Did you know why Solar Energy Startups still fail?
The solar industry is experiencing a sudden hike this year. The solar landscape looks promising compared to its situation ten years ago. In the last decade, we witnessed price drops, improved manufacturing strategy making solar an affordable option for companies and homeowners.
This industry is growing exponentially in Australia. According to a report by the end of 2018, they reached 2 million solar installations.
In the middle of this development process, many companies went bankrupt and left the business. The metrics state more than 750 solar companies have closed and initiated liquidation or other conditions that imply adverse trading factors. This signals the epidemic of devices whose retailer is no longer in the market. These machines are referred to as orphaned systems and presently around 480,000 to 600,00 orphaned machines are installed on the roofs in Australia.
When the development is so evident how can companies go into liquidation and other conditions that signify negative trading conditions?
When a solar industry goes bankrupt?
A solar company declares bankruptcy when their products fail to trade in the market. Cutting down the cost price can attract customers for a time being. However ineffective business practices and poor management can cause this huge deficit. Many reports show that a solar company goes into liquidation only when they face repetitive claims based on poor product quality, workmanship, and cannot undo these errors for a long time.
There are a few cases where a company does not even honour warranties. When an industry overlooks customer claims, the liabilities pile up more when the products are cheap and low quality. Cheap solar panels fail more than average-priced solar panels. As people are widely adopting solar energy, these cheap panels can leave behind thousands of failed systems if not death with precision.
Solar companies declare bankruptcy because the correction procedure will cost them more than going into liquidation. This leaves the consumer with no choice of repairing. As they have to scrap the existing system and invest in some other system. This is extremely unprofitable to the customers and can be prevented by selecting a professional solar service provider. Before investing make sure to perform in-depth research on the company.
Solar companies are also forced to shut down because of legal action. These legal actions are taken for breaking consumer laws and false endorsement schemes. Oftentimes these companies lure consumers by providing cheap solar panels and make false claims regarding the product and their operation.
Three major challenges of the solar industry
Here are three major challenges that solar entrepreneurs must keep in mind.
1. Keep the projections realistic regarding launching and rising
The green energy bubble got busted in 2008. As per all the investors, the green energy revolution would be the solution for soaring oil and electricity prices. However, the solar startups they invested, failed miserably and went out of the market in no time.
Here the major problem lies in the thinking of solar entrepreneurs and investors. The over-optimistic projections have made the industry suffer a lot.
Most of the entrepreneurs make unrealistic projections and spend according to it, this leads to mismanagement of financial assets and leads to bankruptcy. The green energy revolution will take years to grow and till then solar entrepreneurs must keep their numbers based on fact.
Novices should convince their investors that it will take three to five years more than the general projection. The Return on Investment for 10 years will rationalize this investment only if they can avail of a business loan.
2. Verify that you possess a sustainable pricing policy
Many solar companies start scalability processes before they are ready. The biggest mistake here is to satisfy a broader consumer base in a slim margin.
You might have heard about Yeloha, this failed solar startup's purpose was to be the Airbnb of the solar landscape. The CEO of Yeloha vividly accepts that the biggest mistake was to conform to a price skimming program. This made it hard to break in the initial months. This strategy limited its cash flow and lowered the profit margin as the company scaled.
The main reason for the company's failure was that they were not able to convince traditional lenders to test their strategy. They thought initially the high returns on investment will attract investors to engage with a startup. They aimed to divide large installations between multiple subscribers to reduce credit risk. However, the plan didn't work for them.
3. Stay upright until the industry reaches stability
According to a recent report, the solar industry needs a lot of time to attain saturation. The surplus amount of solar companies has brought down prices across the industry. This is making solar energy industries to function in small profit margins, leaving the whole industry in a state of insolvency.
Projecting future cost price is quite tough in the solar industry, because of fluctuating energy costs, unstable demand and supply, new regulation, and other unpredicted conditions.
Smart entrepreneurs will wait for the time where the prices will rise and the industry goes onto become a sustainable landscape.
Four reasons why a solar industry fails?
1. Competing on Prices
Most of the solar companies advertise their pricing strategy and not their products feature in the ad campaign. Being the cheapest option works only if you have access to
- Low working cost
- Low material cost
- The network of efficiencies that your competitors lack.
If you don't have any of the above-mentioned factors then low prices can be unhealthy for your business.
2. Placing as a commodity
Most of the customers look for less risky products. The best option does not work in the solar industry. By placing themselves as the most affordable option they are reducing the risk of investment for customers.
However, the problem arises when only the price is taken under consideration and the important features of the product are left behind.
3. Unsustainable businesses
Unsustainable business practices force the staff to finish early to keep up with their profit margins. With a restricted time frame, their shortcut to work starts to appear. Misaligned panels, exposed cables, and wiring terminations do not meet up to the standard quality.
This kind of faulty system does not last long and it's more likely that the wiring or panel can go off soon.
4. Warranty claims
A solar industry goes bankrupt when the customer claims increase more than installations. This generally happens due to low-quality materials and workforce. As they cut the percentage on the cost price they manipulate bad quality products in the system.
Customer claims bring bad publicity as people will not refer to a commodity that is full of faulty connections. Most of the company goes to the state of liquidation to save on repair costs.
The solar industry is in transition mode. This industry is booming since 2018 but the failure rate stays elevated. The success rate might fall as the market gets more fragmented and saturated.
New solar startups can face some competition issues. Venture investors and traditional lenders know the risk of this industry and want to make investments in a project with potential. The industry reached 14.5 billion euros in 2018 priorly in the year 2013 the numbers went up to 21.3 billion euros.
Novices should go for in-depth research to know the problems and their solution to keep your company afloat.
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