Solar Power Business

Solar power industry is growing overtime due to variety of factors. The cost of solar-photovoltaic (PV) has dropped about 75% since 2009. Countries like Japan and China is currently pursuing solar energy aggressively. Along the value chain, competition between suppliers has been stiff and their operation and product has stabilised and standardised.  However, downstream companies still has the space to differentiate their companies as the customer demand is not well served. In this article, we are looking at customer segments to target and serve for downstream solar power suppliers. According to McKinsey & Company, there are five main customer segments to focus on.

Off-grid Areas

For rural areas that have no access to electric grids, solar power has an obvious advantage. Besides from rural villages, remote factories, mining sites or telecommunication towers can be the target customers. With decreasing costs, solar power is now a better option for customers, for example dark villages located in Africa and India. McKinsey & Company predicted by 2020 the demand of solar power from this segment will be 15-20 Gigawatts.

Residential and commercial retail customers in sunny areas

Residential and commercial segments have been finding way to cope with ever rising utility bills. On the other hand, companies are willing to choose environmental-friendly energy more than ever. Homeowners also perceive solar power adds value to their property and investments. In fact, a lot of businesses in developed country like United States and Italy have been generating their own power with solar power. A company should provide ways of low-cost financing for the customers to boost sales. McKinsey & Company predicted the demand of this segment reaches 150 to 250 Gigawatts by 2020. Residential and commercial retail customers in areas with moderate sun conditions but are charged with high retail electricity prices.

This segment is one of the biggest customer segments to target on. Regions with moderate sun conditions include Japan, Europe and Canada. Access to low-cost financing is also vital for this segment. Companies that already have a lot of customers, for example telecommunication companies, may enter the market because they can acquire customers at a much lower cost. McKinsey & Company predicted the demand of this segment reaches 65 to 120 Gigawatts by 2020.

Isolated Grids

Currently, isolated grids are mainly made up of diesel generators. Generally, these generators do not generate power that is higher than 100 Megawatts. Recently, some companies build an isolated grid hybrid, using both diesel and solar power. The demand in this segment is currently at 25 to 30 Gigawatts. As mentioned above, low-cost financing will be the main problem to reach customers.

Peak capacity in growth markets.

The gap to fill here is the need of new energy-power infrastructures in growth markets like in India and China. Countries that import a lot of liquefied natural gas like Japan can be a big customer. However, they may turn to lower cost alternatives like natural gas, but demand of solar power will still rise and reach at 150 to 170 Gigawatts by 2020.

New, large-scale power plants.

The potential of large scale power plants may be big, but cost gap between solar power and other alternatives such as coal and gas needs to be closed. Large scale power plants are hugely demanded in emerging markets. This segment is not taking up solar energy as quick as the other segments but the demand is still impressive. According to IHS, from 10 Megawatts in 2011 from all global installations, it is predicted to more than double in 2016 to reach approximately 25 Gigawatts.

Conclusion

There are a lot more ways to segment customers and business companies can target their own market with their expertise. For example, agricultural, government, and industrial can be attractive markets on their own. It is advisable for downstream solar power companies to differentiate themselves to gain competitive advantage.

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Value chain: The process or activities by which a company adds value to an article, including production, marketing, and the provision of after-sales service.
Downstream: In or toward the latter stages of a usually industrial process or the stages (as marketing) after manufacture.
Upstream: In or to a position within the production stream closer to manufacturing processes.
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References:
Aanesen, K., Heck, S. & Pinner, D. (2012). Solar power: Darkest before dawn. New York City: McKinsey & Company.
EuPD Research (2008). Trends in Market Segments: Towards More Solar Parks or Individual Installations? Frankfurt: EuPD Research.
The IHS Technology Solar Team (2015). Top Solar Power Industry Trends for 2015. Englewood: IHS Inc.

Written by: Yeap Weng Yeow
Editors: S