By Melissa Ann Schmid, Marketing Communication Manger, EnergyBin
As U.S. solar companies rush to take full advantage of the solar Investment Tax Credit (ITC) before it steps down in 2020, demand for solar equipment has increased nationwide. Wood Mackenzie forecasts that Q4 2019 will see the greatest demand for modules since Q4 2016, which is expected to drive up prices.
In addition to the ITC stepdown, solar installations are on the rise. SEIA reports a 25% growth in 2019 over 2018, which amounts to more than 13 GWdc.
Domestically, the United States is in a challenging position to supply the increased demand. Current solar panel manufacturing capacity sits right around 6 GW, which amounts to less than half of the estimated demand. To make up the difference, the market relies on imported panels. But tariffs and global demand can cause prices to escalate.
In addition to rising prices, project timelines can be negatively affected by increased demand as distributors grapple with back-orders. The longer a project is delayed, the more likely the customer may cancel. According to SEIA, for each week a residential project is delayed, the client cancelation rate rises 5-10%.
For these reasons, solar developers and installers should be prepared with an equipment sourcing alternative. That alternative can be found in the secondary market, where solar equipment is traded outside the traditional supply chain.
Those engaged in equipment trade include solar companies, solar equipment brokers, recycling and refurbishment firms, insurance companies and third party warranty companies. Buyers and sellers in the secondary market connect to each other online through exchange markets, like EnergyBin.
The secondary market in the solar industry
But what exactly is the secondary market, and how does it relate to the solar industry? Most people think of the secondary market as the stock market, where securities are freely traded once they have been issued by initial public offerings. Ownership of stocks may change hands multiple times.
The same concept exists in many product markets as well, including solar. The secondary market is also known as the aftermarket. Manufacturers issue new products for sale that are bought by distributors and then sold to contractors. In some cases, manufacturers may sell directly to contractors.
Most new solar equipment is purchased for scheduled projects. But some of it will be resold before it is commissioned for various reasons, such as equipment from canceled projects, leftovers from bulk purchases and older stock sitting in warehouses.
In addition to new product, used solar equipment is plentiful in the secondary market. “The most commonly traded used equipment we see on EnergyBin are refurbished inverters,” commented Rob Van Demmeltraadt, sales manager, “which come in handy when contractors need exact part matches for existing arrays.”
But there is also a growing number of decommissioned panels that are being traded as well. Solar Power World reports that decommissioned panels are often resold to customers in the secondary market, such as DIY homeowners, farmers and installers in countries where populations live primarily off-grid. The resale/reuse option tends to keep functioning panels out of landfills.
Because the secondary market is not subject to a vertical supply chain, equipment trade occurs between buyers and sellers based on need rather than company category. In one transaction, an installer may sell excess equipment to another installer. In another transaction, a distributor may buy a replacement part from another supplier.
Along with equipment trade, the secondary market generates many opportunities for new services to flourish in support of a sustainable solar industry. Most notably, repair and recycling services work in tandem to refurbish what can be reused and properly recycle equipment that has truly reached its end-of-life. Raw materials removed from recycled modules are once again made available to manufacturers. In addition, solar equipment brokerage businesses, insurance companies and third-party warranty firms all add value to the customer experience.
How can the secondary market help when demand outweighs supply?
Although the secondary market is not meant to replace primary vendors, it can be a feasible alternative when demand outweighs supply. This economic situation occurs whenever the solar industry experiences a surge in growth.
For any given market, growth booms after legislation in favor of solar takes effect. Demand can surpass supply when utilities, investors and consumers rush to qualify for tax incentives before they decline or end, as is the case with the ITC. Falling costs can also cause demand to outpace supply. The market typically corrects itself by raising prices when demand increases. But there can be a lag-time before demand and supply balance out. Meanwhile, the need to maintain project schedules persists.
Todd Renard and his team at residential installer Solar Connection have turned to the secondary market a surprising amount this past year. Presently, it’s helping them temper the current equipment shortage.
“One recent project we completed required a bit of niche racking that was on back-order from our primary vendor. Given our project schedule was time-sensitive, we threw a request out on EnergyBin. It wasn’t but a short while before we had a half-dozen quotes that more than met our need.”
For Renard, the secondary market not only resolves the back-order issue, it also provides an alternative for legacy equipment sourcing.
“Not all manufacturers stick around, but projects with their equipment do,” he said. “Fortunately, we have been able to stock up on equipment from otherwise unavailable parts. Staying ahead on legacy equipment has been key to maintaining a frictionless service department.”
What about rising prices? Referring to the secondary market benefits solar installers in several ways, including the ability to double-check pricing against primary vendors to ensure fair pricing. It also offers substitute product options at varying prices.
Cross-checking pricing on the secondary market is common sense in Van Demmeltraadt’s opinion. “Think about it like this — if you’re shopping for a car or a house, it would be second nature to compare prices. Why shouldn’t it be the same in our business operations?”
Of course, sourcing solar equipment entails many factors other than price. Timely deliveries, drop-shipping and financing options are also important considerations.
Tim Gulden of commercial contractor Winona Renewable Energy has found the secondary market perfectly capable of meeting his procurement terms, such as drop-ship delivery, while also saving him money. Gulden primarily sources Tier 1 modules that work best with selective microinverters.
“I have found 325-W Canadian Solar modules and 330-W Risen modules at savings of $0.04-0.05/watt after lift gate delivery to our customers’ addresses,” he said. “I tend to find the selection and pricing better than my primary vendors most of the time.”
Gulden noted that finding preferred modules in the secondary market not only keeps his installations on schedule but gives his company a competitive advantage as well.
To connect to the secondary market, Gulden said, “I go to EnergyBin first. It’s so easy. Type into the search what you are looking for, and it instantly pulls up availability, where to get it, spec sheets, pricing and much more.”
Have you found success with using the secondary market as an alternative solar equipment sourcing option? Let us know in the comments below!