selling more traditional electrical supplies to local contractors for installations. For example, the solar industry is demanding such products as fuse holders, specialized building wire and roof supports.
To educate the contractor community about its foray into the solar market, the company sponsored a seminar attended by 70 customers, said Ron Kaczmarek, inside sales specialist. During the seminar, the contractors learned how to install panels and take advantage of the rebates and tax incentives from the governmental agencies. By offering the seminar at the branch, Griffith also educated the contractors about going through the distribution channel rather than buying direct. Kaczmarek said in his experience, some contractors are buying items like fuse holders online for a dramatically reduced rate or purchasing direct from solar manufacturers.
Kelly Boyd, president of ElectroRep in Sausalito, Calif., would like to see the buy-direct trend reversed. Instead of continuing to see solar manufacturers selling direct to end users, he would like to see distributors, manufacturers and electrical contractors work together as an integrated team.
“A very dynamic solar market is developing in which a lot of things are being sold direct, but there's a large need for structure and a distribution channel,” said Boyd, the chairman of NEMRA.
Mid- and large-sized electrical contractors can serve the needs of 20kW to 2MW PV systems with traditionally stocked brands that are aligned with electrical distributors, he said. However, the challenge with this model, he says, is the ability to make an acceptable margin, effectively compete with the solar companies and to provide a one-stop solution. Schraga of Bell Electrical Supply agrees, saying that electrical distributors can stock locally, provide just-in-time service, and know how to collect money from electrical contracting companies.
But even with all the benefits that distributors can provide, many projects are going through solar specialists rather than electrical distributors. Says Hank Bergson, “As with any product, the electric wholesale distribution has all the potential and ought to be the channel of choice for many good reasons, but right now, there's not a well-defined channel.”
One of the larger players in the solar market that goes through solar specialists is SunPower, Athens, Ohio. To serve its residential and light commercial customers, the company sells through a network of more than 900 SunPower dealers on four continents. “They understand their customers and have been well trained in the specifications and installation of SunPower products,” says Helen Kendrick, a spokesperson for SunPower. “Also, through our dealer network, residential customers can take advantage of financing options such as long-term home equity loans, short-term unsecured loans, and a same-as-cash loan program that defers payment of principle or interest for up to 18 months.”
- Establish a network
One way to educate contractors about the benefits of procuring solar supplies through the electrical supply chain is by making them part of a team. For example, ElectroRep is working hand in hand with distributors like CED, Westlake Village, Calif.; Independent Electric Supply, San Carlos, Calif.; and Graybar Electric Co.'s West Coast operations, as well as electrical contractors to perform the labor and installation.
If the contractor, distributor and manufacturer's rep work together, they can provide full support and localized market knowledge of different rebates and municipal rebate structures. This will help them to have a greater chance of closing the deal at the owner level, Boyd said.
This team approach also helps when it comes to procuring panels. It's often a risk for a stand-alone distributor to have hundreds of thousands of dollars worth of panels from one manufacturer in its inventory. But by having relationships with multiple manufacturers, a team can dilute the requirement for investment by a single distributor.
For example, ElectroRep is currently partnering with a Novato, Calif.-based solar engineering and turnkey services firm called iPower. ElectroRep is responsible for bringing the distributors and contractors together, while iPower provides training, non-traditional supply chain relationships, engineering, outsourced project management and rebate management. The communication between iPower, the rep, distributor, contractor and owner can limit a significant risk of investment at distribution, Boyd said. In addition, it allows for more flexible options for panel financing and volume requirements. This is good news for distributors, who are often wary of stocking and selling solar panels because the technology is changing fast, they're fragile and bulky, and the price is continuing to drop, said Scott Lessing, sales operation manager for Ewing-Foley.
While it can be a risk for distributors to stock and sell panels, some companies are jumping at the opportunity to help provide the nation with clean, green electricity. Right now, everyone has an eye on the solar industry, said Henry of Ewing-Foley. “It's one of the bigger opportunities that electrical companies can get into with the right resources and the right focus,” he said.
Three Ways to Ensure a Bright Future for Your Solar Supply Business
One surefire way to drum up new business is to build a network with electrical contractors already involved in the market. Consider inviting them to an educational seminar to publicize your company's solar capabilities.
Go out into the field
Once you establish relationships with local installers and solar manufacturers, take time to see their latest photovoltaic projects in progress and learn how the photovoltaic technology is designed, created and installed. With this real-world knowledge, you'll be better able to communicate with your customers.
Spread the word
Once you begin stocking and selling items, you can get the word out by such low-cost techniques as adding a new page to your website or creating and distributing a line card listing products that can be used in photovoltaic installations.
American Solar Energy Society, (www.ases.org)
Find installers in your area, register for educational events and read about legislation and research on the photovoltaic industry.
Database of State Incentives for Renewables and Efficiency (www.dsire.org)
Learn about the latest state, local, utility and federal rebates.
National Fire Protection Association (www.nfpa.org)
Order a copy of the National Electrical Code and review Article 690, which specifically addresses photovoltaic installations and is enforced by electrical inspectors nationwide.
Solar Energy Industries Association (www.seia.org)
To find local installers of solar products, click on SEIA's state chapter list on this Web site, which offers research reports, legislative updates and the latest industry news.