The German Way to Enter the US Solar Market

1st Solar Symposium

Helmut Gehle

Schuco USA

Solar Technologies

(1) The German Way

The German Way…

ANGST

Germans like to worry. They worry about politics. They worry

about the environment. They worry about their national identity

and their image abroad. They worry about the economy. They

worry about worrying. It’s not that Germans don't like to have a

good time. It’s just that they seem to be able to have a good

time worrying…

BEER AND WINE

…Germans down enough foamy brew to consistently place in

the top five of the annual liters-per-person ranking… Germany’s

strict purity law of 1516, the Reinheitsgebot, dictates that beer

may contain only hops, barley, yeast, and water… It will be

served cold, but not too cold, in an appropriate beer glass or

mug. It will display a white foam… Germans like to say a proper

draft beer can’t be poured in less than seven minutes to achieve

the proper head.

Beer is such a vital part of the culture that the right to drink beer

is even written into some labor contracts, and a beer with lunch

in the factory cafeteria is taken for granted.

“Aspects of Behavior, Attitudes, and

Customers in the German Speaking World”

www.german-way.com

The German Way…

BUSINESS

…business and business people in German cultures are not

usually accorded the same admiration and respect they might

receive in other cultures… the public’s regard for business has

sunk to all-time lows, and only seven percent of adult Germans

own stocks.

LANGUAGE

German is a language of great regional diversity… even today it

remains a hodgepodge of dialects and variations… Even if the

driving distance between them is only 365 miles, the German

spoken by a Berliner is worlds apart from the German spoken

by a Bavarian in Munich.

German-speakers tend to be more formal and reserved.

German has both a formal and a familiar form for “you.”

“Aspects of Behavior, Attitudes, and

Customers in the German Speaking World”

www.german-way.com

The German Way…

Disrespected, anal retentive beer-drinking space-confined business people that worry

about everything (while having a good time)!

Schuco

From its beginning as a metal fabricator in Bielefeld, Germany, Schüco

has become a worldwide specialist for windows and solar products

• Founded in 1951

• App. 5,000 employees

• $2.5b in sales

• Privately held

A market leader for system-based construction with three business fields

Vinyl

systems

Components for system-based construction -

from luxury housing

to large-scale commercial projects

Ready-to-install, plug & play solar

solutions for generating heat and

electricity - turning a family home

into a power station

Components for system-based

construction - from private to

institutional housing

Aluminum and

steel systems

Solar products

US Solar Products

PV Modules Inverters BIPV Pitched Roof Flat Roof Racking Collectors/ProjectsPackages

Photovoltaic Products Thermal SystemsMounting Hardware

Saving Energy

Generating Energy

Zero-Energy Buildings

Photovoltaics Solar Thermal Air/Water Heat Pumps

Schüco can now create zero-energy buildings. Heating and cooling for the building

is guaranteed with a solar thermal system with heat pump or

chiller; the power required to drive the heat pump

is generated by a PV

system.

Zero-Energy Buildings

Electricity, Heating & Cooling

Bauerfeind Tower, Zeulenroda, GER

EPZ, Damme, GER

Residential Building, Enger, GER

Galleria Naviglio, Ravenna, Faenza, I

Commercial Building, Bolanden, GER

IPS Meckenheim, Meckenheim, Germany

Compagnie valdostana delle acque,

Chatillon, I

(2) Entering International Solar Markets

Things to consider when entering international markets

• What exactly do you want to sell and why

• Market forecast and price levels

• Industry structure and targeted positioning

• Product specifications

• Certifications and code compliance

• Logistics

• Target organization

• Finding talent

What exactly do you want to sell and why

Opportunity

Electricity consumption

Per capita

0.510 trillion kWh

6,220 kWh

3.656 trillion kWh

12,268 kWh

7x

2x

Natural gas consumption (2003)

Per capita

93 billion m3

1,134 Mio m3

634 billion m3

2,128 m3

7x

2X

GDP

Per capita

$2.454 trillion

$29,800

$12.410 trillion

$42,000

5x

1.5x

4x

CIA Fact Book, 2005

What exactly do you want to sell and why

Opportunity?

1,000 MW+

120 MW

Electricity consumption

Per capita

0.510 trillion kWh

6,220 kWh

3.656 trillion kWh

12,268 kWh

7x

2x

Natural gas consumption (2003)

Per capita

93 billion m3

1,134 Mio m3

634 billion m3

2,128 m3

7x

2X

GDP

Per capita

$2.454 trillion

$29,800

$12.410 trillion

$42,000

5x

1.5x

4x

CIA Fact Book, 2005

What exactly do you want to sell and why

Opportunity?

The US PV market is very price sensitive

Large and increasingly medium size installers

buy modules directly from manufacturers

Module purchase prices vary

$3.20 - $3.60 (large installers, app. 500kW+)

$3.60 - $3.90 (medium installers, app. 100kW+)

$3.80 - $4.20 (small installers)

The chart shows (rough estimates) of

approximate sales prices in relation to annual

order volume per installer

US PV Module Prices by Annual Order Volume

(approximate, mid 2006)

$3.00

$3.30

$3.60

$3.90

$4.20

1000 750 500 100 50

kW per yearU

SD

pe

r W

att

Large Medium Small

Source: Rough estimations based on discussions with multiple US installers and other soucres, Jan – Aug 2007

Market Forecast and Price Levels

Helmut Gehle 5

PV InstallationsOn-grid, 2005

CA

NV

OR

WA

AZ

CO

NM

TX

FL

ILOH

PA

NY / NJ

MA

RI

CT

MD

51 MW

77.3%

(+17%)

7.8 MW

11.8%

(+72%)

AZ/TX

2.1 MW

3.2%

REST

5.1 MW

7.7%

Total US 2005: 108 MW (+26%)

On-grid: 66 MW

Source: Paul Maycock in PV News, May 2006

Helmut Gehle 8

Solar Thermal Forecast2006 – 2010

Total (glazed) hot water collectors

• Total 1.67 Mio sq mtr

2006e – 2010e

• No reliable forecast

available– Expected increase in demand

due to Energy Bill, gas prices

– Based on customer inquiries, a manufacturer survey and recent market activities

• Risks to growth – Lack of capable (potential)

installers

– Removal of tax credits!

Source: Les Nelson, industry veteran, 1/20/06 as well as own extrapolations

US DHW Forecast(1000 square meters)

2006e 2007e 2008e 2009e 2010e

Residential

Commercial

93

172267

432

702

Industry structure and targeted positioning

Helmut Gehle 5

PV InstallationsOn-grid, 2005

CA

NV

OR

WA

AZ

CO

NM

TX

FL

ILOH

PA

NY / NJ

MA

RI

CT

MD

51 MW

77.3%

(+17%)

7.8 MW

11.8%

(+72%)

AZ/TX

2.1 MW

3.2%

REST

5.1 MW

7.7%

Total US 2005: 108 MW (+26%)

On-grid: 66 MW

Source: Paul Maycock in PV News, May 2006

Helmut Gehle 8

Solar Thermal Forecast2006 – 2010

Total (glazed) hot water collectors

• Total 1.67 Mio sq mtr

2006e – 2010e

• No reliable forecast

available– Expected increase in demand

due to Energy Bill, gas prices

– Based on customer inquiries, a manufacturer survey and recent market activities

• Risks to growth – Lack of capable (potential)

installers

– Removal of tax credits!

Source: Les Nelson, industry veteran, 1/20/06 as well as own extrapolations

US DHW Forecast(1000 square meters)

2006e 2007e 2008e 2009e 2010e

Residential

Commercial

93

172267

432

702

Helmut Gehle 22

Wholesalers

10 majors

Large Installers

~50

Module

Manufacturers

Small Installers

~700

Industry Distribution Structure – PVModules, MS, Inverters

Commercial

Residential

WholesalerManufacturer Dealer End User

MS / Inverters

Manufacturers

Large Installers

~50

Small Installers

~700

Commercial

Residential

WholesalerManufacturer Dealer End User

Inverter

Manufacturers

Schuco Positioning - PV

MS, (MOD)

MS, INV, MOD

MS INV MOD

Product specifications

• Just because you have a great product in Germany does NOT mean that you

have a great product for the US

• The term „quality‟ means different things in Germany and the US

– Germany: as long lasting and solid as possible

– US: meet customer needs

• The willingness to pay for “quality” is different

• There are no earthquakes in Germany

• There are no hurricanes in Germany

• Incentive programs are different

• There is only one climate zone in Germany – US 4? 5?

• Many others

Certifications and code compliance

• UL

– time

– money

• SRCC

– waiting times

– OG-300

• NEC

– grounding

– module voltage

• Local jurisdictions

– fire code in LA

– double wall heat exchangers

– insulation and copper content in OR

• CEC

Logistics

• Murphy‟s law applies everyday

• The size of this country is not comprehensible for Europeans

• Packaging

• Picking

• Carriers!

• Cost

• Number of warehouse locations

• Managing expectations

Target Organization

The Wrong Way

Sales Everything

Customer Base

Sales Team Solar USA

Technical Service Customer Service

Product Management

Solar USA

Marketing

Solar USA

Procurement Solar USA

Purchasing

Solar USA

External Manufacturers / Suppliers

German

Mother

Company

Customer Logistic

Target Organization

Pricing

Customer Base

Sales Team Solar USA

Technical Service Customer Service

Product Management

Solar USA

Marketing

Solar USA

Procurement Solar USA

Purchasing

Solar USA

External Manufacturers / Suppliers

Customer Logistic

Target Organization

Pricing

German

Mother

Company

(1) The (real) German Way

The German Way…

Yes, we like beer (and having a good time).

Yes, Germany is small yet with many

regional differences and therefore clearly

defined industry norms.

Yes, we are “anal” when it comes to

quality; we like to make lasting products.

Yes, we worry about details; we like to do

it right.

Opportunities and Challenges related to QUALITY

• Opportunity

– a solid product that outperforms the competition

– a strong reputation in the market supporting marketing efforts

– low warranty cost

• Challenge

– possibly higher production cost, therefore lower margin or higher sales price

– risk of over-engineering – offer features that nobody needs/wants

– slower time to market

Opportunities and Challenges related to DETAIL

• Attention to detail has to be established in the entire organization and value

chain

– high dependence on suppliers

– what is detail for one person, may be waste of time for another person

• Opportunity

– a well functioning organization that delivers products and services more reliably

– smaller risk of making mistakes

• Challenge

– slow build-up of organization and processes

– a less flexible organization that may not respond fast enough if things go wrong

Opportunities and Challenges related to SIZE

• Size matters (but in this case: the smaller the better)

• Opportunity

– economies of scale

– moving large volumes

• Challenge

– getting the right product to the right consignee in time and in tact

– cost

Opportunities and Challenges related to BEER

• Opportunity

– enjoying life

– having a good time

• Challenge

– finding a good brew

Other Experiences to share

• Need for US entity

–

• xxx

– xxx

The German Way…

Disrespected, anal retentive beer-drinking space-confined business people that worry

about everything (while having a good time)!

The German Way…

Yes, we like beer (and having a good time).

Yes, Germany is small yet with many

regional differences and therefore clearly

defined industry norms.

Yes, we are “anal” when it comes to

quality; we like to make lasting products.

Yes, we worry about details; we like to do

it right.