Solar is now one of the cheapest sources of electricity, however the market for solar panels is still underpenetrated and underutilized by businesses. Procuring and installing these panels can be a very lengthy and cumbersome process due to the fragmented market and complex incentives. Enter SolarKal – a company bringing transparency to the process.
SolarKal is a B2B marketplace that simplifies the solar energy procurement process. In this episode, we chat with David Wei, SolarKal’s Head of Corporate Development, about how the company accelerates solar adoption by adding value to all sides of the market. He shares more about typical customer pain points, the economics associated with solar energy, and other market observations. Tune in to learn more about renewables, energy transition, reducing energy costs, and more.
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Episode Transcript:
JJ (host of The Understory Podcast): Hello everybody, welcome to another episode of The Understory Podcast. Understory is a global community of startups and innovators for a sustainable future, and we're so excited today to have David Wei who is the Head of Corporate Development at SolarKal.
David, thank you so much for joining The Understory Podcast today.
David Wei: Thanks for having me. It's been a pleasure.
JJ: Tell us more about your journey first. How did you get into SolarKal before we talk about the company itself?
David: Great question. I interned with the SolarKal team back in 2018 when I was getting my MBA at Columbia. SolarKal is founded by a group of Columbia alums led by Yaniv Kalish and our COO Neil Sharma. I really enjoyed working with the team when I was at CBS, and we kept in touch and then they had a very exciting role for me. I technically joined SolarKal about 12-13 months ago.
JJ: Very cool. In terms of SolarKal, it's about solar because it's in the name of the company, but tell us more about the company mission where in the solar energy market does the company play and who does the company work with, etc.
David: Sure. In a nutshell, SolarKal is the largest B2B (business to business) solar energy marketplace in the US. As I mentioned, it was founded in 2017 by Yaniv and Neil. Our goal is to connect organizations to solar providers who compete for their business using our one stop solar procurement platform. In essence, our goal is to make solar accessible to every organization. We've got almost 200 solar suppliers, and we facilitated over $140 million in total projects, with almost $70 million in 2020 alone.
JJ: It's interesting you talk about the solar procurement platform, and I think for most people when they think about solar, they think about the solar panels on the roof, and they don't necessarily think about the whole ecosystem. Could you help our audience understand what does solar procurement mean and what are some of the different components that SolarKal, or generally in the industry, exist in terms of these different stakeholders and player?
David: I like using an example. I'm a boy from New Jersey, so I like using a warehouse in New Jersey. It's a pretty standard example, if I owned a mall or a warehouse or I had a just a car dealership and I have, I've got a roof just sitting on top of my building that provides me shelter but is generally speaking a cost. It's a depreciable asset.
I can find out through various methods that solar is an attractive option for me. For example, in New Jersey, if I were to install a solar system on that roof, I'll probably see somewhere between 25% and 30% IRR on an annual basis. And that's an attractive value proposition for me as a business owner.
But my core competency as a car dealer or warehouse owner is not in solar, and solar is a bit of a complicated structure, a bit of a complicated process. There are tax credits involved, and it's overall opaque. It's hard to identify am I getting a good price when I reach out to a certain solar installer.
For example, it's hard to really monetize if I'm in New Jersey, the associated tax credits for generating my electricity. That's where SolarKal comes in. We aim to bring transparency to the entire process.
You can think like the Airbnb of solar or Fivr or LendingTree are great examples where we provide a marketplace and a bevy of solutions. We cater our solution set to what is best for your specific business.
JJ: Interesting. Taking that example, it could be finding the best supplies for a particular kind of solar panel, companies that help install the solar panel and as well as advisory that works out the tax credit and rules with respect to installing solar technology.
David: That's right. If I were a business owner and I wanted to figure out how to do solar, I'd reach out to a couple solar installers in my local neighborhood. And they say, OK, Hey, David. I'll install for $100. I have no idea if $100 is cheap or expensive. Is it a good deal or not, and it's hard for me to compare apples and oranges?
When you come to SolarKal, we'll typically have somewhere between 20 and 30 suppliers looking at your project. You'll get maybe 11-15 first round proposals, and then we'll whittle it down to two to four finalist proposals and help you identify the best proposal for you. A lot of times the criteria goes a lot further than just price. It involves a holistic understanding of who's got local area expertise. Who operates in my backyard, so I can be really confident of the ongoing relationship and SolarKal acts as that intermediary? We act as that source of transparency in the marketplace and save you money. On average, we save our customers about 30% versus bids they've seen outside the platform.
JJ: And is that net to what the clients pay SolarKal?
David: That is.
JJ: Wow. That's pretty good.
David: Yeah, that is. It may sound insane, but we've been able to demonstrate that time and time again. That's all in large part because when you know when your local contractor calls you up and says hey, I'll install it for $100, baked in that is a very huge percentage of soft costs gross margin. Typically speaking, and you can see government sources that point this out, anywhere between 40% and 60% of costs of a solar system is soft cost because it is a longer sales cycle with pretty significant customer acquisition costs. Installers must bake that into the prices that they quote for people who actually do go through and create their solar and actually install their solar systems.
What we do when we step in is we reduce the customer acquisition costs for our supply. In return, they can chop their prices significantly and our customers benefit from the marketplace competition effect. SolarKal, as the leading B2B marketplace in the US, has great brand recognition. Our installers know that we're just going to keep putting good projects in front of them. Projects that we've defined, and that incentivizes all parties to chip away at some of those soft costs.
JJ: Let's talk about the demand side and then perhaps the supply side. On the demand side, these are organizations and companies that are considering solar energy as a source of energy and/or want to upgrade their existing energy infrastructure to include solar. How have you seen that demand change in in the US? Are there any industries or geographies that have more demand than others?
David: Sure, great question. I'd say it's incredibly early innings for solar adoption by businesses. Research we've seen suggests that about 4.5% to maybe 5% of rooftops in the country have solar on them. We think that it is an attractive proposition for our most businesses in the country. Again, as I mentioned upfront, the value proposition is real. In states where you have attractive incentives like New Jersey, you can get that 20% to 25% to 30% higher.
In other states, even without direct state incentives you benefit from federal incentives. You can get, for example, an investment tax credit back worth 26% of the value of the system in year one. You can also benefit from an accelerated depreciation benefit which nets out to, depending on your tax rates, somewhere around 15%. Up front you get 40% of your system back in year one from the US government. It really helps drive the value proposition of solar across the United States. It's an incredible investment.
To take it back a little bit, and directly answer your question. It's just an attractive investment. We've seen a lot of different businesses across all different walks of life, different business verticals approach SolarKal for us to step in and help them understand how to do solar more efficiently.
JJ: Interesting, before we turn to the supply side, one of the things you mentioned is an example of one of the government benefits being offered to businesses is accelerated depreciation. Can you describe that a little bit more in terms of the impact on a business? I suppose that the investment in solar is a a capital investment, but with the accelerated depreciation that provides some benefit to a customer now.
David: That's right. I don't want to get too far into the details there because it depends on your tax situation as well as your overall tax rate. Generally speaking, what you can do is you can account for the entire value of the system upfront in year one, accelerate the depreciation to year one which has a significant benefit to your bottom line. As long as you have the tax income to be able to consume the investment tax rate and the accelerated depreciation you can get, as I mentioned, about 40% back in year one. And it's not even just in year one. Even if you don't consume it all in year one, you can carry it forward 15-20 years.
JJ: We have to make the caveat here that we're not providing tax advice, but it's really interesting to understand some of these dynamics. If the organization is not paying attention to some of these regulations and benefits, they may not know how to navigate these kinds of investments.
Let's move to the supply side. How have you seen the supply side change in light of the supply chain challenges, in light of competition from other countries? What has been the dynamics on the supplier side?
David: If you were to take a step back and look at this the highest of levels and just think about solar panels at large, the price of solar panels has just relentlessly come down over the 60 years of solar panels being in existence. If you look at it today, solar panels are now the cheapest source of electricity in the United States, and it's the fastest growing source of electricity.
If you look at utilities and what they're installing on annual basis, the answer is solar and wind. There's an incredible value proposition that’s arisen because we've crossed that point of no return where solar is now cheaper than traditional sources of electricity.
Now you know who we directly work with is not necessarily the solar panel manufacturers, but rather the solar panel suppliers, so not just suppliers, but engineers, procurement, and construction companies that install in and provide their expertise to actually install the system on somebody's roof. There's about 5000 in the United States. We, as I mentioned, have close to 200 on our platform. We vet all the suppliers on our platform. We put them through a rigorous process, so we have full confidence in everything that they construct.
Once they're on the platform, we connect them to the leads and the projects that make the most sense for them. Of the 200 suppliers, not necessarily all will be relevant for a specific project, so if I'm installing a 150 mega or kilowatt system on my roof in New Jersey, that might not be for everyone. There might be maybe 30 or 40 relevant installers that would consider that in their wheelhouse. Because we know so much about making the right matches, we can facilitate strong deal flow which results in higher conversion which results in happy customers and happy installers.
JJ: Who are your competitors in US, if I may ask that question.
David: It's hard to say because it's very early innings in the solar sector. Marketplace-wise, there are couple of B2C marketplaces out there. But we feel like we're the only ones doing B2B. As I mentioned, we're the largest. We've done $140 million in projects to date. That breaks down to around 60 individual projects in our four-year history.
JJ: That's incredible. In terms of the client profile, what sorts of organizations do you work with? I notice that on your website, Cornell University is one of the customers. What are the other examples?
David: We've got a whole slew. We're very fortunate enough to have Cornell as a customer, and we're on with them for at least another project. The Boston Zoo is one. The major vertical that we work with are universities, the zoo belongs under community. We do industrial agriculture. We also work with refineries looking to improve their footprint. I think one of the fastest growing segments on the SolarKal platform is the real estate segment and the asset management side.
Part of the benefits of being a B2B marketplace is that once you get the first project done, your customers on the other end tend to have more than one project. If you're imagining a B2C solar marketplace where I personally might only have one house. To put a solar system on top, there isn't that much repeatability. In the B2B space there's a huge amount of repeatability. Those real estate and asset management companies will typically have hundreds to thousands of buildings. Once we work with them to get the first deal done, the next 10-20 are so much easier. We've seen that be probably the largest segment of our customer base over the last couple of years.
JJ: I don't know if there is like a typical size, but let's take a university in one project from initially getting onto the marketplace, understanding what sort of things are in there to installing the solar panels, how long does that take usually?
David: Our process once we sign a customer and they decide to join and go through the process of identifying the right solution for you to getting a final contractor awarded, typically it takes two to three months, closer to two months. An RFP process or our marketplace process tends to take about a month, and so the rest of the time making sure that we get the correct decision makers at the businesses that we're working with and you know some a little bit of buffer time for onsite visits. Once you make that match, things go a lot smoother. It's contract negotiations and then construction. The construction can take like a lot of similar construction projects. They are 6 and 12 months to at the long end, maybe 18 months, but realistically you're looking at six months for installation of a system.
JJ: Got it. David, last question for you. For prospective partners and customers, how can they learn more about SolarKal?
David: Our website is solarkal.com. A simple URL. We're always happy to help every business. Our goal is to offer organizations across the country access to the leading and largest commercial solar energy marketplace and get the right project done for them. Everything we do is in the pursuit of doing that. We're happy to connect there and try to figure out solar for you.
JJ: David, thank you so much for sharing some insights about SolarKal, but also about the solar industry in general. We look forward to seeing more SolarKal and more solar panels in our communities. Thank you.
David: Thank you.
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