National solar installers Tesla (TSLA -1.06%), Vivint Solar (VSLR), and Sunrun (RUN 4.99%) have long promoted themselves to investors as the low-price options for going solar. And the company with the lowest prices would have a significant competitive advantage in the growing rooftop solar segment.
But a new study from the National Renewable Energy Laboratory (NREL) shows that large installers may not offer buyers a cost advantage at all. In fact, large installers charge significantly higher prices than smaller competitors for solar power systems, which may explain why they have been losing market share over the past year.
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Higher prices from national installers
The full study by NREL can be seen here, but the big takeaway is that systems from large installers costs significantly more than those installed by their smaller competitors. This chart shows the distribution of quotes NREL studied, mainly from EnergySage and its customers. Large installers are defined as companies that installed 1,000 solar power systems or more in any year from 2013-2015. I'll note that these quotes are for system sales, not leases.
Source: NREL report Using Residential Solar PV Quote Data to Analyze the Relationship between Installer Pricing and Firm Size.
This second chart is probably more meaningful because it compares direct quotes from large and small competitors. These are systems on the same house and have been adjusted for factors like panel quality, efficiency, and other factors. You can see that a large installer is, on average, $0.33 per share higher than smaller competitors.
Source: NREL report Using Residential Solar PV Quote Data to Analyze the Relationship between Installer Pricing and Firm Size.
The price differential could be driven by higher administrative and sales costs for large installers, or even higher margins. Small installers often work on referrals, spending very little on sales and marketing, in contrast to their larger rivals.
What this means for solar companies
NREL wouldn't release the names of the companies in its large installer group, but we can easily figure that Tesla (formerly SolarCity), Vivint Solar, and Sunrun are in it. And given their struggles growing in the past year, this data makes sense. But there's really no getting around their higher cost structure without entirely changing their business model.
SunPower (SPWR) has put itself in an interesting position given this data. It's a large presence in residential solar, but doesn't have a national installation network of its own. Instead, it works with lots of smaller, regional companies that install its solar panels, and use its technology for quoting and other back-office services.
As rooftop solar gets more competitive and customers buy more systems, it's possible that Tesla, Vivint, and Sunrun will collectively lose even more market share, and SunPower will grow its share simply based on the difference between their installation models. There's just no way around the fact that large installers are at a cost disadvantage -- and that's not usually an attractive proposition for investors.
