Good, bad and ugly

Most microgeneration installer firms are small, young and regional, leaving the sector vulnerable to 'cowboy' accusations, says Richard Hanna.

Residential microgeneration has arrived at a critical moment. Players in this market are having to re-­evaluate their strategies following recent cuts to feed-in tariffs (FITs) for residential photovoltaics and continuing delays to the Renewable Heat Incentive for home schemes. More than ever, the microgeneration industry needs to deploy cost-effective decentralised energy, while creating and safeguarding jobs and inspiring consumer confidence.

The University of Surrey’s Centre for Environmental Strategy looked at the impact of different installer business models on household take-up rates and installation standards between April 2010 and September 2011. It gathered information from 400 microgeneration installer firms – around 10 per cent of the total number accredited through the Microgeneration Certification Scheme (MCS) – to understand more about the nature of the emerging industry, how it is working and what might be holding it back.

The research found first that most microgeneration installer businesses are small-scale operations and regionally-focused. Over half the businesses contacted have five employees or fewer, while three-quarters have ten employees or fewer. Moreover, three-quarters are founders of their installer business, while only 22 are owned by another company. In terms of age, 166 businesses are no more than four years old, while three-quarters of respondents have been installing microgeneration for only two years.

The findings suggest installer business models are dependent on government policy and support. Photovoltaics is the dominant technology, bolstered by the favourable FIT for small-scale PV up until March 2012.

Eighty-five responding businesses installed between one and five solar PV systems in homes between April 2010 to March 2011; 60 fitted one to five solar thermal installations; and 55 installed the same number of air source heat pumps. There are some exceptions: 14 companies fitted more than 100 photovoltaic systems and three businesses installed more than 100 air source heat pumps.

Between April 2011 and September 2011, the rush to maximise photovoltaic installations before the FIT reduction is reflected by the data – 30 businesses installed more than 60 photovoltaic systems each during these six months.

The regional focus combined with the small-scale nature of predominantly new businesses led to low marketing power and ambition. Common across most businesses surveyed are two basic marketing strategies: word of mouth and the company website. Over two-thirds said they never advertised their services on television or radio, and over one-third had not used newspaper advertising. Around a half do not even use door drop leaflets.

More than half of the people surveyed did not work in the microgeneration sector in previous jobs: most came from backgrounds in electrical and mechanical industries, plumbing, heating and gas, or other aspects of buildings services. Forty-four per cent of all the companies started installing microgeneration from the outset: at least half of respondents were previously employed in building services or electrical professions. This means many of their employees initially possessed relevant or transferable skills, but may have lacked specific training on installing microgeneration and integrating systems with existing household heating or electrics.

The survey found that 300 businesses use at least 100 different training providers, with the most common being NICEIC for electrical contractors and Ecoskies for renewable energy installers. Manufacturer training is also frequently used.

There is much variability in the extent, type and duration of warranties, guarantees and maintenance contracts offered by installers. The extent to which such agreements are upheld, responsibility for repairs and quality of maintenance services will become increasingly important as the flurry of new installations begin to age and problems are experienced. Manufacturer warranties are typically two to five years for heat pumps, biomass and solar thermal.

Warranties are notably longer for photovoltaics. Fifty companies said product warranties for their solar electric panels last for six to ten years, while another 28 offer product warranties of 21-25 years through their manufacturer. One-third of firms said they do

not provide extended guarantees or maintenance contracts at all.

Senior managers within the industry are aware of the problems caused by varying standards and the impact on public perceptions. “I have been involved in this industry for approximately ten years now. I am amazed at the extent of poor quality equipment, installations and miss-selling,” says one director.

“Although there is MCS accreditation, there appears to be little policing of the systems installed, and as such the whole renewable market may become like ‘double glazing’ sales,” said another.

The lack of policing of MCS accredited installers is a key point. Although there are installer standards for each technology, and annual reviews of accreditation by certification bodies, as a consumer one has to assume that every installer is equivalent. This is because there is no mechanism for rating the quality of each installer, nor any transparent means of accessing customer reviews for each certified business.

A separate finding of the research is that lack of flexibility over payment methods continues to be a barrier to market growth. According to the Energy Savings Trust, homeowners face typical retail prices of £5,000 for solar hot water systems; £6,000-£10,000 for air source heat pumps; £10,000 for photovoltaic systems; and £9000-£17,000 for ground source heat pumps. Customers usually pay a deposit upfront for installations with the remainder paid on completion.

Eighty per cent of companies surveyed indicated they use this payment structure. Only 12 businesses provide for payments through mortgage additions, and only 16 businesses through low interest loans. A handful offer free installation in exchange for collecting FIT revenue.

Industry and consumer confidence has been hit by the sharp reduction in FITs and the delay to the Renewable Heat Incentive for residential installations until at least summer 2013. Nevertheless, installers can help bolster their credibility and appeal to customers by ensuring installations are of a high standard, aftercare is available, and payment options are varied.

The government has established that the cost of installing photovoltaics has fallen by 45 per cent since 2009. Free solar schemes may no longer be viable under reduced tariffs, but the industry should make the most of the opportunities that remain.

Richard Hanna, postgraduate researcher, Centre for Environmental Strategy, University of Surrey

This article first appeared in Utility Week’s print edition of 22 June 2012.

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