By Mark Fisher, VP of marketing, Paystand
In 2017, solar energy made up only 11% of total U.S. renewable energy generation; however, according to the Center for Climate and Energy Solutions, that number is expected to grow to 48% by 2050. While it’s clear that the industry is growing rapidly and is continuing to make an impact on consumers and the environment, solar companies themselves are running into a significant problem: most solar business models have razor-thin margins, and thus, it’s challenging to gain meaningful ROI in the long run. As a result, solar companies tend to look for any way they can possibly get a leg up in the market — making competition in this industry intense and cutthroat.
Let’s take a look at this a little more closely. If you’re a leader in solar energy, it’s no secret that your margins have a tendency to work against you. For most solar companies, average margins fall somewhere between 8 and 10%, meaning that even if you land a prized project, your profit is usually negligible after you finish paying out your team, installation crew, overhead costs and any equipment that’s needed for the process.
The easy answer for most companies is to start pursuing more commercial projects because they tend to promise more revenue than individual residential installations alone. However, when it comes to boosting ROI in the long run, this definitely isn’t the answer. Increased DSO and extended sales cycles are inherently tied to commercial projects, and these factors inevitably lead to difficulties when it comes to collections and other accounts receivable (AR) processes; they also make it harder for companies to forecast their revenue and effectively plan for the future.
Many solar companies also try to gain an advantage by pouring more money into online ads and email marketing campaigns. But when every company in the industry is trying to acquire customers in the same way, it becomes a race to the bottom. The most nimble companies know that when it comes to gaining the upper hand, they have to get creative.
But that’s the thing about innovation — often, when you’re trying to break the mold, you end up shifting the whole playing field.
Today, significant innovation in the solar industry can be found in the form of blockchain technology — a hallmark of the decentralized finance (DeFi) movement. While both blockchain and DeFi might seem like buzzwords or just passing trends, they actually offer solar companies powerful tools when it comes to creating new B2B payment solutions and automated AR processes. In fact, the right technology can eliminate transaction fees, speed up time to cash, and give solar companies the ability to boost their margins on every single project.
But how will these innovations more specifically impact solar energy companies moving forward? And how will they allow companies to save more time and money across the board?
What is blockchain technology?
Before getting into the precise benefits that blockchain offers, it’s important to understand how it works. Blockchain is a decentralized technology that verifies the transfer of funds and information without the need for a trusted third party. Think about it like this: instead of storing information in a single, centralized location, information on the blockchain is copied and shared among a network of many computers. Every time information changes or is added to the network, every computer in the network updates to mirror that change. Therefore, human intermediaries are no longer required to approve transactions since this decentralized system offers an even more secure way to make payments traceable, immutable and instant.
This technology is the blueprint for much of the innovation that can happen in AR processes, speeding up the enterprise cash cycle, and delivering better methods for collecting revenue. It can even enable new ways to accept payments altogether by offering alternatives that allow businesses to break free from the legacy payment network and the punitive transaction fees that are tied to it.
How blockchain is making all the difference for the solar industry
So how does blockchain help the solar industry in particular?
Today, most solar companies accept payments through two methods: checks and credit cards. However, each of these payment methods have their own unique set of problems. Every year, businesses in the US spend almost $160 billion on paper-heavy processes like sending and receiving both invoices and payments. Paper checks in particular lead to extended DSO, added costs, increased risks of bounced and late payments, and extra overhead for accounting processes. On the other hand, credit cards can cost you over 3% of your revenue. For example, if you’re charging a customer $30,000 for an installation project, you’ll lose $900 of that income — just to ensure that the payment properly changes hands. And, as interchange rates are expected to rise, you can also expect to keep losing more of your revenue to the card networks.
While both of these payment pitfalls might seem like a necessary evil, they cause unnecessary harm to your solar company. That’s where blockchain and other fintech innovations come into play. Companies like Paystand have created next-gen payment solutions that eliminate the need for paper checks or credit cards altogether; instead, you can trade transaction fees for a flat-rate, monthly subscription that gives you access to a bank-to-bank payment network. We’ve even built a blockchain specifically for enterprise that assures every transaction made over our system.
“We use all kinds of software technology to help our company operate efficiently and reduce soft costs,” said Gregory Sachs, COO of EmPower Solar. “From drones to marketing automation to our client payment systems, software like Paystand helps us provide a superior customer experience by allowing customers to pay their project milestones with a simple click. Fintech solutions like this help us save on overhead, time, and customer communications. This in turn allows us to provide an amazing customer experience and pass savings onto clients so we are more competitive in the marketplace.”
It’s clear that blockchain-enabled offerings can help companies adopt new, less obvious solutions that ultimately yield big results when it comes to improving margins, the customer experience and ROI. A better payments platform can also help solar companies automate manual AR processes, and this increase in efficiency can help solar companies gain the upper hand by giving them more control over their finance departments where it matters most.
There’s no question that blockchain will allow solar companies to gain access to a bright future — one where they have the opportunity to treat money like software and put their revenue on autopilot.
While there is room for more than one solar company to win in the market, there will definitely be a meaningful difference between the companies that make the choice to adopt new blockchain technologies and those that remain saddled to the legacy payment system. Undoubtedly, future-facing solar companies will use blockchain to save time and money and will drive real impact in terms of both their profitability and their capacity to influence how our culture consumes renewable energy.
Mark Fisher is a growth-oriented marketing veteran with deep experience in both finance and technology. He has led and worked on high-performing marketing teams at some of Silicon Valley’s most successful companies. As an entrepreneur at heart and a veteran of the performance marketing industry, he has created global brand strategy and marketing programs at Addepar, Nutanix, and QuinStreet. Mark holds an MBA from The Fuqua School of Business at Duke University, as well as Bachelor of Arts degrees in International Studies and French from Duke University. He is a fitness nut, recovering meat-eater, part-time musician, full-time wine and tequila lover, and husband and father. Follow Mark on Twitter and connect with him on LinkedIn.
“In 2017, solar energy made up only 11% of total U.S. renewable energy generation; however, according to the Center for Climate and Energy Solutions, that number is expected to grow to 48% by 2050.”
It’s the mandates that will push the electricity industry for at least the next 30 years. As seen in the crazy Hawaii and California energy markets, where the average electric bill is $0.20/kWh to $0.25/kWh. Almost like the average electric bills in Australia, folks are putting in large solar PV arrays and getting EVs to charge at home to cut out the energy middleman, both in electricity savings and in fuel savings each month. In California right now it is a five to seven year ROI on solar PV and energy storage. Some folks in California have installed large solar PV arrays and have bought an EV and home charging station and have paid off their systems in five years or less.
Biden’s plan, decarbonizing the power sector by 2035 is going to force utilities to decommission old assets in coal and natural gas and nuclear. All of these assets will have a “stranded asset” attached to the asset. The utilities are allowed an “assured” return on investment, which means retail ratepayers will get an electricity rate increase when these plants go offline. New infrastructure built to handle any new renewable energy projects another electricity rate increase. As more C&I entities install their own micro-grids to fend off high overhead electric rate programs like tiered block electricity rates, TOU rate spiking charges or demand charges throughout the day can increase a C&I operations monthly electric bill 50%. As the ‘flow’ of this DER increases across the country, more and more of these utilities will file for electric rate increases from “lost revenues”, when more people cut out the middleman in their energy costs. High temperatures are being predicted in California for the next week or so, one can also predict rolling blackouts in California as CAISO tries to find power to import from other States struggling with their own energy use problems. In this time California is the poster child of mandates gone wild and calls for 13GWh of energy storage has more like 20GWh of energy storage projects in queues, but by 2025 to 2030, California will need 100GWh distributed energy storage to replace what’s been mandated to change. Shutdown of Diablo Canyon nuclear plant, decommissioning of several natural gas fired generation facilities and continued building of some of the largest energy storage facilities in the World.
Solar Dave says
Utility companies are undoubtedly going to do whatever they can to avoid losing profits and fulfilling responsibilities to shareholders. However, this doesn’t change the fact that we need to quit burning carbon ASAP.
So how do we flip the script and get utilities on board with this transition? Regulation? Incentives?
The actual incentive is residential and small business owners, install their own solar PV + ESS and as much as possible cut out the middleman in energy costs. IF these utilities want to survive, they will become a partner with DER entities and create a digitized (bi-directional) grid and become the EaaS pipeline for every day energy needs. These utilities can balk and try to keep their regulated uni-directional business model that’s about 120 years old and continue their death spiral. For the utilities becoming a ‘hungry’, ‘pariah’ is a great motivator to a business model overhaul.