It seems like every few years there is some new module crisis on this ride we call the Solarcoaster (think the current Suniva case, or the anti-dumping case from 2014, or sillicon shortage of 2005 and many more). The biggest challenge is how to handle selling to the volatility without getting burned. This is especially critical for repeat customers whose ongoing business represents a lower-cost-to-acquire lead. The most recent solar module trade case is really impacting the market with module prices from Chinese manufacturers going up almost 40% and the possibility that the tariff will increase those prices even more.
With modules typically representing over a quarter of the system cost, getting the commodity cost wrong can wipe out any profit. Today I’m going to talk about 5 ways to continue selling forward without getting held back by the changes.
1. Best Guess
Honestly, I think a lot of folks either put their head in the sand and ignore the possibility of price changes or decide to “deal with it when it happens”. A better way than pretending it isn’t happening is to try to anticipate the true impact. In the trade tariff case, paying attention to reports of the high-end and low-end impacts can allow you to provide a best-guess on costs. For instance, being conservative and selling to the $0.40/w proposed hike in costs mitigates your future risk while leaving you for a windfall if the tariff doesn’t go up as much.
2. Cite the Pricing
Contractually sound, citing the module pricing and leaving language in for adjusting the contract price, due to module pricing at the time of purchase, is probably the safest approach to the tariff. If you posit modules are pretty much commoditized, this matches the practice often seen with steel workers and wire manufacturers. Attaching some third-party report on cost can create transparency around the module pricing. This approach can be challenging, though: hiding your markup in other places and selling the price uncertainty to an uninformed customer is often risky.
Locking in the price by having a customer pre-purchase the modules takes all the uncertainty away for everyone. However, the cost actually increases because of module storage. Some questions arise from this approach. How long do those modules need to be stored? Is $500/month (or whatever is the monthly storage cost) worth the security? Does pre-purchase protect against the tariff case? Fast turnaround projects can usually really benefit from this because module storage doesn’t even come into significant play.
4. Revolving Door Purchase
As much as it pains me to say this, using the gas-industry’s approach of “at the time of purchase” costing is fairly effective if you have enough turnaround and consistently use the same modules. To implement this approach, the installer sells future modules at the current price, purchases modules now and installs them on the customers who are currently under construction. Meaning the customers who purchased a system 6 months ago are getting the modules that were purchased today at today’s prices though they paid for the modules at the module price 6 months ago. So today’s customer technically just paid for the previous customer’s modules. The risk: if you don’t sell enough modules on the next cycle to cover the modules from this cycle, you will have a big cashflow problem.
5. Find a work-around
There are always workarounds for these kinds of things. Buying full containers before the tariff lands and then selling those to customers is one example. Changing module sources is another. Some module manufacturers are considering moving to Mexico, for instance, to completely avoid the solar tariff-caused volatility. I recommend speaking with your supplier to determine what other options are available.