Podcast Transcript: Solar Supply Chain Issues with Brian Lynch, VP of Sales at ADT Solar

Intro (00:04):

Welcome to another episode of the Solar Podcast. Today David is talking to Brian Lynch, a veteran in the solar industry who is currently senior VP of sales at ADT Solar. Brian gives us insight into what it's like going from the manufacturing side of things to residential, the recent supply chain difficulties, and what the future of residential solar looks like. Let's get right into it on the Solar Podcast.

Dave Anderson (00:32):

Well I'd like to welcome Brian Lynch to the Solar Podcast for this episode. We're thrilled to have him on the podcast, he's definitely an industry expert. I'm Dave Anderson. My experience in solar first of all came from residential sales on the home security side, so I actually have a little bit of experience working with ADT long before I had ever worked in solar. And then for the last 12 years I've worked as an executive in solar as one of the founders of Complete Solar. Brian, you and I have actually crossed paths over the years, either at industry events or actually sitting down at a luncheon. I can remember a specific event sitting down with you, I think it was at SPI talking, that was during your time at LG. But I'd love for our listeners to get to know you a little bit better, certainly they could look at your LinkedIn profile but it'd be great to get an introduction from you.

Brian Lynch (01:19):

Yeah, Dave, I appreciate it. Thanks for having me on and thanks for allowing me to talk solar because my wife is sick of hearing me talk about solar. So the more I can share my solar industry thoughts the less she has to hear about it.

Dave Anderson (01:31):

Our wives share that same misery.

Brian Lynch (01:34):

So if you're looking me up on LinkedIn that's where I'm active most. As we were talking about prior to hitting record, there's actually two Brian Lynches in solar. So if you don't like anything I say hit up the Brian Lynch that's based in California, I'm the Brian Lynch in New York. And he will hear that and certainly send me a message. But I've been in solar since mid 2000s, actually started on the policy side of the industry working for a company called Shot Solar, so if you're a solar OG you might remember Shot as having the first 300 watt module. It was like 100 pounds, it was a behemoth. And in 2008 they opened up a factory in Albuquerque, New Mexico that I was actually just watching some Breaking Bad episodes and it's made a cameo or two in Breaking Bad and Better Call Saul. Unfortunately that closed like so many domestic manufacturing facilities back in 20, I think '11 or '12.

Brian Lynch (02:23):

From there I went to a company called SolarWorld. Again, if you're a solar OG you have a knowledge of SolarWorld. Great products, big factory up in Oregon, but they were also one of the big trade antagonists. And so whether you loved them or hated them they're certainly known for that. That factory in Oregon was acquired by SunPower, but prior to that happening, and I was leading the development EPC team at SolarWorld, so manufacturing experience but now also construction experience. I left to join an energy storage startup that ended up losing funding after a year. At which point I joined LG, had been with LG for, it was just under four years and then they of course announced their market exit recently. And I used that moment to move over to the B2C and residential side and joined ADT Solar leading all revenue generating activities for their solar business, which has been quite a ride, it's a lot of fun.

Dave Anderson (03:16):

Yeah, so would you say that your time now ADT is a deviation from what you'd kind of previously been doing working more with some of those manufacturers?

Brian Lynch (03:25):

Absolutely. So at LG we predominantly supported the residential sector, and actually Sunpro which was the predecessor company that ADT acquired to form ADT Solar, had become our largest customer at LG. And so I was getting very involved in this idea of the solar supply chain to support residential installations and the residential market. But it's a big difference working for a manufacturer that is supporting a residential installer base to actually working for an installer themselves and leading a sales org of over 1,000 people that are actually calling on homeowners and literally sitting at their kitchen tables hundreds of times every day.

Dave Anderson (04:00):

Yeah, it's kind of funny to talk about solar OGs going back to 2004, 2012, but those really were early days of solar, for sure. I started in 2010 in solar, and it was obviously a fraction of the size it is today. So it's been a huge evolution. So for you being back all the way back from 2004, it's pretty rare to find a person that's been in solar as long as you have, to say the least.

Brian Lynch (04:26):

I don't know if that's an insult or an accolade. I think my receding hairline, my wife calls my hairline my solar panels. But yeah, I feel old when you go back to the mid 2000s you realize that actually was over 15 years ago. But it's been so much fun to watch this industry blossom. And there was a famous, I think it was an IEA report that showed this incredible hockey stick for solar that was going to happen in like 2020, and back in 2007, 2008 you looked at that and you said ah, it's a hockey stick chart, that'll never happen. But it did happen, it has happened. And it's incredible to have been a part of this ride in some small way making my contribution. I love what I do, I love the people I work with, and I love the fact that I can look my kids in the eyes and provide them a very comfortable, great life, and do it in a way that's improving their lives when they're adults hopefully in some small way.

Dave Anderson (05:23):

Yeah, it's certainly been hockey stick growth looking back to the 2010, maybe even 2004 time period. But I think in 10 years when we're looking back at this the magnitude of where solar will be relative to where it is today, we're going to be talking about the explosive growth that happens over the next handful of years being much more dramatic I think than even what's happened since 2010. I think, and I'd be curious now working at ADT, the juggernaut in home security, obviously making a big splash with its announcement of purchasing Sunpro, which I'm sure you're going to be happy to explain and talk about. That's a big deal for the industry and I think it signals kind of where solar is going in terms of reach and in terms of hopeful, explosive growth. But the figure that I hear most is somewhere between 3% and maybe as high as 6%, but 3% market penetration depending on how you define what the available market size is. So maybe you can kind of go into this a little bit for us, actually if it's okay I'd like to go back one quick step. So Shot Solar, you said 100 pound module, what was the power class panel that Shot was building at the time when you first joined them?

Brian Lynch (06:39):

Yeah, it was a 300 watt module but it wasn't a 300 watt module like we think about that was around four or five years ago, these were four inch cells. I mean the technology, Dave, that was around in 2006, 2007 is lightyears different than what's being manufactured today. There's a trick in modules where there's a constant progression up. Historically the industry had standardized on these 60 and 72 cell module formats and form factors, and so they were relatively interchangeable, it made design and balance of system super easy. And in the last couple years we've now seen the proliferation of things like half cell modules or half cut cell modules and these wonky form factors that I've essentially dubbed BAMs, or big honking modules, you can change the A acronym if you'd like to what it actually is.

Brian Lynch (07:31):

And it is kind of a slide of hand, a 600 watt module isn't necessarily more efficient than a 400 watt module if it's just that much larger. And now you have to really dive into the spec sheets, and we as an industry we kind of have to now flex our technical muscles a little bit and say, what is the cell architecture? What is the efficiency? What's the degradation curves? It's not always bigger is better, because especially in like utility scale applications, that 600 watt module might not be compatible with your single access tracker, or if it is it's going to maybe stress out the purlins or cause some sort of wind loading issue that maybe hadn't been a consideration when you were using a smaller form factor module.

Dave Anderson (08:09):

Yeah. And so you went from Shot 300 watt power class module to SolarWorld, which usually pushed to being a higher efficiency module relative to other modules that existed in the marketplace. And then obviously to LG, which was considered a premium product and certainly a more efficient product than other products that were in the market. And I'm curious, how did you decide to go from Shot to SolarWorld and then SolarWorld to LG? Obviously I understand why you left each of those places, but what caused you to want to go from the one to the next to the next?

Brian Lynch (08:45):

Yeah, I think like anything in my life every day is brought to me by the question of days prior. And so Shot, I actually kind of fell backwards into that role. I was working for the corporate parent of Shot Solar, which was the Shot Company, or Shot AG, doing policy work. And solar was my biggest internal client, and so then I moved full time in the solar business. When Shot exited I had been working closely with the executive team at SolarWorld as they were doing some of their trade stuff. And by the way, you go back in OG world, SolarWorld was even, like I think it was the secret six, Shot was not one of members of the secret six. I can say that now 10 years later.

Brian Lynch (09:28):

But we were watching when they were doing on the policy side, and I know when you talk policy and trade with solar there are very legitimate and very vocal opponents to those trade actions. And I certainly respect those, but I also saw the other side of, hey, companies were violating trade laws, they were cheating. And you either wanted to accept that and accept the risk that comes with that, or you wanted to stand against it. And so I didn't join SolarWorld specifically because of their trade actions, I just had a very high comfort level with that executive team. And so I was hired by the president at the time, and he then left actually pretty shortly after I started, and that enabled me to stand up their development EPC team.

Brian Lynch (10:13):

Then going to LG it was actually through just kind of my network. I wasn't really looking to join LG at the time, but someone who had left SolarWorld then joined LG and wanted to bring me in because they saw an opportunity for me there. And so it wasn't this deliberate path to say I was always going to work for the biggest brand or the highest efficiency product, it was simply I know that customer base, I know how to sell a non commoditized product in a commoditized space, and that's a very tricky thing to do. And so that's kind of how that career arc happened.

Brian Lynch (10:43):

And I would say as LG was announcing its exit my desire to leave was simply I've suffered enough brain damage in manufacturing, I personally just don't want to work for a Chinese company. I have nothing wrong with Chinese people or Chinese companies, but I just, I didn't want to do it. And I looked at the other manufacturers and had a great respect for Qcells, and REC, and Mission Solar but I just, I couldn't do it to myself again. And so learning this side of the industry has been a phenomenal experience to deflect my kind of cognitive capacity, humble myself that this is a very important side of the industry, and it's making me smarter as I become a more complete solar professional, no pun intended, Dave.

Dave Anderson (11:25):

Yeah, of course. So the world has struggled with supply chain, but solar has particularly right now some unique struggles with supply chain. And I think actually given your experience at SolarWorld you're pretty uniquely positioned to kind of explain why we find ourselves in the situation we were. So you talked about SolarWorld being really active, they were very active in trying to legislate or push for legislation to add tariffs to solar modules that were coming specifically out of China, but all imported solar modules. So maybe if you wouldn't mind just kind of talking about that, giving an overview? So many of the listeners of this podcast are actually people that are out selling actively solar, and others of them are just people that happen upon the podcast because they're interested in solar for their own homes. Maybe you can kind of give an understanding about why we're struggling with supply chain, and a lot of its origins actually have to do with SolarWorld interestingly.

Brian Lynch (12:22):

SolarWorld and Suniva. There was a company that's actually still around and still active in the policy front even though they haven't had an operational factory and probably five or six years. Great hopes to turn it back on but have yet to do it. Yeah, and the genesis of this, and I'll try and be relatively quick, Google is your friend on this. Is I joked that every solar company in 2008 came to the same conclusion, there was insatiable demand relative to supply. And the economies of scale of manufacturing absolutely hold true to solar, if you build larger factories you can make more money. And so Shot at the time, I think had a 15 megawatt factory in Massachusetts, which today is laughable 15 megawatts, ADT Solar basically sells that much every day. And so the idea was let's build a 200 megawatt factory in Albuquerque, but the problem is every other solar company on the exact same day came to the exact same conclusion, as well as folks over in China.

Brian Lynch (13:18):

And China really published a five year plan, which is tremendous ambitions. The Chinese government said, they saw the same hockey stick charts I would assume and they said listen, we can really make this a reality if we can take the cost of solar today, which at the time resy install was $10, $12 a watt, 200 watt modules were being sold for $2 a watt, that was like my favorite period because it was super easy. And they said, if we can take cost out of this thing then we can make this a really important power generation source. And so as much as China can be faulted for some of the trade issues, they also enabled this rapid scale. And I think everyone needs to understand and respect that, including myself. But the problem is there's trade laws, and you can't do things like have unnatural support in the supply chain free land, free power, free debt. There was a joke for a while you can't kill a Chinese company because Beijing would just kind of swoop in and they would restructure it and sell it to somebody else. But from a Western economic principle you can't do that.

Brian Lynch (14:23):

And so that's why the original anti dumping and countervailing duty claim was filed because the Chinese were simply deliberately selling below cost in a game of chicken with every Western manufacturer. And at the time you had big ones, you had BP, you had Sharp, you had these brands that again, the solar OGs are going to kind of smile when they hear, but they were pushed out of the market because there's unnatural pressure. If you have a cost structure of a Shot, or a Sharp, or a BP and you're basically engaged in a game of chicken with the Chinese government, and no Western large, multinational is going to choose to engage in that battle. And so they all kind of exited one at a time. The difference with SolarWorld and Suniva is they were pure play solar companies, they couldn't fall back on TVs, or oil and gas, or anything else, they had to either file Chapter 7 and hemorrhage cash until they did that and go away, or they were going to fight back. And they chose to fight back.

Brian Lynch (15:20):

And so the original tariff scope was just on cells made in Taiwan or China. And so what started with this is a cat and mouse game. China said okay, and so they set up factories in Southeast Asia and they changed their supply chains around. And so that created a second round of [inaudible 00:15:38] tariffs again, this anti dumping countervailing duties which then closed that original loophole that was created. And then finally in 2016 Suniva was on their, I think 2015 or 2016 they were on the ropes. They just couldn't do it anymore, they were about to file bankruptcy, and that's when this 201 tariff came in. And 201 tariff, Dave, is what you're referencing that every imported module was going to be subjected to a tariff. And SolarWorld at the time originally said no to that. They said listen, our trade activities, and whether or not anyone wants to believe this is true, was that they didn't want to harm the broader market for their ability to succeed. And so they said listen, there's enough supply chain outside of China that we can put barriers for China up, but you still have market access.

Brian Lynch (16:19):

And they were just trying to levelize the playing field with this stuff. But now you're taking every imported module that was coming from Korea, or Singapore, or Germany, or anywhere, and subjecting it to this tariff which now is artificially raising the price. But at the same time SolarWorld was also in a bad spot, and so they finally consented to sign on with the Suniva petition for the 201, which is how we had that original 30% 201 tariff, and that by law steps down, and it steps down every year for four years, and it was just renewed earlier this year to go now another four years starting at 15%. But during that time there was the [inaudible 00:16:56] exclusion, there were all these loopholes that were created so it never really had a tremendous market impact.

Brian Lynch (17:01):

And then what happened last summer is a group of companies, and I don't know who was behind them because they never were named, said wait, let's go back to this anti-dumping countervailing duty petition. Because what's happened is the Chinese companies all set up factories, not all, a lot of them set up factories in Southeast Asia. And so you were buying companies products, the Chinese company's products made in Vietnam or Thailand using Chinese supply chain, Chinese labor, Chinese everything, they just happened to be coming from these other countries. And they said WTO, it's illegal, you can't do that. And so they filed this petition, the Chinese defendant said listen, we can't defend ourselves if we don't know who the plaintiffs are. And so the Department of Commerce dropped that case. When they dropped that case there was a few of us in the industry going oh, be careful what you wish for on this one, because they dropped it simply because the petitioners weren't named. And so all it would take would be one petitioner to name themselves, and that's what happened.

Brian Lynch (18:01):

So back in February a company called Oxon Solar, which is based in Southern California, and they're traditionally a contract manufacturer which is why most people don't know them said, you know what, we're willing take the mask off. I'm picturing like Scooby Doo, they're pulling the mask off. Oh, it's Oxon Solar. And they said, we're going to file the petition, and they have an absolute legal right under the law to file this petition. And this is where the industry, I have a personal frustration with. People are throwing stones at the Biden Administration saying, how can you accept this petition? How can you slow the market down so much because you have such broad climate ambitions, because of one little company that's a big player in the industry? Why? Because we have laws, because we respect laws. And the law says that they're allowed to do it. Whether or not you like the law, it's a real thing.

Brian Lynch (18:44):

And so the Commerce really had no choice but to take the petition. Why this is so damaging to the supply chain is because the original petition by the secret companies names specific companies in specific countries. The Oxon petition takes that away, they just do every company in these countries that account for some like 80% of the imports into the US, which is why it's gummed things up. And as much as some people are hoping and wishing that this thing goes away, if it goes forward tariffs, and they're substantial they range from 50% to 250%, are retroactive back to the date that Commerce picked up the petition. And so every module's imported from one of those countries today faces the risk of a 50% to 250% tariff. There's a range based on who the company is and if they're named or not named, and I won't get into that. But I can tell you no manufacturers making 50% margin, especially with the increased cost of everything.

Brian Lynch (19:36):

And so now there's a philosophical question in the industry, do we want cheap Chinese imports? And maybe we turn our back to trade law, and that will enable deployment, that'll meet all these wonderful things that solar can do with downstream job creation, with all the environmental attributes that go along with it, great things. But the problem is last summer, and people conveniently don't talk about this, China issued power curtailment. And the cost of everything out of China, not just solar components, went up because they were engaged in this battle with Australia, they weren't going to import Australian coal, and so they were throttling their factories, they were throttling their power.

Brian Lynch (20:16):

Well guess what, if you have nowhere to turn but Chinese companies, you have nowhere to turn. And so all the project delays and cancellations we're seeing right now actually were rooted back in the inability to source Chinese product from over the summer. And this exposes the fragility of having a reliance on simply one country. And even though it's made in Thailand and Vietnam, those are just mini China's as it relates to manufacturing, the industry couldn't turn anywhere else, they had nowhere else to go because they had allowed themselves to be participants in this game where China and Beijing wanted to control a significant amount of the manufacturing capacity. It's great when things are great, but they're not a benevolent society, they want to make money in this. And so once they reach a certain market penetration and share this was eventually going to go away.

Dave Anderson (21:03):

Brian, that's a fantastic overview. So if I were to try to summarize that down into the simplest way I could, there are several trade laws that are in place. Once these laws, once the tariffs were enacted handfuls of manufacturers tried to discover loopholes to try to figure out how to avoid paying these tariffs. And the petition really is saying that these countries, or governments, or manufacturing facilities were circumventing the tariffs by shifting and moving their manufacturing around. And the big danger here is that they've been doing it for a long time, and these tariffs now become potentially retroactive. And this case is going to take some number of months before it's resolved. And there's speculation that it's going to go away, there's also speculation that it's not.

Dave Anderson (21:49):

And the uncertainty has caused some of the major manufacturers to completely pull out of the US market and they're now selling their modules other places. Which is going to create a huge supply deficit here in the United States. Supply and demand economics simply state that if there's lower supply the costs are going to go up. And so what sorts of, and I don't know if you want to speak to this specifically or just generally, but what sorts of price increases have we seen on the residential side for manufacturing as a result of not just the tariffs, but specifically this petition that has been raised that's now forcing some of these manufacturers to pull out of the country?

Brian Lynch (22:32):

Yeah, so I don't want to cite specifics because there's high variability in terms of when you signed agreements. And this is all about market hedging and stuff, and so the data points that I have are not necessarily representative of everybody else. But Phil Shen at Roth Capital issues a great report, he cited some numbers a couple weeks ago and so I would point your listener if they're very curious about this to look at kind of industry analysts to answer that question. But what I'd say to this, Dave, is there's two things. There is a supply demand price elasticity that is allowing manufacturers to raise their pricing due to scarcity, but let's not ignore the fact that the pricing has gone up of everything. I don't want to cite specifics, but just the cost to ship a module from Asia to the US is up hundreds of a percentage point, there was an S there if you couldn't hear it at the end. And yes, shipping is relatively small on a full container modules relative to the dollar per watt basis, but that's a great example to show how the costs have increased.

Brian Lynch (23:33):

If you're manufacturing in Canada, or the US, or Singapore, your labor costs are way up. And so all these costs are being put into the modules, and so the module manufacturers have to recover these costs increases. And this is not limited to solar, if you've left a cave in the last six months the price of everything is way up. Annualized inflation is up 8%, but especially hard goods and durable goods are up even higher than that. But here's where it's not purely a supply demand kind of economics 101 conversation, everyone knows that if you raise the price of solar too much projects don't pencil.

Brian Lynch (24:08):

Whether it's utility scale project or residential project, the idea of the current kind of power mix or retail power supply is ultimately the upper kind of limit of how much you can raise price. And so now you have this idea of a module manufacturer wants to sell a module for $2 per watt and the econ class would tell you they could do it based on supply demand imbalance, but no one can buy that module at $2 a watt and successfully install it into an economically viable project, or not enough people can do it. And so you really have a price ceiling where the manufacturers are aware of it. And so yes, they do need to claw back.

Brian Lynch (24:45):

I think the industry needs to be respectful of this because everyone in a project needs to benefit. The end customer needs to get reliable power at a price that's beneficial for them. The EPC or installer needs to be able to install it at a price that they can make money at so they can perpetuate their business. And the manufacturing, and suppliers, and everyone in that value chain needs to be able to make money so they can continue their business. And when you rely on someone to lose money to make your project economically viable you're gambling. And it's worked very well in the solar industry for a very long time, but you have to acknowledge that eventually it's not going to work out for you. And so this is where the industry needs to kind of mature in a lot of ways. We need to become more sophisticated in the true cost of all of this, and build economic models and business plans that don't rely on the person next you to lose money to support your business' ability to be profitable.

Dave Anderson (25:37):

Yeah. And I don't actually mind sharing the anecdote, or it's fairly specific but an anecdote nonetheless. So the manufacturers that we talk to have talked about their shipping costs going from around $4,000 a container to over $20,000 a container, and that's about $100,000 worth of module. So that's material.

Brian Lynch (25:53):

Yeah, it's material.

Dave Anderson (25:54):

So you're seeing huge increases. And it's other stuff too, I mean they have to ship the raw goods to their facilities, it's not just shipping the modules here. So I actually talked with a module manufacturer that was trying to figure out if they could pencil flying the modules in, the cost of flying them in relative to a container just because it's difficult to get a container, and then you have to pay for the container. So it seems crazy to think that you'd actually ship solar modules by plane, but that's kind of where we're at right now that people are kind of considering crazy things.

Brian Lynch (26:29):

And Dave, I mean this goes back to the whole philosophical question about the tariffs. We have no choice as an industry but to look at crazy things like air freighting solar modules. And by the way, for your listeners that are not industry professionals, a solar module right now is about 50 pounds, pallets are usually 30 module per pallet. Think about the weight. I don't know if you've ever priced something for air freight from Asia to the US, it's not cheap. And so imagine like a FedEx 767 full of solar panels, I mean that's hundreds of thousands, if not millions of dollars in freight costs, freight costs alone to air freight a solar panel. The economics of that fall apart so fast. And so you'd say, well who would do that? Well the reality is we're so painted in a corner right now because of this imbalance, people are doing crazy things like that to get projects across the finish line because projects are stranded, they're orphaned.

Brian Lynch (27:18):

And we didn't even talk about the withhold release order, which is US government and customs has accused certain manufacturers of utilizing forced labor or slave labor in their supply chains, which is a big no-no in the US. And so that also is gummed up the supply chain. And again, as a buyer of solar panels you're looking around going wait, I don't want to participate in that, I don't want my customers to be exposed to that. I don't have any other options, what do I do? And this is the vexing problem. And as an industry, and so hey, big problem, what's the solution? I'm not going to say that the US needs to become a manufacturing juggernaut, economists have dismissed that. As an economy maybe we don't need to be a manufacturer, but we need to have manufacturing allies. And ultimately the best ally is ourselves, and we can't rely on Germany or Canada to make all this stuff for us and so we need to take care of ourselves.

Brian Lynch (28:11):

There's provisions in the Build Back Better bill, and we won't get into the politics of that, that really supported full domestic value chain manufacturing. And it's not just solar panels, it's not just solar cells, it's the gap in between the poly silicon, which is the very raw material at the top of the supply chain, and the finished grid to the bottom which is the solar panel, China controls 91% and 96% depending on the analyst report you read, capacity of the [inaudible 00:28:35] step. And again, if you're a lay person listening to this you're going, what is that? It's the thing you need to make solar panels, that's all you have to know.

Brian Lynch (28:43):

And so you build a module factory in the US, and LG is a prime example of this, they had to manufacturing facility in Huntsville, Alabama. If you can't source your waiver from anybody cost effective because there's only two big companies in China to do it at scale, company A or company B and they're manipulating pricing, well with all the supply demand imbalance you would think that Huntsville factory would be wildly profitable. Well it's a challenging thing if your suppliers are manipulating your price.

Dave Anderson (29:13):

Yeah. And to be clear, some of the air freight stuff that I've heard is really on the [inaudible 00:29:17] or sell side of things trying to do assembly and manufacturing in the United States, or Mexico, or Canada. But to your point, it's actually a step backward in terms of some of the environmental attributes and benefits of solar when you start air freighting your sales around as well. So definitely not something that's favorable to do, but it definitely shows the desperation that some of the manufacturers are in to try to figure out how to solve, and I don't want to say get around policy, but we all want to make sure that the manufacturers are being good actors and performing in a way that's consistent with laws but also good for the economy and good for the marketplace.

Dave Anderson (29:55):

But it's an interesting place and I think that's a fantastic overview, it goes deep enough I think that people kind of have an understanding why we're seeing some cost increases, but not so deep that I don't think the lay listener or the average person couldn't follow on. I think it's a really fantastic overview, so I appreciate that, Brian. We should get into-

Brian Lynch (30:12):

I was going to say there's very passionate feelings about all of this. And I respect the other side again, if you're an industry person and you're yelling at the Biden Administration to make this go away magically, you are ignoring the fact that there's a legal process they have to follow, it's not the Biden Administration's fault. I'm pretty sure no one at Commerce wants this to be happening right now, but we can't be throwing stones at the Biden Administration. We need to be advocating and supporting for policy that allows us to have domestic manufacturing, because that's truly what makes this go away. If we never achieve that then we will constantly be engaged in this cat and mouse game, and we don't need that or want that as an industry. Sorry, soapbox.

Dave Anderson (30:49):

Yeah, I think that's a real fair commentary for the Administration, the presidency, and frankly why it seems, it can be such a head scratcher for people that are in the industry or out of the industry to see. You have these really fantastic regulations and legislation that makes solar easier, the ITC specifically, the 30% or 26% investment tax credit that consumers are eligible to receive as part of an installation of a solar project. But then you see these tariffs and other sort of like, what some people would perceive as artificial costs or things that are inflating the costs unnecessarily. Not artificial but unnecessarily inflating the costs. And so you see the tailwinds but then you see headwinds, and for many people those things seem to be in conflict with each other. But I think you've given a great overview as to why both of those things might exist.

Dave Anderson (31:40):

So you've gone from very heavy on the manufacturing side for your career, you're now very much so in the trenches on the residential side, in the sales of solar. And I'd love to get just maybe an overview from your now insider's perspective on Sunpro, ADT, and where they position themselves in the marketplace today, and why you feel like that's a value to residential solar generally?

Brian Lynch (32:04):

Yeah. So for those that don't know ADT Solar, I think by the solar power world rankings is the second largest residential installer in the US, I think another metric puts us at number three, but irrespective we are a very large installer of almost exclusively residential solar installations, some spot commercial stuff, but the core business is residential. We're active in 22 states, so the Sunbelt States from California to the East Coast, everywhere but Alabama because they don't know how to spell solar in Alabama. And we're marching relentlessly into the Midwest and Northeast. I can say that joke because it's a big omission on our map. And we have aspirations to be a 50 state player and really provide solar access to anyone that wants it. Now under the brand halo of ADT, and we are a wholly owned company, we're not a subsidiary or anything, we are part of ADT so we don't just license the name.

Brian Lynch (32:59):

ADT has phenomenal customer access, they have something like 6 million unique customers every year, they touch hundreds of thousands of customers on a regular basis. Now I envision that to be because their smoke alarm is going off because they burn the toast, but every day they're touching their customers multiple times, and doing it in a way that's value add, and solar is value add. And so we're in an inflection point in the industry where we're going from early adoption to mass market, and this is where a company like ADT can provide phenomenal benefit. Because what this industry really, really suffers from, Dave, besides tariffs, is customer acquisition costs. So right now the ability for a solar installer to find a customer who's ready to go solar and is raising their hand is extremely inefficient. And if we can take that cost out we can drop the price of solar, which means more people can be economically viable for solar.

Brian Lynch (33:51):

And so this is really what makes me so enthusiastic about this acquisition and now this brand halo of ADT is that customers that maybe have been afraid to make a very large ticket purchase, because these are tens of thousands of dollars using a local contractor that may not be in business in a couple years, with all due respect to every small solar installer out there, some customers don't want that. And now having a brand and a company like ADT that's publicly held with a large balance sheet, being able to provide that service and that 20 year power performance guarantee is bringing in a customer base that now sees solar as being a viable branded technology. We've seen like Vivint and others have done this as well, but I think that the timing for ADT was particularly smart as we're really in the midst of the electrification of everything. Most people will be buying an EV in the next 10 years, a lot of places are phasing out natural gas, and so what's going to happen is your electric bill's going to go up, and the best way to solve that is onsite generation.

Dave Anderson (34:54):

Yeah. And ADT has around 6 million customers and an interesting model where, and I don't know the exact statistics, but some number of them, maybe half of those come from dealers and half of them come from the captive side or the sales reps that worked directly with ADT. And with ADT Solar now being its own brand, and actually made a pretty big announcement even last week with announcing... Most people recognize the blue shield of ADT, it's one of the most recognized brands actually in the industry, they've spent a lot of time and effort on-

Brian Lynch (35:28):

It's on my hoodie but you can't see it because of the webcam, but yeah.

Dave Anderson (35:33):

Yeah, yeah. When I was an ADT dealer 20 years ago that was actually one of the major pitches from ADT in terms of acquiring dealers was it's one of the most recognized brands in the industry. And it certainly has only improved over time, over the last 20 years as well both in terms of recognition as well as in terms of just the general sentiment that people have toward it. So ADT Solar now with the, and I don't know what the exact color is, it's an orange bar I guess that goes around the shield, is supposed to be the new logo and brand for ADT Solar and formerly Sunpro, which is now ADT Solar.

Dave Anderson (36:10):

So I don't know how much you want to talk about ADTs specific strategy to be able to bring some of those customer acquisition costs down but you're right, the industry suffers generally in spending a lot of money in acquiring each individual customer. And you've talked about grid parody or trying to figure out how to make the costs work for every homeowner in all 50 states, the solar panel cost is a small piece of it relative to the overall cost of a residential installation. Depending on the market it might be a sixth of the total cost, maybe a fifth of the total cost. So what sorts of things is ADT specifically doing to try to bring that customer acquisition cost down, make it more available, have better reach, more accessible to more homeowners?

Brian Lynch (36:57):

Yeah, so I think more than anything it's brand identity. And so again, if you were a solar customer last year and you were thinking about going solar and you're doing Google research, you maybe have come across Sunrun, maybe SunPower because those are names that those companies have invested heavily in to build their brand. Tesla of course, let's not ignore those guys. And so you kind of had a, and then a bunch of local installers. And you didn't really know what was the best option for you. And again, these are for people that are voluntarily hand raising. Now with ADT, if we convert 3% of those 6 million customers to solar because they happen to be ready to go solar and now ADT offers a viable option, from a residential scale standpoint that's huge with very low customer acquisition cost. But more importantly it's this idea of this drip campaign and remaining front and center in an added value way to these customers, so when they're ready to go solar the first call is to ADT.

Brian Lynch (37:52):

Which means we need to have a really crisp, high end customer experience, we need to sell it right, we need to install it right, and we need to do better than we say we're going to do. And this is where the residential solar industry has honestly not done a great thing, or at least consistently there's some companies out there that are scallywags. You can Google that one too, there's one that's facing a wrath of lawsuits from Attorney Generals and customer complaints. And so again, now that we have this brand halo of ADT people know and trust ADT, and I can tell you that the solar team, the reason why they acquired Sunpro was because there was this customer first mentality. We're not perfect 100% of the time, this is complex residential construction at scale, but when we make a mistake we're going to make it right, or endeavor to make it right. And so I think customers have that assurance and so a willingness to engage with ADT.

Brian Lynch (38:46):

And again, because we have efficiencies in customer access, we should also provide efficiencies in pricing, and scale, and service that we can offer. And so there's no secret, Dave, that now when a technician comes to your home to install your motion camera and what have you, they'll be prompted to look at the roof and say wow. Now I say a sexy solar roof, my wife hates it. We check in a hotel and first thing I do is I open the curtains and I go oh, that's a sexy roof, solar thing. But now technicians and people that aren't necessarily trained to do that will look at a roof, they'll identify sexy roofs, solar their sexy roofs, and they will be able to make the suggestion to the homeowner that, hey, I think you have a great roof for solar, have you ever considered it?

Brian Lynch (39:28):

And if they do that, they can get discounts in their ADT service. And again, now it's just numbers game of how many of those are willing to go solar at that time? And if they aren't ready today that's okay, we'll be here in six months or six years whenever they're ready to go. But the thesis is a vast majority of them will be ready to go very quickly.

Dave Anderson (39:48):

Yeah, so the residential solar space has benefited from home security, either the transition of sales reps from home security companies into solar specifically, or home security companies that have added solar as part of their overall offering. Why do you think that home security and solar have paired really well over the last 10 years or so? Or do you think there's anything specific about home security and solar that matches up or aligns?

Brian Lynch (40:13):

Dave, historically I don't know that it ever really had efficiencies beyond customer access. And so I worked with Vivint, I have a high degree of respect for that team, but solar was always in my mind, their interest in solar was a way to leverage their customer rolodex and their engagement with their customers. But from a cohesive product standpoint I don't know that it ever really integrated. There's a lot of effort at ADT to migrate ADT from that blue shield company in your lawn that everyone associates ADT to be with, with monitoring your motion detectors and your smoke detectors, to becoming more of a smart home company.

Brian Lynch (40:52):

And so there's a big investment by Google in ADT, and so now they say connected, protected, and powered. This idea of really offering a true smart home strategy that isn't limited to automation of lights and HVAC, but it's about power generation, power consumption, and now security, which let's evolve security beyond the idea of security will be your home and access, but now energy security too which is actually a really big thing. And it's not energy security like the power's going to go out, it's more energy security of I'm controlling that cost that seems uncontained.

Dave Anderson (41:26):

Yeah. So I want to make sure I get that right, you said it was connected?

Brian Lynch (41:31):

Protected, empowered.

Dave Anderson (41:33):

Connected, protected, empowered, that's great. And in what ways if I'm a homeowner is that going to show up? How's that going to change my life? Or what's that going to look like for me if I am an ADT Solar/ADT home security customer, and obviously with Google's influence there?

Brian Lynch (41:54):

Yeah, I mean honestly today we just turned the ADT Solar brand on last week. And whenever you're listening to this, that would be in April of 2022. And so today we're still on the company integration phase, but there's now collaborative development efforts so we can start displaying solar data on your ADT app, and that's not live yet but the hope is that'll be live here in a relatively short duration. And again, as the ADT app becomes the center of the smart home universe for the customers that opt into that, integrated with Google, maybe Alexa or the other smart home services. Now your electrification, your energy becomes displayed and a functional part of that. It's publicly known that ADT Solar is a very large installer of end phase, and I will say that end phase is a phenomenal tech infrastructure as it relates to home automation, this idea of generation and energy security.

Brian Lynch (42:53):

So one of the phenomenal new products end phase just rolled out is they call it sunlight backup, at ADT we call it sunlight security. And what it does is it keeps your solar ray on if the grid goes down, lay person thing, it doesn't happen if you don't have this product from end phase. But now you're talking about smart load control, about shedding load in an intelligent way to meet either your batteries or your sunlight's capacity in these grid outage events. That's a lot of work. It sounds simple for a salesperson to say, but there's a lot of really intensive algorithms in the background that are making that possible and happen. This is the base level of a really kind of intelligent ecosystem that will now integrate EV charging here pretty rapidly for us, as well as other home automation services. And so those of you that live in California and you have high time of use rates where your power at like 4:00pm in the summer is extraordinarily expensive and at 10:00pm it drops down a bit, if you're a smart home and your electrification automation can now control, charge and discharge your battery so you never pay that high amount. This is where we will unlock extraordinary value for our customers.

Dave Anderson (44:04):

And ADT is actively working on trying to make more efficient those algorithms and be able to kind of manage power, or are you working with the end phases of the world to try to incorporate their technology onto your app that's ultimately going to be the brains of their solar?

Brian Lynch (44:22):

Yeah, today it's collaboration with end phase primarily but also Google. But we do recognize that we have the consumer facing portal for a lot of these homes, so end phase is a great app but again, the more we can centralize this onto one app for one homeowner, that's going to be the ADT app. And so again, it's providing value add service, the more these things that you can connect together the more value you can unlock.

Dave Anderson (44:48):

So one thing that we always like to ask the people that come onto the podcast to do is just to generally talk about solar. If you were going to give the 60 second elevator pitch to the random person on the street about solar, how would you categorize it or explain it and make someone that hasn't thought about it think about it for a first time maybe?

Brian Lynch (45:07):

Yeah, so you think working for a very large consumer resy company I would have, I have a pitch but it's like 10 minutes. So 60 seconds, this is where my brain is starting to seize a little bit. I mean honestly solar is one of the most amazing technologies to sell, and integrate, and to purchase. It adds value to your home, it saves you money, and it future proofs your home in so many ways.

Brian Lynch (45:31):

I would tell you that there's a lot of disqualifiers for solar, and so not everyone should and could go solar. And that's where the industry struggles is separating those that will really benefit from it from those that won't, and focusing our efforts on those that will benefit from it. And for the non solar industry folks out there, work with companies that will give you honest answers and not just try and make a sale because they can make a sale. There's technical evaluations that go into this, and if you talk to enough companies and hopefully ADT Solar, you'll find the ones that are representing things right. But Dave, I mean the 60 second pitch is six seconds, is solar is an incredible technology that works reliably and reliably saves people money.

Dave Anderson (46:12):

And then also just asking you to put on your speculator hat for a second, where do you see solar in the next kind of one year and then five years and 10 years? What's your expected evolution of this industry?

Brian Lynch (46:27):

Specifically on the residential side, there's so many different segments in the industry I'm going to focus this answer on residential.

Dave Anderson (46:32):

Of course.

Brian Lynch (46:34):

In one year it's the tipping into mass market, it's that 50 state expansion. If you're in North Dakota or North Carolina solar should make sense for you here very, very quickly. In five years it's about integrating solar so it's not a bolt on technology, it's really a required technology to fully integrate with your home automation. And then in 10 years it's no longer an accessory, it's not a thing that affluent people have. It's something that every home, whether it's going through renovation or new construction, will be designed around solar.

Dave Anderson (47:06):

Yeah. And Brian, I can't thank you enough for coming on and talking about the things that, I mean you certainly in your 20 years, almost 20 years of-

Brian Lynch (47:15):

Don't age me.

Dave Anderson (47:15):

Experience working, almost 20 years of experience working in renewables you've amassed an incredible knowledge, both on the regulatory side, as well as on the manufacturing side, the supply chain side, and now specifically work with ADT becoming the uber expert on the residential sales side of things. So I'm sure your 60 second pitch, as good as it was will only get better over the next coming months. But it's been fantastic to have you on, I actually have learned, I actually feel like I keep fairly up to speed on a lot of these regulatory things, but learned some things that I actually hadn't fully appreciated by having you come on. It's something I know that our listeners are certainly going to benefit from. Any closing thoughts from you, both on ADT, SunPower, or yourself professionally that we should certainly not miss out on having, or not saying I should say?

Brian Lynch (48:05):

Dave, I appreciate you having me on, always fun to talk shop and talk the industry. I hope I added value to not just you, but everybody else that listened, that's my goal in doing these. And yeah, the policy stuff we talked about is so sticky, I think it's important for everyone to remember that there's another side of the story. So it doesn't matter what side that you're on, the other side has a valid argument and I think we need to control our tempers as an industry to remember that we're all united on a unified cause, and the more that we're divided and presented divided face to the policy makers at the state level or the federal level, the more this is self-destructive to us. And so let's respect the differences, but speak with a unified voice about things that we can all align on. If anything I said made you angry, remember I'm the Brian Lynch on the west coast. If you like what I said I'm happy to talk more with you about it, I'm the Brian Lynch on the east coast.

Dave Anderson (48:55):

Great. Great parting words, thanks so much, Brian, for coming on. I appreciate it.

Brian Lynch (48:57):

Appreciate it, Dave. Thanks.