Scaling and Streamlining Solar Business Growth
Inside this Article
While the US solar industry fielded systems at an unprecedented rate of 1 MW every 32 minutes in Q3 2016, SEIA and GTM Research will undoubtedly announce a new record pace for Q4. At the same time, average system prices are falling quarter-over-quarter and year-over-year. These data suggest that profitable solar installation companies are continually finding ways to work more efficiently and effectively. We asked business operations experts at four successful solar companies to share their strategies for working smarter rather than harder.
Lean Management Systems Address Need for Speed
By Chris Anderson, Borrego Solar
Borrego Solar is an EPC firm with operations in California, Massachusetts and New York that focuses on commercial and utility applications. The company added O&M services in 2015 and an energy storage division the following year. Since co-founding Borrego Solar in 2003, Chris Anderson has served in a variety of operations, engineering and executive leadership roles. As senior vice president, he works to drive down operational costs without sacrificing quality.
Borrego Solar is one of the oldest solar installers in the country and prides itself on responsible, sustained growth. The ever-changing market dynamics that define the solar industry, which industry insiders refer to as the solar coaster, make it challenging to achieve sustained growth on both a company and a market level. However, 2016 marked Borrego’s eighth consecutive year of profitable growth.
Shifting regulations are the largest hindrance to solar business growth, as they can quickly change project economics or create market gaps while programs transition from one regulatory structure to the next. While this reality is not ideal, management- and operations-level improvements have allowed us to maintain profitability, even when faced with declining incentives. We also work hard to identify new business opportunities and value streams. A recent example is the rise of virtual net energy metering (VNEM) and community ownership models, which are driving solar adoption in a massive way in some key markets.
Incentive Program Challenges
Utility incentives, tariff structures and policies—most notably, net energy metering—have been instrumental in the growth of the solar industry. But it is challenging for solar EPCs and developers to navigate and track program changes, incentive declines and policy differences from state to state and utility to utility. When administrators change incentive programs or regulators change tariffs, it is akin to a referee moving the goalposts.
Borrego Solar has successfully navigated changing market conditions by focusing on the projects furthest along in our pipeline, taking a disciplined approach to the projects that we aggressively invest in, and understanding how investors can best monetize incentives. We are also always adapting to the environment. Our development team might be pursuing 6 MW ground mounts one year and 650 kW midscale utility projects the next. Then it might move on to commercial rooftops, municipal landfills or school carports before cycling back to large-scale ground mounts.
Gaps between incentive programs affect both the front and the back end of the project cycle. Once a program goes live, there is typically a rush to secure the incentive funds or project capacity in the interconnection queue. On the back end, there is invariably pressure to achieve mechanical completion or obtain formal permission to operate prior to a certain deadline.
Arguably, declining incentives are a good thing because these force us to look for more cost-effective ways to deploy PV systems. However, this also means that everyone is rushing to get as many projects installed as possible prior to the program deadline. This tends to increase the risk for error and raises safety concerns. As deadlines approach, greater competition for engineering or construction resources means that the industry suffers from a shortfall of experienced companies to do the work, which increases prices from those companies that can execute. Partially completed projects often need reworking later, which is not an ideal workflow.
To navigate the regulatory environment in each market separately while working to scale the business, we’ve turned to the lean management approach and 4DX principles outlined in the book The 4 Disciplines of Execution: Achieving Your Wildly Important Goals by Chris McChesney, Sean Covey and Jim Huling. Specifically, we’ve incorporated the lean management method of value stream mapping (VSM) to define our current state and design a future state for the process of moving from site identification to closeout with the various customers.
VSM has proven critical in aligning our staff on the project flow, key milestones, process and lead times required to bring a project to fruition. The maps enable our company leadership and frontline execution teams to more efficiently discuss the strategic direction of projects, as well as to identify the real problems we need to solve to move projects forward quickly. We create maps for greenfield development, on-site power purchase agreements and on-site EPC projects, and then overlay the associated critical IT tools and high-level authority matrixes.
In addition to utilizing VSM, we’ve implemented parts of the A3 problem-solving process, which seeks to identify, frame and act on problems. Our managers and executives participate in an annual strategic planning process to clearly identify the most pressing initiatives for the coming year. We use the A3 process to better understand the problems associated with each initiative and to communicate both the current state and the desired future state of initiatives to stakeholders. Since many employees are not experienced in lean-management principles, we also train our managers to coach rather than participate as player coaches.
The four disciplines of execution that make up the 4DX system include focusing on a wildly important goal, acting on lead measures, keeping a compelling scorecard and creating a cadence of accountability. These 4DX management principles have helped us apply countermeasures and execute on identified goals. They provide a team-approach structure that we can use to implement changes identified during our A3 problem-solving sessions.
Managing our portfolio and target markets in response to incentive changes is a major focus for our development team. Therefore, we need to provide our developers with a clear path for advancing projects internally. The process blocks in our value-stream maps provide this structure, which incorporates key “go or no-go” reviews. As a project matures, our finance, engineering, operations and, eventually, contracts committees review it. This disciplined approach is how we make timely decisions about where to invest resources.