ITC Extension: What Now?
At 4:00 am on December 16th, we weren’t sleeping. We were emailing back and forth in shock at the sudden probability of the ITC extension being signed into law.
We had high hopes for an extension, but didn’t expect it to get done so suddenly. The next day, after greeting each other with “Merry Solarmas,” we celebrated as any proper company would, with champagne and cake in the office kitchen. We explained the basics to our team, 5-year extension of the 30% federal tax credit, bonus depreciation extension, Section 179 made permanent.
Once the ink dried and the dust settled, our management team sat down together. The business strategy for 2016 needed to change and it was time to start making decisions. The fundamentals were fine, but the urgency, excitement and shortage concerns were no longer the focus. What did this mean for our purchasing/marketing/staffing strategy? What did it mean for our customers’ businesses? Here’s what we’ve come up with so far:
What does the ITC extension mean for solar contractors?
Overall, it means you have 5 more years to provide significant money-saving solar solutions for home and business owners. The solar industry would have survived without the tax credit extension, but now it can continue to thrive. Important things to consider:
- Financing continues to be heavily relevant in the light of extended tax credits. Credit unions are seeing phenomenal success rates in solar loans and are becoming more willing to provide great financial products for solar customers. Now that they have plenty of time to work through the complexity, new tax equity providers will enter the market. Expect more competitive loans and PPA’s as the success of the portfolios become more noticeable. The best news is that we won’t have to face rising interest rates and the ITC expiration at the same time.
- Full service solutions. With the five-year extension, more companies are looking for full service solutions. Streamlining the financial programs and equipment procurement process and focusing in-house employees on good fundamentals of sales and installation. Efficiency improving tools and services are now more relevant than ever.
- Small Commercial: Section 179 and bonus depreciation mean that a financially stable business can see incredible returns on their solar arrays in most markets.
- ITC extension also means you can expect even more market entrants. We are seeing more and more canvassing teams that have typically sold pest control, alarms, security systems jumping into solar. There is also a good chance that we will see a large number of HVAC, electricians and roofers getting in on the game. Expect the market to flood with new entrants for the next couple of years and then a certain amount of consolidation to occur as the companies that can execute the long (and often arduous) installation process, maintain a good credit standing, and manage the difficulties of rapid growth rise to the top and the rest fall short.
How do I adjust my business model for this extension?
You are no longer planning on pushing all 2017’s sales into 2016. Expect a more reasonable seasonal ramp up, more in line with what you’ve seen in years past. Since sales is less of the focus and we are working with a much longer timeline, this is a good time to focus on
operational excellence. Streamlining and improving the operations process to drive down soft costs is going to be the key to long-term success in the solar industry. Share the extension news with your business partners and bankers. Credit should become more readily available as macro economic climate continues to improve and creditors will be able to look past the unknown of the tax credit expiration.
Soft costs have remained stubbornly high, and the market is taking notice. There are more tools than ever available, customized for solar contractors, to help improve sales close ratios, add visibility and accountability to the installation process, improve accuracy and reduce man hours. With five more strong years ahead, now is a good time to invest in improving your process.
What does ITC extension mean for the distributor?
Overall, our strategy hasn’t changed. Before the extension, our strategy for 2016 was establishing excellent partnerships with both manufacturers and customers to ensure that we could commit to supplying what we needed. Our organization decided to commit to guaranteeing the supply of the products our customers would need. We committed to keep a long-term strategy in mind and to not raise the cost or agree to sell to someone else at a higher rate. The 2015 push of larger projects to meet a 2016 completion deadline means that many of those projects will still happen in 2016 which will make non tariff module and primary equipment supply tight at times throughout the year.
We still see ourselves as an extension of our manufacturing partners and plan to commit even further to long term relationships with those committed to the solar industry. These relationships allow us to pass best pricing and reliability on to our customers. We are still committed to long term relationships with our customers and to doing everything in our power to ensure their trust in our pricing and reliability.
Overall, ITC extension means sticking to good fundamentals, investing in process improvements and continuing to improve the business for a time without subsidies.