The market for residential PV monitoring software has grown tremendously in the past few years, reaching a total monitored capacity of 11.6 gigawatts at the end of 2015 and approaching 15 gigawatts by the end of 2016, as found in the latest GTM Research report, Global PV Monitoring 2016-2020: Markets, Trends, and Leading Players.
However, a radical transformation is in the cards for the next few years, driven by a shifting market and increased competition.
Low attachment rates constrain market size
The first hurdle for monitoring providers is the size of the market they compete for: although seemingly large, 11.6 gigawatts only represents 27 percent of the 42.3 gigawatts of residential PV installed worldwide, because most of these systems are not using any remote monitoring software. SoliChamba Consulting and GTM Research estimate that monitoring attachment rates in the residential segment vary from less than 10 percent in countries like Australia and Japan to more than 80 percent in the U.S.
Inverter manufacturers and leasing providers are fierce competitors
Of the 10 largest residential PV monitoring software providers, only five are independent software vendors (ISVs), while two are power electronics firms (such as Enphase, the top provider globally in this segment) and three are lease providers who developed their own monitoring platform (such as SolarCity). Inverter and microinverter firms often provide monitoring software at no cost to buyers and users of their products, which tends to diminish the perceived market value of ISV solutions. Large American leasing providers with in-house software platforms create a captive market by pushing their own solution to all their customers and channels. This phenomenon, common among the dominant players in the U.S. residential leasing market, greatly reduces the positive effect of higher monitoring attachment rates among leased systems.
Home energy management competition
Home energy management (HEM) is a market of its own, consisting of a variety of solutions that allow residential customers to track or optimize their energy usage and expenses via smart thermostats, smart appliances, etc. It fits into the broader concept of a smart home, where many devices are connected to the internet and can be part of a smart ecosystem. This broader ecosystem is often referred to as the internet of things (IOT). Of course, residential PV systems are a key part of the equation -- when they are present.
Many large companies outside of the energy space compete in the HEM market and the broader IOT platform market, all of them striving to become the hub or gateway that centralizes the user interface, provides the intelligence, controls other devices, and commands the highest profit margins. Such companies include Nest and Apple, as well as cable providers like Comcast and security providers like Alarm.com. These are tough firms to compete with, which have the technology and marketing muscle to insert themselves between solar monitoring providers and their end users, thus reducing PV monitoring to a component or an app within the confines of a few dominant HEM platforms.
A number of solar monitoring software companies evolved these past few years toward providing HEM platforms. This phenomenon is particularly evident in markets with strong residential PV penetration like Germany, the U.K. and Australia, and is amplified when markets shift from a feed-in focus to a self-consumption focus. Market leaders SMA and Solar-Log, for example, both offer PV monitoring platforms with HEM capabilities, and so does U.K. residential market leader PassivSystems. This trend seems to be in its infancy in the U.S. despite a very strong residential PV market, probably due to net metering policies that do not incentivize self-consumption, as well as third-party ownership models in which the investor and the lease provider focus on managing the PV system rather than the entire home. Integration of energy storage is a step in the direction of home energy management, and U.S. companies like SolarCity and Enphase, which sell combined solar and storage solutions, seem to be the first players making moves toward offering HEM platforms.
In addition, a number of software startups are offering IOT communication platforms (like Geli and Wattwatchers) and energy storage system management platforms designed to manage solar PV as well (like Stem). With the rise of the HEM market, residential PV monitoring software as a standalone solution may become obsolete in the next five to 10 years.
There is still (a little) time for U.S. vendors to adapt
The trends highlighted in this article create a challenging landscape for U.S. residential ISVs: in-house software built by top leasing providers carves a captive market out of their immediate reach, inverter and microinverter firms offer free solutions that make it difficult for them to communicate the value of their products, and the evolution toward home energy management has the potential to completely reshuffle the cards both in terms of technology and business models.
Fortunately for our domestic ISVs, the U.S. residential market keeps growing at a fast pace and the current net metering policies hamper the convergence of solar PV monitoring with home energy management. In fact, many vendors interviewed for the Global PV Monitoring report believe the HEM space is still in its infancy and describe it as highly fragmented. They assume that HEM platforms are not truly competing with PV monitoring solutions and prefer waiting until market leaders and standard protocols emerge.
Indeed, the PV market is currently much smaller than the addressable market for HEM solutions, so HEM vendors are unlikely to invest in PV monitoring until it reaches higher levels of market penetration, at which point they could enter the space via mergers or acquisitions.
For more information on solar PV monitoring markets, forecasts, trends and competitive landscape, download the free executive summary of the Global PV Monitoring 2016-2020: Markets, Trends and Leading Players report.