As a customer, its important to understand the process by which solar panels get from manufacturers to end users to ensure you’re getting a good deal.  In general, most solar panel manufacturers are big companies who produce in very large quantities. This means they generally prefer to sell to only a few large distributors in high volumes rather than have lots of smaller customers. This makes their sales process easier since managing many customers is very small time-consuming and costly.  The large distributors then sell to either smaller distributors or to installation companies.  The distributors aim to provide all the necessary components for installers, allowing them to buy in small quantities and providing technical support.

Examples of well known solar distributors in the UK are Dulas, Segen, Solar Century and Waxman.  Because the UK solar industry is so small and so new however, these UK wholesalers are very small compared to their European counterparts in Germany, Spain and France.  One of the biggest solar distributors in Germany, IBC Solar, will sell 500MW of solar equipment this year.  This compares to a total expected UK market size this year of 60MW! So IBC Solar sells nearly 10 times the total UK market, and is just one company!

Unsurprisingly, since the UK is now seen as an interesting emerging market in the solar industry, many of these large European distributors are moving over here.  I spoke to one last week that is investing 200 thousand pounds this year to set up a warehouse and employ a 5 person team to address the UK market. This is good news for UK installers because they will now have access to pricing that was only previously available to their counterparts in mainland Europe.  The UK wholesalers on the other hand may struggle to compete with such large competitors.

Competition is coming from all sides however, and there are now solar panel manufacturers who are moving downstream and becoming more like wholesalers. It is now possible for smaller installers to buy directly from a few of the European manufacturers, thereby bypassing the wholesalers and their margins.  To withstand this competition the big European wholesalers are trying to gain advantage by developing an array of advanced support services for wholesalers to win them over.  This includes things like credit lines, training and design software.

It is unclear whether these features will suffice since there is also competition from the big in-house installers.  In the US there is a very large installation firm called SolarCity which is going head to head with the wholesalers for marketshare, but does all installations using its own in-house team.  This has advantages in-terms of pricing and quality of service – there are no middlemen and they can guarantee the end to end service – the drawback is that growth is capital intensive and slow.

The market is evolving so rapidly it remains to be seen which business model will win out in the long run, what is clear is that there will be a lot of movement in the market – all of which is good for customers since it means prices will fall and customer service will improve.  So when choosing a solar panel system, try to find out where the installer buys their solar panels from, not just who the manufacturer is.  This will help you tell if you are getting a good deal or not.

The comprehensive spending review of October 20^th could have spelt a disaster for the UK solar industry if they had instantaneously cut the feed-in tariff.  Thankfully no such cut was made and the industry can continue on as before, at least for now.  All feed-in tariffs are designed be decreased on a regular basis.  This is so that the return on investment from a given renewable energy technology stays the same over time.  The great thing about feed-in tariffs is that they decrease and decrease until they reach the same value as retail electricity prices, at which point you’re at grid parity and you don’t need the feed-in tariff anymore.  Its hard to predict exactly when this will happen but in the case of UK solar PV, costs decrease very rapidly and I think that in 5 years time grid parity will be very close.

Currently the UK feed-in tariff is not set to be reviewed until April 2012, with changes possibly not coming in until 2013.  In most feed-in tariff markets, the tariff decreases annually, so not changing our feed-in tariff for two whole years is too long in my opinion.  The feed-in tariff at today’s PV prices provides a fantastic return on investment. 9-12% annual return for 25 years beats nearly everything you could get in an ISA or other savings product.  In two years time, with another two years of cost reduction, the investment return could be significantly higher than it is now.  Frankly, as someone who works in the solar industry, I say that this would be a bad thing.  What the industry needs to see is steady year on year growth, not a boom and bust.  The tariff is fine where it is for now, but soon it needs to be decreased to ensure the returns don’t get too high.  The returns are high enough to trigger major growth in the industry, if they are too high then we will see more and more people pile into the market in a way that is unsustainable.  The tariff would then have to be cut very significantly to control the market, which would lead to a massive drop-off.

It is very important that the industry has visibility on what will happen to feed-in tariffs so businesses can plan ahead.  To solve this Germany have announced what will happen to the feed-in tariff based on the results of the previous year. That means that if the market reaches a certain size, the egression the following year will be larger and vice-versa. The details of this are published so that everyone can see what the degression rates could be – we need this level of visibility in the UK.

Another big problem with feed-in tariffs is that they cause a surge of installations in the run-up to a feed-in tariff degression – which is not particularly healthy.  What would be best is to decrease the feed-in tariff little and often, so there are no sudden jolts to the industry.  Italy has just introduced quarterly feed-in tariff degression i.e. decreasing the feed-in tariff every 3 months instead of once a year.  I think this is a great idea.  As long as the degression each quarter is small and planned ahead, the industry will be able to continue to grow steadily without the need for big every year or every two years.  France on the other hand are considering an annual cap to the PV market.  This is absolutely terrible for the industry as it limits everybody’s growth and will cause redundancies across the industry in France if it goes ahead.

So now we are back on our feet in the UK, lets think about how to create a stable solar industry going forward by decreasing the FiT in a sensible way.  It could be that we follow the Italians lead on this one.

Jeff Siegel, a top renewable energy investor recently took time out from his very busy schedule to grant an interview with Total Solar Energy (TSE).

If you don’t know Jeff, he runs the newsletter Green Chip Stocks, an independent investment research service that focuses primarily on renewable energy and organic & natural food markets.

TSE: Hi Jeff. Thanks for your time. Can you tell me when you first got started in solar stocks?

Jeff: I had actually been an advocate of solar energy ever since I did a high-school project on it back in 1987. I just found it so fascinating that we could power our homes and our lights and our appliances with these little devices. And I found it frustrating that more attention wasn’t being paid to it.

My interest in solar never waned, and as I started working in the world of finance, I made it a point to focus on investment opportunities that would not only pay off for investors – but for the global community as well.

TSE: Given the current economic and volatile stock market situation, would it be wise to invest in solar stocks right now?

Jeff: Well, with any investment, there is always risk. That includes renewable energy. Yes, the future of solar is very bright. Going forward, solar will be a significant piece of our new energy economy. But at the end of the day, any time you invest, you are taking on some risk.

That being said, I think at this time, a lot of quality solar stocks are undervalued. Some of this is because of the euro (so many solar manufacturers are heavily exposed to the euro), some of this is because of the broader market pulling these stocks down, and some of it is because there are a lot of people that are counting solar out because of the German feed-in tariff cut. The latter makes no sense. The future of solar is NOT in Europe, but rather the U.S. and China.

I think the solar market will still struggle this year, but once we have some more clarification on China and U.S. solar support, we’re going to see the launch of one of the biggest solar bull markets ever. So those in it for the long haul, I’ve been recommending picking up some of the stronger solar stocks on those big dips. We are, however, going to have to exercise a little patience.

TSE: How would you evaluate the year 2010 for the solar industry up to now?

Jeff: Lots of irrational thinking this year. Again, there’s too much focus on Europe. Aside from a slide in the euro, long-term investors know that the payoff will come from the U.S. and China market. But until we stop focusing on tariff cuts and the misconception that there’s an oversupply of product (which is absolutely false), then the market will be quite shaky. We’ve seen that this year, and I think we’ll probably continue to see this.

TSE: Where and when to do you expect to see parity with fossil fuels? And what effect will this have on solar stocks?

Jeff: You could actually make the case that they already are. Assuming of course, you strip ALL subsidies for fossil fuels, and take into account the liquidation of natural capital associated with the production, distribution and consumption of fossil fuels.

In other words, if utilities that operated coal-fired power plants had to pay for carbon, had to pay for mercury pollution and had to pay for any other damage done to ecosystem services (things like the regulation of climate, cycling of nutrients and water, pest control, etc), solar would be significantly cheaper than coal. But what we do is use a baseline for energy costs that are simply incorrect.

Back to the real world, however, where we continue to subsidize fossil fuels and turn a blind eye to the trillions of dollars of damage done to our natural capital every year – I imagine we could see grid parity within 10 years in most parts of the world where there is a strong solar resource.

TSE: What are the major threats to the growth of the solar industry at the moment.

Jeff: Lack of leadership and support. I absolutely hate the idea of subsidizing anything. But the only way solar can compete is for it to get the same generous subsidies that the fossil fuel industries have received for years. And we need to end the debate with the naysayers.

The technology exists, the proof exists, the data is conclusive – we can power a significant portion of our world with solar. I no longer even entertain those who want to continue throwing up roadblocks. They are no more than minor bumps that I’m happy to roll over. This is going to happen. You can either be part of the solution, or you can step aside.

TSE: Do you see the UK feed-in tariff having the same effect on share prices as it did when it was introduced in Germany?

Jeff: Hard to say. Every government operates differently. Spain had a great plan, but its execution was horrible. These tariffs have to be monitored and phased out sooner than later. Otherwise, you create a bubble that’s bad for everyone.

TSE: Do you feel the US would benefit from a nationwide feed in tariff?

Jeff: Not necessarily. I think this needs to be done on a regional basis. An FIT in California, Arizona, New Mexico, Texas, Colorado, Utah – these would be great because you have such a strong solar resource in these states. But if you try to force a FIT for the whole country, you’ll get a lot of backlash, and in some areas, it probably won’t be nearly as effective.

TSE: How do you think the solar industry will look in 5 years?

Jeff: I think the leading solar companies today will be some of the biggest corporations in the world. I think the technology will be much more advanced, production costs will decrease and there will be more policy support. The costs for consumers will be much less, and I think we’ll see a lot of companies offering solar leasing programs.

TSE: Once again Jeff, thanks for your time. I certainly hope you are right.

Many Thanks To Total Solar Energy

News of spending cutbacks have made depressing reading over the last six months as the government is seeking to rein in spending as a way of controlling spiraling national debt. Health, education, policing and defence have of course been at the forefront of controversy regarding spending reviews and the inevitable consequences which arise as a side effect. Now it is unfortunately renewable energy’s turn to feel the squeeze as some call for cut backs in green energy incentives.

At a time when all members of the coalition government are bemoaning cupboards barer than those of Old mother Hubbard it is perhaps not particularly surprising that Energy Secretary Chris Huhne has been urged to safeguard investments in British renewable energy.

The feed-in tariff which was introduced back in April works by offering guaranteed, premium rates for energy produced by small scale renewable generators. While Huhne has come out and said that, “There is no money left”, he has at least until now talked a good game about supporting green energy in this country. Feed-in tariffs have been absolutely crucial in solar pv taking off in the UK and the future success of UK solar undoubtedly relies on the existence of a strong tariff scheme.

Fearing cutbacks which would cause irreversible harm to burgeoning UK renewable energy businesses, Friends of the Earth (FOE) have carried out their own report designed to show that maintaining and encouraging a strong renewable energy industry has distinct advantages for the struggling e News of spending cutbacks have made depressing reading over the last six months as the government is seeking to rein in spending as a way of controlling spiraling national debt. Health, education, policing and defence have of course been at the forefront of controversy regarding spending reviews and the inevitable consequences which arise as a side effect. Now it is unfortunately renewable energy’s turn to feel the squeeze as some call for cut backs in green energy incentives.

At a time when all members of the coalition government are bemoaning cupboards barer than those of Old mother Hubbard it is perhaps not particularly surprising that Energy Secretary Chris Huhne has been urged to safeguard investments in British renewable energy.

The feed-in tariff which was introduced back in April works by offering guaranteed, premium rates for energy produced by small scale renewable generators. While Huhne has come out and said that, “There is no money left”, he has at least until now talked a good game about supporting green energy in this country. Feed-in tariffs have been absolutely crucial in solar pv taking off in the UK and the future success of UK solar undoubtedly relies on the existence of a strong tariff scheme.

Fearing cutbacks which would cause irreversible harm to burgeoning UK renewable energy businesses, Friends of the Earth (FOE) have carried out their own report designed to show that maintaining and encouraging a strong renewable energy industry has distinct advantages for the struggling economy.

Campaign director for FOE, Craig Bennett said,

“It’s absurd that the Treasury is even reviewing FIT payments because the scheme isn’t financed by taxpayers, and there is already a planned review in two years time. Huhne must stand firm and allow councils, communities and businesses to benefit from green energy revolution.”

The real benefits of feed-in tariffs will be put into perspective in a couple of years when we are able to retrospectively assess the growth of UK renewable investment and uptake compared with our European counterparts. While there are some who may argue that a cash strapped government could better spend its money elsewhere, it is hard to deny that a strong green energy industry would be a vital both for revitalising the economy and helping homeowners make savings on utility bills.