As the solar photovoltaic (PV) industry in the U.S. continues to evolve, there are a growing number of local companies that install residential PV systems and a number of emerging online platforms that make it easier for customers to obtain installation quotes. However, in 2015, 10% of the highest-volume installers – in terms of number of systems installed – accounted for about 90% of installed residential systems. New research from the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) shows that homeowners can benefit by seeking quotes from a range of suppliers.
We find that high-volume installers tend to quote higher prices than others when delivering quotes to the same customer. Some customers may prefer working with high-volume PV installers and be willing to pay premium prices for a variety of reasons. Nonetheless, our research shows that all customers can benefit from obtaining more quotes before making a decision and that all customers could benefit from increased access to more offers.
Our research uses actual quote data from EnergySage, a PV quote provider in the U.S., to explore how an installer’s company size affects its pricing. The study analyzes the market position and pricing behavior of “high-volume” installers – any company that installed more than 1,000 residential PV systems from 2013 to 2015 – and “low-volume installers,” which refers to all other companies.
EnergySage’s online platform provides multiple PV quotes, helping prospective PV customers comparison shop for solar and determine their savings by adopting solar. The company provided NREL with more than 1,550 quotes for customer-owned systems made to 351 customers in 27 states and the District of Columbia from February 2014 to October 2016. In addition to the quotes from EnergySage-affiliated installers, the study also included quotes from other installers that EnergySage customers voluntarily submitted. The study limited the quotes to customer-owned systems in order to compare prices according to a single metric: dollars per watt ($/W).
The data included 176 high-volume installer quotes with an average quote price of about $3.99/W compared to 1,412 low-volume installer quotes at an average of about $3.62/W (see Figure 1).
The primary benefit of using quote data over installed system price data is the ability to compare the prices of different offers quoted to the same customer (Figure 2). Comparing prices quoted to the same customer allows self-consistent control for home characteristics that affect installation costs, such as roof pitch and construction materials. In the analyzed database, 142 customers received at least one quote from both a high- and low-volume installer.
We use a paired differences test to study price differences between high-volume and low-volume installer quotes made to these customers. For instance, if a high-volume installer quoted $3.90/W and a low-volume installer quoted $3.80/W to the same customer, the paired difference equals $0.10/W for that customer. The average paired difference in our study was $0.33/W. In other words, high-volume installers quoted $0.33/W higher, about 10% higher, than low-volume installers on average when quoting to the exact same customer. High-volume installers quoted higher than low-volume installers in about 70% of quote pairs we analyzed. The difference in high-volume installer quote prices is robust after controlling for system size, quote date, module efficiency, inverter type, and whether the quote was provided via EnergySage’s online platform or directly to the customer.
Our findings suggest that high-volume installers quote higher, on average, than low-volume installers. The quote price differences can be significant – a difference of $0.33/W translates to $1,650 for a typical 5 kW residential system. These results prompt two questions: Why would high-volume installers quote higher than low-volume installers, and why would customers accept higher prices? Using economic theory and insights from similar markets, our analysis discusses possible answers to these questions.
Why would high-volume installers quote higher prices than low-volume installers?
One possibility is that competitive advantages allow for charging higher prices. Most customers only obtain a few quotes; thus, high-volume installers may face few rivals when providing a quote to a customer. By contrast, low-volume installers may perceive greater competitive pressures to undercut the prices of high-volume installers in their territory. Further, low-volume installers are generally less able to offer third-party ownership (TPO) products than high-volume installers. As a result, they are not as active in TPO markets, and high-volume installers face less competition when bidding to customers interested in TPO products.
Most prospective customers are first-time buyers and largely unfamiliar with PV installation. In markets for similarly novel and complex products, like consumer electronics, customers often use reference points such as brand names and advertising to select between product options. High-volume installers may be better positioned to use their scale, brand awareness and marketing to attract these first-time buyers and charge higher prices.
Additionally, higher quote prices by high-volume installers may reflect some diseconomies of scale in residential PV installation. In particular, they may incur higher customer acquisition costs than other low-volume installers. High-volume installers have invested in broad-ranging customer acquisition strategies such as mass marketing and door-to-door canvassing. These customer acquisition efforts have allowed some installers to scale in size but have also proven to be costlier than methods more commonly used by low-volume installers, such as customer referrals. As a result, customer acquisition costs in the U.S. solar industry have increased in recent years, especially among high-volume installers.
Why would customers accept higher prices from high-volume installers, if lower prices are available from other low-volume installers?
Some customers may prefer working with high-volume companies for a variety of reasons, such as the ability to honor contractual terms and warranties.
Furthermore, some customers may use an installer’s volume as a proxy for quality. That is, some customers may assume that high-quality installers attract more business, and as a result, an installer’s volume is an outcome of its quality. These perceptions could lead some customers to pay higher prices for high-volume services.
Our results indicate that customers benefit by shopping around, even if those customers prefer high-volume companies. However, collecting PV quotes can be a daunting process. To obtain multiple quotes, prospective customers must identify and contact installation companies, have conversations with these installers, host site visits, provide home information, and make other investments of time and effort.
Our research shows that policies and consumer products that facilitate the quote collection process can significantly benefit PV customers and potentially increase their likelihood of adoption. Third-party quote platforms can help customers collect more quotes from a variety of high- and low-volume installers and also allow those customers to more easily compare them. Furthermore, easier quote collection could increase inter-installer competition and reduce quote prices overall.
A corollary result of our study was that quote prices were significantly lower, on average, on EnergySage’s quote platform than when received directly from installers. Lower prices on the quote platform could reflect competitive pressures on installers that expect to compete with many other companies and may result in increased adoption of PV.
Prospective PV customers face a variety of choices during solar adoption, including the choice of an installation company. Our research suggests that installer choice matters. We find that high-volume installers tend to quote higher prices, on average, than low-volume installers. At the same time, high-volume installers may offer additional value propositions such as TPO products that may be more attractive. All customers can benefit from obtaining more solar quotes before buying.
Eric O’Shaughnessy is a market research analyst and Robert Margolis is a senior analyst at the National Renewable Energy Laboratory. This article is adapted from an NREL report co-authored by them, titled, “Using Residential Solar PV Quote Data to Analyze the Relationship between Installer Pricing and Firm Size.”