We've noticed a trend in the last year where electrical contracting firms seem to be getting much more active in the solar installation market. It makes perfect sense because many have been doing work for solar developers as subcontractors for a few years now and have learned the business well enough to become solar Engineer, Procure, Construct (EPC) firms themselves. In addition, installing solar PV systems is not particularly difficult and falls directly within the capabilities of many electrical contracting firms.
A few weeks ago, we decided to go through the MA Dept of Energy Resources (MA DOER) list of solar installations qualified for the Solar Carve-Out as of 3/13/2013. We divided systems up by size and determined what type of firm did the installation (solar developer, electrical contractor, engineering firm, or construction firm). Although the full results of our analysis are too voluminous for a blog post, the big news is that we found electrical contractors offer a significant cost advantage vs. solar developers. The chart below shows the stated system cost per Watt for residential size systems ( <10 kW ) installed in MA over the last three years.
We hope our readers will excuse the PivotChart, but the results are striking. In the residential marketplace, electrical contractors offer a significant cost advantage over solar developers. As 2013 progresses, we expect to see this trend continue. Electrical contractors tend to have a lower cost of sales since they have an existing customer base and their business model is based on labor, so they are experts at keeping staff utilized.
This trend is also seen in the small and medium commercial market. The graph to the left shows the average system costs per Watt for systems sized between 25 kW - 100 kW. Note how electrical contractors have become more cost competitive in this market segment over time.
It's likely that this trend will continue and based on what we've seen recently, installed costs for 2013 should be considerably lower than 2012. We've observed bids on large jobs approaching $2.00/Watt and prices for smaller systems should end 2013 below $4.00/Watt.
Once installation sizes cross the 100 kW threshold, solar firms regain their cost advantage and this advantage becomes significant in installations above 500 kW in size. The larger systems require economies of scale and really require sophisticated EPC capabilities. Although most solar firms buy equipment direct from manufacturers, this dynamic is changing for smaller systems. Firms such as Northeast Electric Distributors now stock everything you'd need to build a small to medium size solar PV system and electrical contractors prefer buying from distributors over purchasing equipment direct from manufacturers. We expect the solar equipment supply chain for smaller projects to increasingly move towards distributors vs. the current paradigm where most firms buy equipment direct from the manufacturer.
Its likely that electrical contracting firms will continue to expand their share of the solar marketplace. Firms like Broadway Electric have demonstrated that electrical contractors can handle the largest of jobs at very competitive price points. On the surface, this may seem counter-intuitive as Broadway is staffed with high cost labor from IBEW Local 103, but their experience in the marketplace has demonstrated that the highly trained union workforce can be very efficient and perform high quality work. The union labor model is based on labor utilization and the workers are very familiar with aggressive project schedules. This stands in contrast to many of the solar firms that jumped into the MA market when things really began to take off two years ago.
This is an exciting marketplace that continues to evolve. If you need help evaluating proposals from solar developers, give us a call.