The built world lies at the heart of the transition to net zero. Building operations are responsible for 28% of global energy-related CO2 emissions (Green Building Council), and within the EU, an estimated 75% of buildings are considered energy inefficient (European Commission). As the urgency to decarbonise increases, innovations that target energy consumption and emissions from buildings are critical.
PV systems (aka solar panels) are essential for reducing the carbon footprint of buildings. Beyond the environmental benefits, they have a much lower levelised cost of electricity (LCOE) compared to fossil fuel systems and have the second lowest overall, just behind onshore wind (IRENA). Thanks to this, solar power continues to be one of the major energy sources deployed, with the world on track to add 593 GW of solar power this year (Ember).
Uniquely, solar’s form factor and ease of installation make it ideal for residential deployment, which made up ~45% of the annual installed solar capacity in 2023 (IEA). Yet despite the costs of solar declining for homeowners and annual deployments increasing, installers and homeowners are facing headaches with long wait times, a confusing market landscape, and software not fit for purpose.
Roughly 25% of the price paid by end-customers for a solar system is in avoidable “soft costs” (NREL), and there is a lot of room for technology and business model innovation to compress this. Customer acquisition cost (CAC) is the biggest component of soft costs, which can be tackled with B2B business models, hyper-local marketing, franchise models, and better business operation and sales software.
Big tech-enabled installers like Enpal and Sunrun have between 3 and 9% market share of residential solar installers and very high CAC. This means that SMBs install a vast majority of solar systems, and by leveraging hyper-local or word-of-mouth marketing strategies, they have a very low CAC. While large solar installers have an advantage in supply chain and a better customer journey, they cannot compete on CAC, so empowering SMB installers with the software tools and supply chain economies of scale large installers have could give them very strong unit economics and allow them to pass some of these saving back to the customer.
We think this can be achieved through a combination of integrated software and a franchise-like business model that empowers SMB installers to outperform large players through scalable hyper-local marketing, and compete on the customer journey, costs, and operations. Our portfolio company, Solarock, is a good example of this.
On the software front, solar installers currently have a fragmented workflow, running their businesses with multiple poor integrated solutions not designed for solar. While there are a few notable software for design and permitting, these tools are primarily sales focused rather than optimised for as-buildable configurations. As a result, there’s a gap in the market for software that’s fully integrated with disjointed local jurisdictions and solar codes to streamline and automate the design and proposal workflow, while also managing the other aspects of back-office work (like payroll, scheduling, inventory, and accounting).
Aether Energy focuses on building better software for solar installers to run all parts of their business instead of using a fragmented group of multiple software today. This starts with AI-generated PV system designs and permit-ready plans, to empower sales teams and eliminate redesigns that add to soft costs and can lead to customers dropping out of the purchase.
Aside from these inefficiencies, the rapid growth of solar installations has caused additional structural issues beyond hardware or software that are often overlooked - the labour supply being a key one. In Europe, for example, the shortage of skilled workers in green sectors like solar, wind, and insulation installations is a major bottleneck in meeting renewable energy targets.
The global number of green roles has grown 8% per year for the last five years (World Economic Forum), yet there aren’t enough workers with the skills needed to fill these roles. The UK alone needs 400,000 jobs filled to help drive new energy sectors, yet many estimates have highlighted a shortage of around 200,000 workers with the appropriate expertise and knowledge required (PwC).
The labour shortage has resulted in the larger solar installers winning more jobs than their internal teams can handle, causing them to outsource installations to firms with the available labour pool. In some cases, this amounts to more than 20% of all their installations. This represents an opportunity for those businesses with labour capacity to bypass expensive D2C customer acquisition and install solar systems very profitably if they can optimise the installation process.
Investing in ed-tech and talent development for green trades can provide this labour capacity. Alongside software to optimise all aspects of upskilling, quality control, and installation, a highly scalable and profitable platform can be created. By equipping workers with the necessary skills, platforms like smalt can both address the labour shortfall and contribute to greater economic inclusion whilst building a scalable and profitable business.
At noa, we believe the combination of innovative software solutions and workforce development is where some of the most impactful opportunities lie in accelerating renewable uptake. Companies tackling both the technological and human capital challenges are creating a robust foundation for the long-term sustainability of the energy transition.
Our investments focus on companies that address structural problems within the built world, providing end-to-end solutions that are both business and mission critical. Visionary teams and scalable models are needed to disrupt these (typically) ossified industries and address the world’s climate challenges head-on.
