Why do so many solar companies go out of business?

Fast read

An orphaned solar system is a solar panel or inverter system abandoned by the manufacturer and the installation company. This can happen when the manufacturer goes out of business or the installation company becomes bankrupt or liquidates.

As a result, any warranties offered with the solar system became worthless—leaving the consumer with a system that may require costly repairs or replacement without financial assistance. Orphaned solar systems are a problem in the solar industry. Estimates suggest that Australia's nearly one million systems, or about one-third of all, are orphaned.

Consumers can protect themselves from this issue by carefully researching the manufacturer and installation company before purchasing a solar system.

Why do solar companies go bankrupt and leave orphaned systems?

Our Australian consumer law is fascinating because it has some aspects that are unique to Australia. For example, a solar inverter manufacturer sold you a lesser-known cheaper inverter with a 10-year product warranty via an installer. But, unfortunately, after six years, the inverter stopped working. When you ring up to determine how to get this product fixed, you learn that the solar company has gone out of business and is not in Australia anymore. They don’t have any office or representation left.

However, Australian consumer law says that the remaining 4-year product warranty obligation goes back to the solar panel installation company that initially took your money and installed the PV system for you.

So this installer who initially recommended that inverter is now stuck with that product warranty responsibility for the next four years. This is because the manufacturer has left our jurisdiction and has wiped their hands off their duty.

Maybe the installer suspected that this inverter was too cheap to last ten years, and they expected this moment and were ready to move, or they were an unsuspecting victim of a moral manufacturer. Either way – it’s the installer that now has to repair your inverter – or so you think.

inverter exploded installed from solar company gone bankrupt
Installers must uphold the responsibility of their solar warranty claim

Is the Australian consumer law clause a good thing for solar?

So this consumer law clause sounds excellent because the consumer seems protected – no matter what. The only significant caveat is…

Let’s say I am an honest, hard-working solar installation company and I turned over a few million dollars a year and sold 900 to a thousand of those inverters in good faith. The issue is now that most of these units have started failing. With a significant circuit solder fault and burnout soon after year 6 of installation, they have a 10-year warranty.

I am one of Australia’s largest solar sales companies, with famous endorsement people, low prices, and lots of fanfare, and we sold a lot of cheap crap solar. We installed it poorly, and we knew this moment was coming. So we are prepared and already have two replacement solar companies waiting to be registered and to start all over again with poor-quality products and extended warranties.

Now the installer meets with their accountant to assess the risk of all these inverter failures. Most of them will fail before the 10-year warranty expires.

A potential liability of $1 million in product alone and another $500,000 in replacement labor is coming their way, and it looks like it’s not even the installer’s fault.

So those solar companies who worked with large numbers of this inverter brand will look at their ability to absorb such a significant outlay of $1.5 million dollars in transferred warranty liabilities.

What happens next?

Laws meant to protect people from bad solar companies are having a strange side effect. Some struggling companies are being advised to shut down and then re-open under a new name, basically starting fresh.

Imagine trusting a solar company to install your panels, then one day learning they’ve closed down. Soon after, a new company appears in the same location with a logo that looks almost identical, uses similar marketing, and maybe even has a name that sounds familiar.

While this is legal, it leaves consumers wondering what happened to their original company and who to trust now. The close resemblance between the old and new companies creates uncertainty and frustration.

The bottom line is, laws designed to help people are accidentally making things harder for them in this situation. We need to find a better way to balance protecting consumers with keeping the solar industry healthy, so people can trust the companies they choose for their solar needs.

solar company out of business closed sign

Solar companies in the industry have gone out of business

In the solar industry alone, since 2010, over 800 solar companies have left the industry.

Nearly one in three solar power systems (close to 1 million) are in the industry known as an orphaned solar system. This is because the panel or inverter manufacturer and the solar company go out of business. Unfortunately, this means the decade warranties the customer received with their solar panel system purchase are worthless.

So this Australian consumer law doesn’t necessarily give your solar that extra security that it appears to provide you with. But it, in many cases, meant that solar businesses had to find a way to leave the industry and come back another way.

So hopefully, you picked an inverter or panel brand that is in Australia long term, committed to the place, and honours their warranty.

One way to avoid this issue or minimise the risk is to pick a solar company that has been around for a decade or more and one that only uses quality equipment. We at Your Energy Answers have vetted the industry for precisely such companies.

What to do with an orphaned solar system

In Australia, people who bought solar panels may face a problem if the company that sold them goes out of business. To safeguard consumers, there are rules in place stating that if the solar panel manufacturer can’t assist with issues, the responsibility falls on the installer, particularly concerning warranty matters.

However, an interesting twist unfolds in the narrative. Some companies, having sold numerous solar energy systems, choose to close down only to remerge under a new name.

This practice is legal. However, it confuses customers. They are unsure about the fate of their original company. They are also unsure who to trust after changes.

This legal action impacts consumers. About one-third of solar PV systems are left as orphaned systems. This happens when the original company or panel manufacturer goes out of business. Consequently, the warranties promised to customers lose their practical value.

To overcome this challenge, choose a solar company with a good reputation and a focus on using top-notch equipment.

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