Case 2: Blue Raven Solar: Competing in a Fragmented Growth Industry

As Trevor Weed sat back and considered the growth of Blue Raven Solar, he thought about the
dramatic success they had experienced but wondered if the company was up to the challenges it
was facing. The company, founded in 2014, had started with a simple mission: provide clean
energy solutions to residential customers at an affordable price. From humble beginnings as a
sales partner of One Roof Energy, weed had helped establish Blue Raven’s operations in 15 states
in just six years. Weed joined the company in 2015 as Director of Operations, then was promoted
to Vice President of Operation, and now serves as Chief Operating Officer with a charge to
continue to drive growth. The company achieved impressive revenue growth of over 30 percent
per year with revenues estimated to be roughly $300 million in 2022.1 Yet despite the company’s
rapid ascent, weed saw several key challenges: a large number of rivals, the rapid consolidation
of suppliers of key materials, the ever-shifting government tax incentives, and a host of new clean
energy alternatives that seemed to make the news daily. Would any of these changes pose a
serious threat to the residential solar industry and Blue Raven in particular? Or would they merely
be minor obstacles to overcome? As Weed pondered which of the concerns were most important
for Blue Raven’s future success, he pulled out his iPad to start his daily action list.

The Industry

Since its invention in the 1940s, the solar technology industry has spent decades quickly moving
down the learning curve to become a much more affordable and widespread consumer good. In
the 1950s, it was estimated that a solar array for an average U.S. home would cost $1.5 million.
At this price, the only buyers who could afford solar were price-insensitive buyers such as space
programs and military operations who primarily needed solar panels to power orbiting satellites.
While this market for solar energy (e.g., panels and installation) was small, growth over the
following decades decreased the cost of solar energy by about 30 percent with each doubling of
total volume. Put in other terms, in 1976, every watt of electricity produced by solar panels on
residential installations cost nearly $100 while the cost in 2020 was a mere $2.71 per watt. In
some markets, residential solar has even become cheaper at producing electricity than electricity
produced from fossil fuels.

In the 1970s, solar had its first significant boost in popularity when global oil shocks led to
increased commercial and government interest in solar. A second boost came in the 1990s when
Japan began a government-subsidized residential solar program. In the 2000s, Germany and Italy
introduced similar government incentives for residential solar and solar installation took off
across Europe. Over the next decade, the price of residential solar continued to decline along a
cost curve of roughly 30 percent (see Exhibits 1 and 2).
In 2007, the U.S. passed landmark legislation that subsidized residential solar installations and
provided consumers with a tax break good for up to 30 percent of the cost of the solar system.
In 2021, President Joe Biden renewed the program with a 26 percent federal tax subsidy of the
cost of the system through 2022. This tax credit subsidy was scheduled to drop to 22 percent in
2023 and was set to expire at the end of 2023 (see Exhibit 3) but new legislation raised the tax
credit back to 30 percent for 2023 and 2024. While some speculated that credits might be
extended beyond 2024, future credits remained uncertain.
In addition to a steep cost curve and government subsidies, the success of the residential market
has also been driven by innovation in financing solar systems. Few homeowners can afford to pay
out of pocket for the average $15,000 cost of installing solar panels on their homes. So solar
companies began partnering with lenders some of whom offer long-term financing options while
others offer leasing options. With these loans and leases consumers can spread out the cost of
their solar investment over many years, basically replacing their monthly power bill with a
payment on their solar system.

The Residential Solar System

The solar panel is the largest, most expensive and most visible component of a residential solar
system. The panels capture energy from the sun by turning sunlight into electricity in a
photovoltaic system. Simply stated, in this panel sunlight knocks electrons free from atoms and
generates a flow of electricity.

Residential solar panel manufacturing began in several different countries including Germany,
Japan, the United States, and Korea, but as government subsidies for solar panel manufacturing
in China grew, Chinese companies started to dominate the industry. As of 2017, the majority of
the world’s residential solar panels came from Chinese companies.
However, with recent increased tariffs on Chinese imports to the United States other
manufacturers located in South Korea, Mexico, and the United States are emerging. At the end
of the day, while there may be slight product differentiation from one manufacturer’s panels to
another’s, or from one inverter to the next, the only differentiation understood by most end
customers of solar panels is wattage, price, and efficiency. The focus on price and efficiency in a
highly competitive manufacturing market means manufacturing companies are constantly
pushing suppliers to manufacture higher quality, less expensive panels, thus aiding the steep
decline of solar panel prices. According to Trevor Weed, “As long as the panel is tier 1 and they
are making panels that are the market efficiency, we consider the panels to be a commodity.”
While solar panels are a commodity, the competition for the panels is global and Blue Raven has
to outbid buyers from around the world for limited supply.

The second largest cost component of a residential solar system is the inverter. Inverters take
the direct current (DC) electrical flow from the panels and convert it into alternating current (AC)
which is compatible with the electric grid and usable in homes. The inverter does this by rapidly
switching the direction of the DC input. Inverters are either micro inverters which optimize the
output from single panels or string inverters which optimize from a series of panels. The
dominant providers are Enphase from California and Solar Edge, also from California but
headquartered in Israel. Blue Raven works hard pitting these two primary providers against each other to
obtain the lowest price.

The third most important component in the solar system is the racking. Solar racking mounts the
panels to the roof using tubes of steel and frames. Racking is fairly commoditized with most
innovations diffusing rapidly among competitors.

Other hardware components such as wires, bolts, and connectors account for less than 2 percent
of solar costs. Blue Raven and other providers often just buy these products at retail hardware
stores.

Labor

The labor costs of solar installation have also been declining rapidly as innovations in racking,
clips and connections have simplified and standardized the process.

In its first year of operations, Blue Raven used a third party to install the systems it sold. However,
being dependent on another company meant that its customers were often pushed down the
priority list and were made to wait. As a result, Blue Raven hired its installation crews to fully
control the customer experience. Due to the rapid growth of solar, the U.S. Bureau of Labor
Statistics predicts that Solar Photovoltaic Installers will be one of the fastest-growing jobs
nationally between 2018 and 2028. The average median salary for these installers is just over
$42,000 and rising. The increased demand for install employees will likely increase labor costs.

These technicians are the face of residential solar companies and often determine the
satisfaction of the customer. As prices for the hard cost of solar panels have already fallen
dramatically, many companies have found that soft costs such as installation labor have become
a higher percentage of the total cost of each installation and have shifted their focus to further
simplifying the installation process. These efforts have allowed solar companies to speed up the
installation process, which is now often only limited by the rigorous permitting processes
required in many states and cities.
Customer Acquisition

The majority of solar residential customers choose solar to save money on their energy bill. For
some customers, other upgrades to the home such as new windows or insulation may be a more
attractive option. If a customer thinks that the price of solar outweighs the system’s actual value,
they can easily add other energy efficiency features to their home while staying connected to
their city’s existing energy grid. Energy efficient substitutes and the ease of staying connected to
the grid offer solar two substitutes that currently meet a large number of would-be customer’s
needs.

Once a customer decides to go solar, there are many solar installation companies to choose from.
In fact, in 2023, it was estimated that there are 11,268 Solar Panel Installation businesses in the
United States, an increase of 1.5 percent from 2022.2 While some customers only seek out an
offer from one solar company, most seek bids from multiple companies. As customers seek the
lowest price, it takes a sophisticated salesperson to demonstrate how their company can bring
the customer the most value in an industry that sells a product that is largely undifferentiated.
Many solar companies use a door-to-door sales approach.

Typically after a sale, full revenue is not realized until 2–12 weeks out after the solar system is
actually installed on the customer’s home and connected to the city’s existing grid system. The
long wait from the sale to revenue recognition means that solar companies must have enough
capital in the business to support their high project costs for 2–12 weeks until the company
receives final payment from the customer.

New residential solar companies may enter a market and nail down the installation process only
to find that they spend the majority of their costly project timelines waiting for different building
permits, design approvals, and inspections from the city. The added time on each install project
only prolongs the realization of revenue on each costly project that the company initiates. A key
driver of success for residential solar companies is the speed at which they can successfully
navigate the intricate red tape laid out by each city’s permitting unit. However, the largest
companies used different techniques to offer solar in a way that might be preferred by certain
customer segments.
Blue Raven’s Competitors

Blue Raven avoids competing directly against many of the largest residential solar competitors
by—somewhat counterintuitively—avoiding the most attractive geographic markets for solar.
Given the high cost of electricity, the ease of obtaining permits, the number of days of sunshine,
and large populations, markets like California and Hawaii were perceived as attractive markets
and, consequently, were targeted by big brand Solar companies like Sunrun (which acquired
Vivint Solar to become the largest solar installation company), Tesla Energy, and SunPower.
Instead, Blue Raven decided to focus on building efficient operations in less competitive
geographic markets such as the rocky mountain states, midwest, and south where the cost
advantages of solar are harder to realize. A large percentage of the 12,000 U.S. solar installation
companies were “mom and pop” operations often led by individuals who formed their own
company after learning the ropes working for an incumbent. These small companies could often
price aggressively because of their low cost structure. But this also frequently meant relatively
poor customer service. Blue Raven decided to raise capital and professionalize operations by
hiring and developing an experienced sales team, offering different payment options, developing
a quick and efficient process to get the necessary solar approvals from each city, and building a
quality customer service organization. This allowed Blue Raven to quickly get ratings as one of
the “best” solar companies in each of its geographic markets. In turn, this helped Blue Raven
build a quality reputation that helped it attract both customers and employees. The company
was often viewed by customers as offering good value because of its reputation for good
customer service and reasonable prices that were achieved largely through low interest rate
payment options developed with lenders.
Nationally, Blue Raven’s largest competitors included: Sunrun (Vivint Solar), Tesla Energy (Solar
City), SunPower, and Sungevity, each of which have grown through somewhat different
strategies. (For a list of the top 10 solar companies in the United States, see Table 1.)
Table1: Ten Largest Solar Installation Companies in the United States (and whether they are public or
private)

1. Sunrun (Public)
2. Tesla Energy (Public - a division of Tesla, Inc.)
3. SunPower (Public)
4. Vivint Solar (Acquired by Sunrun, previously public)
5. Sunnova (Public)
6. Trinity Solar (Private)
7. Pineapple (Sungevity) (Public)
8. PetersenDean (Private)
9. RGS Energy (Public)
10. Baker Electric Home Energy (Private)
Sunrun/Vivint Solar. Founded in 2007, Sunrun has grown to become the largest residential solar
company in the United States The company is known for its solar-as-a-service model where the
company provides the solar panels, the installation, and the maintenance of all the solar panels,
and the customer purchases the solar power produced just they would normally purchase energy
from a local utility company. In 2020, Sunrun acquired Vivint Solar, further solidifying its position
in the market. Vivint Solar focused on states with higher energy prices and gained traction with
customers by pioneering leasing options where the customer could choose not to own the
panels. Vivint’s leasing plans transferred the risk of new technology from the homeowner to
Vivint and ensured that over the 20-year lease the customer had working, headache-free solar
power. The downside of leasing is that after the customer paid for 20 years, they still did not own
their solar system.

Tesla Energy (Solar City). Solar City began in 2006. It quickly grew across multiple markets and
emerged as an industry leader. The company originally gained market traction through offering
different financing options that made solar affordable for a larger range of customers. Financing
so many loans however, quickly caught up to the company. As financing services brought on
greater amounts of debt and financial trouble Solar City was acquired by Tesla for $2.6 billion.

Under the Tesla brand the company has tried several different strategies including door-to-door
sales, online only sales, retail sales through Home Depot, and even Tesla dealerships. None of
these strategies has proven to be an ideal solution. Though the Tesla brand has helped keep Solar
City competitive, the company’s sales have fallen consistently throughout the past several years
with sales dropping from 650 megawatts in 2016, to 352 megawatts in 2017, and 208 megawatts
in 2018.3

SunPower. Founded in 1985, SunPower has been a global leader in solar innovation. Over the
years, they’ve been known for producing high-efficiency solar panels named the Maxeon, and
would sell customers on the efficiency and longevity of their panels. SunPower used to
manufacture its own panels, but now its sister company, Maxeon, handles manufacturing and
SunPower exclusively installs Maxeon panels. The company has grown through various
partnerships and acquisitions throughout its history.

Pineapple (Sungevity). Pineapple Energy became a major player when it acquired Sungevity in
2021. Sungevity set itself apart in the solar industry by developing and utilizing a proprietary
remote solar design tool using satellites, iQuote, which could provide home and business owners
with price quotes and system design options without having to send an employee to visit the
home. This technology enabled the company to not only save money on door-to-door sales but
also to run an effective online sales system that required no home visit pre-install.

The advantages of this technology were short lived as competitors were able to find ways to
imitate the iQuote technology. Moreover, the company’s early successes led to fast expansion as
it hoped to be a first mover and build a large installed base. As the company, which started in
California, started expanding to the east coast of the United States and even other countries,
leaders found that the company was burning through its funding money faster than customers
were adopting solar. Sungevity’s attempts to lead the solar market before the company had the
resources to scale effectively eventually led it to bankruptcy and restructuring in 2017.4 It
eventually was acquired by Pineapple in 2021.

In addition to these national players, Blue Raven faces a host of local or regional players in each
local market. In Utah alone, where Blue Raven is headquartered, the company faces competition
from more than 50 installation companies5 including Smart Wave Solar, ES Solar, Ion Solar, Mynt
Solar, Intermountain Wind & Solar, Redstone Solar, Palmetto Clean Energy, Solcius, Hedgehog
Electric & Solar, Gardner Energy, Rocky Mountain Renewables, etc. These smaller companies
often compete on price by purchasing less expensive commodity-like solar panels, using cheaper
and less experienced labor to install the system, and providing lower levels of service. One reason
for the large number of solar competitors is that government incentives were making solar
attractive and a mere 3 percent of residential homes have solar systems meaning that there is
still plenty of room for growth.

Traditional Utility Company’s Response

Perhaps the biggest threat to residential solar is traditional utility companies. These companies
often have significant power in local and state governments and continually put pressure on
utility pricing boards to lower the amount of money paid to residential consumers for the
electricity they produce with their solar systems. The power produced by the homeowner is fed
into and absorbed by the existing electric system. Utility companies pay the homeowner for this
power produced at an agreed upon rate often called the “net metering rate.” For instance, in
Massachusetts customers get 60 percent of the retail rate of electricity set against their next
power bill, in Nevada solar owners get 75 percent of the retail rate, and in California, customers
receive 3–4 cents per kWh for their net electricity produced.
Many lobbing groups argue that traditional utilities are massively subsidizing the solar providers
by paying for and maintaining the electric grid. Because solar only works during the day, most
solar customers need to be hooked up to the energy grid for round the clock power. As the solar
panels produce power and feed it back into the grid, utilities need to absorb this power. As a result, many
states have instituted connection fees and other charges to help stabilize the returns to utility companies.
In addition, most net metering programs zero out either monthly or yearly meaning that excess
production of electricity does not adequately compensate homes with residential solar systems and
customers have little incentive to over-produce their electricity needs and put energy back into the grid.6

Back feeding electricity into the grid has caused additional problems with line safety for power
companies. In the past, they could turn off power and safely work on power infrastructure but
this is increasingly difficult as homes are frequently pushing power into the grid.

In addition to traditional utilities a growing number of “clean” energy sources are emerging such
as wind, biomass and even a resurgence of nuclear. And a successful fusion nuclear fusion ignition
at Lawrence Livermore National Laboratory made the prospect of endless clean energy more
than a pipe dream.7 Many speculated that fusion energy might become commercially available
in the next 20–30 years.

What’s Next for Blue Raven?

When taking a step back to look at the solar market, Trevor Weed sometimes wondered to
himself why he and his business partners entered the solar industry when there was so much
competition and so much uncertainty about the future. He considered a number of important
issues that would influence Blue Raven’s success. For example, he wondered how the
consolidation of component suppliers might affect the prices Blue Raven was paying for key
materials and components. Would prices continue to go down as they had in the past or would
consolidation give suppliers more power? Was there anything Blue Raven could do to have a cost
advantage with materials? Weed also wondered what would happen with tax subsidies and how
dramatically it would affect growth when they disappeared altogether. And he was also
concerned that new laws might increasingly favor existing utility companies, allowing them to
keep a large percentage of the power that solar residential providers were putting into the grid
(and making solar less attractive, and more costly, for the homeowner). And finally, Weed
worried about how to respond to the large number of rivals and increasing price competition as
well as the potential alternative forms of clean energy—like fusion—that might eventually begin
to substitute for solar. At what point might solar systems become a mature industry and even
start to decline?
Weed knew that Blue Raven was currently thriving by being an early mover in a growing market,
building a strong sales force and customer service operations, and imitating competitor purchase
and lease options, as well as using the iQuote technology. But with increased competition, weed
wondered how Blue Raven could continue to thrive, or if it was simply a matter of time before
they sunk in a “red ocean” of competition. He also wondered whether Blue Raven should
consider being acquired by one of the larger players bent on consolidating the industry. Sun
Power had indicated an interest in Blue Raven and the company’s leaders wondered whether this
was the time to sell the business before various factors made the business less attractive going
forward.