What do you do with an Orphaned Solar System?

The inspiration for this blog comes from the increasing number of phone calls Helio Energy Solutions has received recently from orphaned solar consumers.  An orphaned solar power system is one abandoned by the original installation firm.

A few years ago, an orphaned solar power system would have seemed unlikely if not impossible. The marketplace was swelling with well over a thousand solar companies and new entrants were popping up almost daily. Business was booming and bankruptcy was the furthest thing from solar companies’ minds. Fast forward to 2011, and the solar world, at least in California, is changing rapidly.  We can see this playing out in the number of calls our service center receives daily from solar consumers whose solar companies are missing in action or simply out of business. As the company goes, so goes the warranty on a solar power system.

Warranty Mandates

Warranty and service are critical elements of the value add that Solar EPCs (this stands for ‘engineering, procurement, and construction’ aka ‘solar integrators’) offer to their customers. If you’ve gone solar in California, the California Solar Initiative mandates that the Solar EPC provides a 10 year warranty on all products and workmanship related to the installation of your solar electric system. Such a lengthy warranty provides peace of mind to early adopters who are taking a risk on both the technology and the company that they select to install it.

While government mandates can force companies to comply with all manner of regulation, including warranty terms, they can’t guarantee that those companies will remain in business throughout the term of the mandate. So, what happens if a company goes out of business during the mandated warranty timeframe? Keep in mind that in the solar business there is no such thing as ‘too big to fail.”  While solar electricity adoption is growing at rates exceeding 20% annually, the solar industry is quite small compared to traditional energy businesses and the economy overall. Thus, it would be foolhardy to expect that your local solar company might receive a bailout should it go under prior to your warranty expiration.

The Solar Business in California

As the California Solar Initiative (CSI) enters its fourth year, we in the solar business find ourselves humbled.  With rebate money all but exhausted in PG&E and SDG&E, and on hold in LADWP until July 2011, the go-go days of the early solar market are grinding to a halt. The result is that fewer new companies are entering the solar integration space as overall demand for solar electricity in California flattens out. Beyond this, many established firms are going bankrupt for a host of reasons. The San Diego region’s sudden drop off in demand after the latest rebate drop and the killing of PACE in early summer 2010 caused some well-established names to close their doors. Many companies had gotten ahead of themselves either in marketing spend, high end office space, market expansion, and accounts payable. Other large companies have pulled out of the residential space altogether while still others are closing offices to get expenses in line with revenues. Regardless of the reasons a firm might fail, the failure almost always has the same result: the warranty, which is only as good as the company standing behind it, goes away forever. What does this mean for you if you’re two years into a ten year warranty?

What We Hear from Orphaned Solar Power System Owners

While the casual solar energy consumer shouldn’t be expected to follow the ups and downs of the solar industry, the company you choose to install your solar power system will have huge implications on your ability to receive prompt, reliable, and consistent service in the future. The increasing number of phone calls Helio Energy Solutions receives from orphaned solar customers follow this typical dialogue:

Solar Customer (SC) – “Hi, I’m a solar consumer and I don’t think my system is working”

Helio Energy Solutions (HPI) – “Ok, when did we install your system?”

SC – “Umm, actually you didn’t install my system, but I need someone out here right away to troubleshoot it. I just got a $600 electric bill from my utility!”

HPI – “Have you tried contacting the solar company that installed your system?”

SC – “Yes, but his number is disconnected and his emails are bouncing.”

HPI – “Ok, we’ll be happy to help you troubleshoot your system. I can have a technician out at your house tomorrow afternoon. You’ll need to have a $200 check ready for the technician before he starts work.”

SC – “Two hundred dollars!! But I have a ten year warranty with CSI. You need to fix my system for free!”

HPI – “Actually, sir, your ten year warranty is with the company that installed your solar system. If they are unable to service your system, you’ll need to pay another company to perform the work whether that’s us or someone else.”

SC – “This is unbelievable! I got a bid from Helio Energy Solutions when I was shopping for my solar system, but chose the other company because they were cheaper than everyone else.”

HPI – “I’m sorry that we weren’t able to earn your business earlier, but providing service after the sale is one of the reasons we need to charge a little more for our products. So would you like us to come out and fix your system? If the problem is related to inverter or solar panel warranty, the manufacturer will cover all parts and labor. However, we still need to charge you $200 to get the process going. How would you like to proceed?”

SC – “I guess I don’t have a choice. Everyday my solar system is down I’m paying the utility more and more money. I was told by my  installer that my system would be maintenance and hassle free because it had ‘no moving parts’.”

HPI – “Ok. Tomorrow then?”

SC –  “Ok. Tomorrow.”

This call script is playing out in our offices with ever increasing frequency. The issues range from downed inverters, underproduction, roof leaks, and the like.

Pete in the Pickup

Most of the calls we receive are from consumers who chose to have their systems installed by what we in the industry call “Pete in the Pickup”, “Chuck in the Truck”, or “Dan in the Van.” These are industry labels for the one man electrician or roofer working out of his garage or condo.

While Pete’s material costs are higher (because he has to buy through distribution) his overhead costs (including insurance, workman’s comp, warehousing, benefits, service department, etc.) are substantially lower than large established companies. As a result, Pete can undercut all of the big guys. Sometimes he’s able to do this by hundreds or thousands of dollars.

In the four years I’ve been designing and selling solar electric systems the story has played out with remarkable consistency.  Pete sells a few systems, installs them, and exits the business. For the ‘Petes’ that stay in business, the service burden can soon overwhelm them as more systems get installed and need service. Pete simply doesn’t have the resources to create a dedicated service department. This can result in lengthy waits for system service.

While you may consider the Petes, Chucks, and Dans an easy mark for a blog of this nature, what’s startling is the number of well-established solar businesses closing offices, residential divisions, or shuttering their operations altogether. This is where multiple layers of warranty protection can benefit consumers long term.

CSI & Third Party Ownership Warranty Protections

If you live in California, your first layer of protection is CSI’s 10 year warranty. Should your solar installer go under, you still can make warranty claims to your equipment manufacturers. Your inverter or solar panel manufacturer will dispatch an approved installation partner and pay for the service call if the problem is related to their equipment. In our experience, inverters (especially SMA) and solar panels rarely fail. The failure is often in the B.O.S. (this is industry talk for ‘balance of system’). BOS is everything else. It comprises racking, feet (we call these stanchions), conduit, wire, fuses, breakers, disconnects, etc. Unfortunately, these items are the ones covered exclusively by the CSI warranty.

There is a third layer of protection available to solar consumers: third party ownership. Third party ownership is often associated with PPAs (power purchase agreements) and solar leases but have the advantage of making the solar energy system someone else’s problem.

The third party insures, warranties, and maintains the solar power system. You get to enjoy the benefits without the hassle. Third party ‘solar as a service’ companies provide warranties up to 20 years. One company, SunRun, has taken an interesting step toward long term customer protection. SunRun has set up a special purpose fund to maintain the systems they own in the event they go out of business. Thus, with SunRun, your warranty is 20 years all inclusive. Should SunRun fail, the special fund covers all warranty and repair work for the remainder of the term of the agreement. In the event the special fund evaporates, the 10 year CSI/installation warranty takes over.

Lastly, should the first three layers of protection fail, you can always fall back on the manufacturer warranties for your solar panels and inverter(s).

When dealing with an industry in its infancy, the more layers of protection you afford yourself, the better the return you’ll realize over the life of your solar panel system as you’ll avoid potentially costly out-of-pocket repair and maintenance work down the road.

Tips to Protect Your Solar Power Investment

While there’s no guarantee any company will remain a going concern in perpetuity (think Lehmann), here are a couple of tips that will help you to avoid the weakest players during this time of upheaval in California’s solar industry:

  1. Choose a company with lots of installations. Most solar companies have fewer than 10 installations according to CSI data. You’d be well served to set the bar at 100 or greater.
  2. Don’t hire the ‘one and done’ fly by night solar installer. You’ll know who he is because he’s usually a couple thousand dollars cheaper than everyone else.
  3. Take a hard look at third party ownership. After all, why not let someone else shoulder all of the technology and installation risk while you save money every month on your electric bill.
  4. Only consider third party owners who have established a maintenance fund in the event of their own mortality.
  5. Always check your contractor’s references, licensing, and insurance.
  6. Consider adding monitoring (standard with third party ownership). Monitoring is a critical performance review maintenance tool.

As the solar industry enters 2011, we expect a year of changes and surprises. Some companies will be well positioned to capitalize on the myriad changes while others will fall by the wayside. More than ever you need to protect your solar electric investment from joining the ever increasing ranks of solar orphans permeating the marketplace. Toward this end, a multilayered approach to warranty protection may very well be the best solar decision you make.