SM: We have discussed your interface with the customer. What is the process with your contractors once you have a qualified lead to provide to them?
DK: We call them pre-wrapped customers because they are not only qualified customers, but from our backend design system we have already developed the kit. We provide the specified system. We contact the local installer through our automated platform to tell them they have a customer. We provide them with the record number, the accepted quote, utility history and engineering specifications. The local partner then closes the sale and does the installation.
Going forward we will be doing this as a service for contractors across California as well as new states, and, later this year, Italy. They will pay us on a success-based fee. We take a piece of the revenue when the sale is closed. We have used our subsidiary in the Bay Area to prove the model, so the contractors doing the work right now are owned by Sungevity.
SM: How successful have you been proving that model?
DK: We have made 150 sales in nine months, which is unheard of in this industry with just a couple of sales people. We became a top 10 reseller in California, and we are only working in the Bay Area. We are currently piloting it with other partners. We will launch that on April 22, exactly one year after our company launch. We are also testing the pricing model. We need to tweak that to get it just right.
SM: What is the size of a sale? What is a small system sale?
DK: It is around $10,000, which includes everything.
SM: What is the cost of goods for the contractor?
DK: Around $5,000 depending on how efficient their purchasing process is.
SM: Which leaves around $5,000 for you and the other contractor to be paid?
DK: Correct. We expect to be working with small mom-and-pop operations. We think that we can save them between 10%-30% of their cost on that $5,000 margin. It is a great deal for them. I would also say that installers love to install, but they do not like doing sales. We are taking away the work that they do not like doing.
We also handle a lot of details after the installation including interconnection with the utility, application for rebates, permitting for local authorities, and similar requirements. We handle that in a seamless, simple way that keeps the customer happy. We do much of that, and we have digitized and automated it. That is all part of the customer experience.
SM: How many contractors are there? How large is that pool?
DK: When we started there were 460 in California. There are now about 800. In Germany, where we will be later this year, there are 7,500. It is a fragmented market and we believe it will continue to be so for some time although there are a few giants on the local scenes. The top 10 would probably do half of the market in California. The other 450 would do the other half. We are trying to help professionalize and grow the other half of the pool.
SM: What is the status of other states in the US? Where do you go after California?
DK: There are seven obvious states. It is often as much about cities as it is about states. In places like Austin, Texas there are municipal rebates which make it attractive. Effectively we are talking about Oregon, Colorado, New Jersey, New York, Florida and Texas. I believe the game will change this year. It can change tremendously if the tax credit you get currently can turn into cash. That is being talked about right now in the Senate. If that happens, the game is on because all of a sudden it is 30% lower cost. We are bullish about solar and its fortunes even in the downturn. We think we will be competitive with grid costs by 2012. At that point, there is no ceiling as it is a trillion-dollar market.