November 7, 2022
Adam Hoeksema
Solar energy is the new gold rush, and many are now scrambling to get in at the golden age. Already, almost 3% of total electricity generated in the US is solar, and an enormous 12.2% of electricity in the EU came from solar panels in 2022.
It’s thought that at least 40% of US energy could follow suit, so this leaves a wide open market for industrious entrepreneurs who want to strike it rich. But there are still some significant roadblocks to starting up a solar company.
If you’re one of these people, this article’s for you. We’ve got an up-to-date overview of the solar energy market, and some tips on how to break into it with your own solar company by following a five-step startup design.
The Solar Energy Market: An Overview
The current solar energy market looks good globally and is projected to reach $223.3 billion by 2026. This represents a compound annual growth rate of over 20% from 2018. Solar energy is in demand in developed and developing nations worldwide, as many governments are subsidizing its production and offering rebates for its installation as a way of cutting into an epidemic of environmental pollution.
In the developing world, incomplete infrastructure and insufficient power grids have led to a demand for solar power to compensate for unreliable or non-existent electricity supply, particularly in rural areas. A rise in climate change awareness and gas prices in the developed world has contributed to more conscientious consumption of energy, driving further demand for the renewable power of solar.
Competition between manufacturers is high, and multiple drivers of demand combine to make prices fluctuate across countries and timeframes. For example, the price of silver sends demand up and down as it fluctuates, as does market acquisition stress. Conversely, the geographical location puts restraints on demand in areas where solar radiation or weather conditions are not optimal.
Still, solar power is considered by many the cleanest and most plentiful renewable energy sources available, and the largest economic powers seem to have the largest resources in is, worldwide. Storage options are improving rapidly, making solar storage more efficient and cheaper than ever.
So, now is certainly a good time for solar, pretty much wherever you are, but learning how to start a solar company will come with many hurdles. The first is common to all startups: the cost.
How to Start a Solar Company: Startup Costs and Revenue Streams
There are numerous approaches to solar businesses, and each will come with its own cost. First of all, there are two main ways to generate solar power: photovoltaic cells, and concentrated solar power. Both of these will have different customers, and therefore different business models entirely. We’ll focus on the more common PV panels for the majority of this article.
Then, there are businesses within these two brackets that can be at almost any scale. A small, private solar company might be as cheap as $10,000 to set up, while a large corporation may need two or three million in early funds to get going.
There will obviously need to be a substantial spend on materials for the average solar panel business, for example, and if you’re not going down the franchise route, you may need to put down up to half a million on supplies before you can enter the market and cover your overheads.
To take an example, for a small company with an investment range of between $45,000 and $140,000, you may be looking at a revenue potential of $400k to $1.5 million.
Solar money comes in two ways: revenue streams and tax cuts. Both consumers and companies get tax credits for investing in solar, as well as other incentives that might come to them through renewable energy schemes, and we’ll go over profitability and revenue a bit more in a later section. First, let’s take a deeper look at the expenses.
Solar Business Expenses
So, what are some actual overheads you’ll need to expect? Essentially they’re similar to any hardware-based company. Your major expenses will likely be:
- Working capital – This is the money you’ll need to cover your initial equipment and hold it
- Sales and Marketing – You’ll have a cost for this after you complete your business plan and marketing strategy
- Your certifications – You will hopefully already be qualified, but if not, these can be costly and time-consuming
- Hardware – This might include a vehicle, the relevant tools, and whatever else you’ll need to install the systems if that’s the business model you’ll be using.
So, the good news is that for the small business owner, it doesn’t have to cost a lot to get into, and for the more ambitious with access to the funds, the sky is quite literally the limit. On top of this, every year the costs of solar equipment drop, making it always a good time to get started.
But there are other costs to consider before you jump in. Soft costs related to the permits, the finances, the installation of solar, and other business metrics such as customer acquisition costs, which can be significant in the industry. All of these costs affect both the bottom line and the sale price of your goods and can be very tricky to pinpoint.
Fortunately, improvements in modern software are boosting the power of marketing and lead generation and resulting in savings to the company that can be passed on. Skilled talent is also a growing resource, which promises to contribute to these prospects similarly. As more industries become familiar with solar power, the infrastructure is adjusting to accommodate it, which is promising for the solar industry.
Your Solar Panel Business Revenue and Profitability
Let’s take a solar installation business as the template for this. Regardless of the model, installing solar units is the main source of income for the company. There can be leasing programs involved or an upfront payment; either way, labor, and materials costs are covered by the customer.
These fees vary from region to region, and of course on the specifics of the job at hand, but it’s safe to assume that a customer might pay between $15k and $50k for a private installation, and higher sums for larger projects such as corporate buildings.
The industry as a whole appears to be growing at around an average of 15% annually in the US, as more people adopt the new technology, and materials and technologies continue to advance. This is deepening the market to smaller consumers and branching out to poorer communities as costs decrease. A lease-based model brings in closer to 6% a year, but the nature of a fluctuating fossil fuels market will affect the number of panels leased and sold, which will affect the profit margins too.
As with most goods, purchasing in bulk will save some of the costs and improve your profits if you have space to store the goods safely and the customer base to sell them.
So, you have numerous factors to consider here – factors that will come together more clearly after you know more about what your approach will be to starting a company. We’ve put together a rough, 5-step guide on how to start a solar company below.
Putting it all Together: How to Start a Solar Business
The first thing you need to get down is a plan for your business. You have to know why you’re getting into this, how much work it will take, and what your approach is going to be. Your business model will affect the rest of the work from here, so have that in mind before you start and be ready to tweak or change it based on what you discover in your research. Then, follow these steps:
1. Build a business plan
This document will be your guide to and record all of the key research you’ll need to know how to conduct your business. It will start with gathering an understanding of your market, which will then guide you on how you’ll compete, who your ideal customers are, and what the best way to reach them will be.
Then, it’ll itemize all the products you’ll sell, all the people who will help you make your business great, and provide evidence that you’ve got an accurate understanding of the market and your company’s financial prospects in the future.
This document should be meticulously completed as it will also represent you when it comes to looking for investors. Your financial pro forma statements in particular should be realistic and precise. We actually have a full 5 year financial projection template built specifically for solar installation businesses built by our very own CPA and it will produce lender and investor ready statements in no time at all.
2. Register your business
You should by now know exactly what your entity is and how it’s going to go ahead, and this should give you the answers to the question of how to register it appropriately. Find out the requirements in your state, and anywhere you expect to be doing business, and get the appropriate licensing for these regions.
You’ll probably need to get special permits too, depending on where you are, and whether you’re approaching this from an installation standpoint, or design, technical sales, or any of the business models available. Make sure you have the right paperwork for your specific business model and the people you’ll be working with.
3. Look for funding
If you’re going to need more money to get off the ground, now’s a good time to look for it. There are numerous sources to choose from here – the first of which should be government or state grants and subsidies, as you don’t have to pay these back.
Then, consider either bank loans: potentially enormous lump sum or credit-line contributions that you’ll be financially liable for; or investment: capital that may or may not come with certain industry expertise attached to it, that you don’t have to pay back, but you will have to exchange some equity for.
The approach you’ll choose will depend on what you’ll be ready to sacrifice, and this choice essentially comes down to financial risk or company direction.
4. Incur startup costs
Remember all those things we said you’d have to pay for? This is about the time to do that. You should have your suppliers already hooked up, your prices all itemized, and your talented candidates lined up already, so now it’s time to put the money down and get them all onboarded.
This stage can be daunting or exciting (usually depending on whose money it is you’re spending), but it’s a necessary step and the point at which your business becomes a reality. The rest is more or less up to you, and the success of the marketing strategy you outlined in your business plan.
5. Build your brand
With your capital acquired, it’s time to start growing. You’ve got your hardware and your early hires, and you need to begin getting your name out there. This can happen in a bunch of ways. Your networking skills may come in handy, but you’ll also want to be present in online forums, growing your brand by demonstrating your knowledge, expertise, and trustworthiness.
You should also know where you’re going to be advertising and how you’ll be getting people’s attention. There are elements to this that can be started very early on in the process, but now you’ve got your capital, it’s time to ramp them up.
For example, your online presence should already be established. There’s no reason why you wouldn’t have been building up your presence since the idea of starting this company entered your head. But now you need to branch out. Design promotions, hand out referral bonuses and discounts, start tracking marketing metrics, and analyze the success of your strategies so that you know where to hone your resources.
If you’ve got enough money, you might consider paying someone else to do this for you, in which case you’ll have more time for other elements of the developing business.
How to Boost your Profitability
It’s a good idea to have a profitability strategy in mind before you get started. While solar is a rapidly growing industry, this comes with a few issues regarding adoption rates and consumer familiarity. As such, there are ways to mitigate these resistances that you might be able to incorporate into your business plan.
A study in Nigeria identified the main themes for boosting profitability as a solar company:
Leveraging social media and other digital channels – This might be more relevant in areas with less awareness of solar, but it’s a universal component of doing successful business. And it follows a simple premise: increased awareness increases adoption, which drives sales and increases profitability.
Offering attractive financing options – Solar installation can be an expensive commitment for the typical household, so making it easier to pay for, and breaking it into monthly installments that are much more manageable, is a great way to get smaller, private consumers on board. Flexible payment plans should match the energy bills that customers were paying as closely as possible.
Product diversification – Covering a lot of bases in the products you sell will allow you access to earners of every bracket, and having a product that matches each of their needs will help to boost awareness of your brand across multiple demographics.
Different solutions solve different problems, so one key to profitability is having that variety available. When you want to cover different income brackets, systems that are simple to upgrade are a great way to save on the costs of your products while at the same time solving multiple problems.
Provide after-sales support – One of the clearest ways to compete in an industry that’s still in its infancy is to make sure your customers are onboarded carefully. Many are still unfamiliar with the differences and complexities of solar power, so giving free support can make the difference when it comes to a cautious consumer.
Conclusion
The solar market looks to continue its expansion into the foreseeable future. With rapid and significant improvements in battery technology, renewable power is being stored more efficiently, making it cheaper to work with.
The cost of solar tech is also dropping rapidly, and with the added government incentives it’s looking like the best time so far to invest in starting your own solar company. The process doesn’t have to involve a lot of overheads for small businesses, and if you’re looking to go large, there seems to be no upper limit.
But there will be competition. It’s important to know your approach and leverage some of the profit-boosting opportunities at your disposal if you want to ensure your success.
Make sure your business is well-researched, and your documentation is in order, however, and you should find no trouble in getting investment funding from any number of enthusiastic sources.
