What happens when the federal investment tax credit (ITC) expires? Survival guide for residential contractors

It’s not pessimistic or unrealistic to prepare for what’s coming. Assuming the federal investment tax credit (ITC) is not renewed […]


It’s not pessimistic or unrealistic to prepare for what’s coming. Assuming the federal investment tax credit (ITC) is not renewed by Dec. 31, 2016, all sections of the market will be affected. Specifically, residential solar will see significant changes when the ITC under Section 25D drops from 30% to zero.

There are nearly 100,000 solar workers involved with installation in the United States, and many of these are employed by smaller businesses that benefit from Section 25D (the section focusing on residential installations). Without an extension of the residential ITC (which is looking more likely, especially with the lack of movement in Washington), many of these jobs will be lost.

While 2017 may seem like a long way out, preparations should have already started. But if you’ve been too focused on the present to concern yourself with the future, don’t panic; there are still steps you can begin now. Solar Power World spoke with Stephen Irvin, president of Amicus Solar Cooperative, and he offered residential installers the tips detailed below. Irvin represents the knowledge base of Amicu’s 34 developer, EPC and installer companies based in 26 states. These are the questions you must ask yourself and the obstacles you must plan for if you want to be a successful company past 2016.

Decide what your company means to you
First and foremost, are you happy working in solar? Do you want to stick around? Continued success in this business may not come easily, and you need to be prepared for the road ahead.

“It’s very possible some installation companies today are looking to earn all they can from the salmon run that will happen through the end of 2016, and then maybe they’ll close the business down or try and sell their business,” Irvin said. “Then there are those who want to be in it for the long haul. It can simply depend on the personal plans of those small business owners.”

Once you determine if you want to stay in solar, it’s time to prepare for changes.

Be realistic with your employees
You could very well come out the other side of the credit reduction without scrapes or bruises, but business is still unlikely to go on as usual. It’s best to be up-front with your current employees and any potential hires.
“Set expectations very clearly with your employees: This is what’s staring us in the face. [We] can’t guarantee what’s even going to happen with the business,” Irvin said. “It’s OK to say they’ll have a job at this pay rate today, installing solar and learning this trade for a year and a half. But after that, no job is safe and this is just the reality of what’s happening in our industry.”

But hiring has to happen now, not next year. According to a report from Mercatus, which cited University of Chicago research, because solar’s pool of quality talent is small, outside individuals must be trained, and that takes time. In order to meet 2016’s demand for solar installations, employees should begin training four to six months out, which is right now.

Use your money carefully
Do you need to buy new trucks or can you lease them? Do you have to move the company to a larger building this year? Would switching to new management software save time and funds? Make wise decisions with your cash.
“For residential, it depends on your current operational inefficiencies and cost structure,” Irvin said. “As a smaller business, you have to be profitable. Can you reach installation prices that allow you to be profitable without the residential Section 25D credit? If not, then consider holding off on making large capital investments that take years to see the return on. Be very careful with your cash flow and use it for operating and installation labor expenses that will generate earnings in the short term.”

Search for financing options
Contractors that present attractive financing options to their clients will come out ahead after the credit drops.

“Ideally, residential contractors who want to remain competitive will partner with banks and financial firms that can offer monthly cash flows for the homeowner which show savings compared to their current utility bill,” Irvin said.

Longer term loans could help get them there when the credit goes to zero. A $20,000 residential system amortized over many years is much easier to handle without any incentives up front.

Get creative about marketing
Referrals are the best and easiest ways to secure business, but out-of-the-box marketing will help get over the post-2016 hump.

“Get creative about how to get around people and talk about solar,” Irvin said. “Referrals are your best base for turning a lead into a sale.”

Attend community festivals, host education nights, try a new advertising campaign—informing customers that solar is affordable even without the Section 25D credit will secure your leadership in the area and bring in sales. But remember, you’ll likely need the financing partners to bring such affordability to those kitchen tables.

Published with permission from the original publication on SOLAR POWER WORLD ONLINE By Kelly Pickerel.

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