Europe’s energy crisis has seen venture investment deployed in the region’s residential solar installer market quadruple year on year, with +$1.5B of venture capital deployed in 2022.

• Homeowner interest is greater than ever, but can installers deliver? A combination of rising energy prices, regional incentives, and the rapid removal of regulatory barriers (such as the Spanish ‘sun tax’) have drastically improved the attractiveness of solar for homeowners. Amid significant tailwinds, installers have seen record 2022 revenues with little to no advertising – and there is no indication this will slow down in 2023. In Germany (Europe’s largest market), recent data suggests that 75% of homeowners intend to install a rooftop solar system, with 1/5 planning to do so in the next year. Meanwhile in the Spanish market where adoption rates sit at just 1%, installed capacity has grown 10x year on year. Yet amid a backdrop of installer shortages and ongoing supply chain backlogs, meeting this demand is proving challenging.
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• The future installer market will remain fragmented. As solar installation markets mature, we start to see consolidation. But long term, electrification installs will shift from a highly specialised skillset to an upskilling opportunity for existing electricians and HVAC engineers, as is increasingly evident in more mature markets such as the US and the Nordics. The US rooftop solar workforce is expected to reach just under half a million by 2026. Meanwhile, in Europe the installer base will need to grow from 466k to 1M workers by 2030. This will not happen unilaterally: i.e., Europe’s more nascent Spanish and French markets will see the regional consolidation of installers in the short term to enable faster delivery times and a better customer experience.
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• ‍Solar soft costs are the major barrier to scale. While hardware costs have declined significantly, soft costs have stayed the same. There are two major barriers for residential installers looking to overcome high soft costs: (i) high customer acquisition costs (CAC) and (ii) high operational intensity required to deliver a strong customer experience. While the former will be addressed through digitising manual sales workflows, the latter will be addressed through using software to enable a burgeoning SMB installer workforce.

Next-Gen Solar Sales

The US market has long been characterised by high soft costs, with large players relying on expensive advertising campaigns to win market share from local incumbents. While the tail end of the market has been able to rely on much cheaper referrals, CAC tends to increase disproportionately as installers expand geographically. In an overheated European market, lead qualification is key. As businesses scale, we are seeing two dominant approaches to reducing CAC:

• ‍Solar software digitises sales workflows. A new generation of digital-first end-to-end installers such as Sunhero and Samara are working to build CRM, design and customer experience tools inhouse. This will reduce manual workflows with a view to keeping high CAC at bay. But as Europe’s installer base continues to grow and fragment, the value will lie in platform solutions targeting SMB installers themselves. Key examples include customer experience tools such as Bodhi, and design software such as Open Solar, Solar Monkey alongside US market leader Aurora Solar.
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• B2B2C sales channels offer free and highly qualified lead gen. The pandemic saw a number of US installers swap door-to-door sales for lead gen tools such as Colossus. We are now starting to see players GTM via trusted institutions such as banks and mortgage providers in more mature markets. For example, in Q3 of last year, US solar installer giant Palmetto announced an enterprise platform offering that will enable real estate development and mortgage companies, consumer lenders, home improvement retailers, electric utilities and financial services platforms that already serve residential customers to sell solar products through their existing sales channels. And in Europe, Bodil Energy is similarly set to deliver heat pump and solar panel installations via banks and incumbent energy companies, with leads coming direct from the financing source.

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High Quality Installs

While the market for residential rooftop solar is huge, the wider home electrification market (such as batteries, EV chargers, heat pumps) is even larger. This is particularly relevant given the average solar PV system size in Europe is much smaller than in the US (A/O analysis). And there is clear customer interest for additional electrification products - regulatory incentives in Germany and Italy are seeing battery attach rates of up to 80% (A/O analysis).

• ‍Acquiring installation teams boosts customer experience. A number of digital-first installers that previously outsourced installation to local firms are now acquiring teams to improve customer experience and create cross-sell opportunities with other electrification products. Greater control over the supply chain can certainly enable faster delivery times. However the operational complexity that comes with customer management and inventory retention impinges upon margins, making it tricky to demonstrate venture scale returns. And with installers ultimately relying on highly capital intensive growth strategies, businesses start to look more like private equity plays (i.e., 1Komma5) than venture investments.
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• Marketplace solutions empower SMB installers. For HVAC engineers and electricians looking to carry out solar installations, upskilling via professional courses is time consuming and often not very effective. Using software throughout the install workflow can reduce human error and improve the overall install quality. For example, energy audit solutions such as Baupal enable SMB installers to identify appropriate electrification products and system sizes in markets with poor availability of housing data. Subsequently homeowners can be connected with vetted home electrification contractors via installer marketplaces, for example US-based Project Solar, Oslo-based Otovo and Copenhagen-based Bodil Energy.‍

• Remove installation requirements. If installation is so complicated, why not remove it altogether? Last year saw the emergence of a number of sophisticated plug + play solar solutions in Europe, such as Sunology and Beem Energy. These technologies build on well-established models in the US and China but present much greater efficiencies, user experience and analytics. Panels can be self-installed in gardens, on balconies, walls or flat roofs, enabling not just single family owner occupiers but renters and apartment owners to participate in a decentralised energy economy. At the same time, zero install means sidestepping complex grid interconnection and permitting requirements, enabling much higher gross margins. While cheaper, a smaller system achieves a much lower reduction in energy bills (at best one panel covers a fifth of a household’s energy load) which also depends on the panel placement customer. It seems likely that the most reliable application lies in suburban single family homes, where the ROI for more conventional rooftop systems is already incredibly strong.

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Home electrification is core to A/O’s built world decarbonisation mandate. As an investor in SPAN, we’re excited to continue to follow developments in the US and European residential solar space. If you're a founder in the space, reach out to Catriona or Kia at A/O - we'd love to hear what you're building.