Across the last six months, German startup Zolar has cut its workforce from nearly 400 people to just under 50.
The company, founded in 2016, set out to provide solar panels to consumers — and raised $241m from VCs including Partech, AENU and Energy Impact Partners to do so.
But faced with tanking demand, Zolar has pivoted from its original proposition and is now selling software to other solar panel installers.
The startup’s struggles are part of wider headwinds facing Europe’s green technology providers, which have left even the largest companies in the sector hurrying to diversify their offerings away from solar.
A shrinking market
Demand for solar panels soared in the aftermath of Russia’s full-scale invasion of Ukraine three years ago. The conflict sent gas prices rising and consumers turned to green technology to ease their energy bills.
But that appetite has dropped over the last two years. The cost of gas has fallen, meaning consumers are less incentivised to seek cheaper alternatives. At the same time, interest rates have risen, pushing up the cost of the financing deals consumers typically use to buy panels.
Germany’s solar capacity surged by 214% between 2022 and 2023, according to industry body SolarPower Europe. From 2023 to 2024, capacity grew by only 6.66%.
The business model Zolar had pursued for nearly a decade became untenable, Torben Schwellnus, who took over as CEO in February, tells Sifted.
“The business model we were running at that time just would never have become profitable on paper, and certainly not in reality,” Schwellnus says. “Unless you had a large amount of cash in your bank — which we didn’t have, compared to the others — you couldn’t really sustain that.”
Zolar pivoted away from directly installing solar panels for customers and to provide software to local installers, offering tools to help configure panels on roofs and streamline the installation process.
Software has always been an easier bet for venture capitalists to wrangle with — dodging the high capex costs that come with hardware.
Zolar’s pivot coincides with the emergence of other startups focused on software for the green technology installation industry. Germany’s Autarc and UK startup Spruce both provide software to heat pump installers, for example.
1Komma5: ‘Over 50% of our orders are now non-solar’
Germany is home to Europe’s two largest startups installing solar panels: Hamburg-based 1Komma5 and Berlin-based Enpal.
1Komma5, founded in 2021, has raised €400m in equity, from investors including Eurazeo, Norrsken and CalSTRS. It has operations in Germany, Sweden, Finland, Denmark, Spain, Australia and the Netherlands.
Founder Philipp Schröder says the company had long predicted the dip in demand for solar panels.
“In 2022 and 2023 solar was the place to be, but it’s not anymore,” he says. “The elevated market was not going to prolong, in our view. The unique acceleration of demand has been followed by a to-be-expected slow down.”
1Komma5 offers a range of home energy products beyond solar panels, including heat pumps, energy storage batteries and smart charging tech. Less than 50% of its orders are now solar panels, Schröder says, helping it to weather the downturn in appetite. The company saw orders across the board grow by 40% in 2024.
As solar has taken up less of its orderbook the company has focused more on its software offering, Heartbeat AI, which operates batteries, heat pumps and charging technology. It allows customers to store energy when the price is low and use it when the price is higher. Its closest competitor, Schröder says, is Kraken, British energy company Octopus Energy’s software offering.
1Komma5 reported €520m in revenues for 2024, up from €450m the year before. The company says it remains profitable on an operational level.
That said, in December, Germany media publication Gründerszene reported that the company’s revenue for 2024 was lower than it had forecast — suggesting it had been targeting €750m. Schröder says the report failed to acknowledge that the company stopped acquiring smaller installers last year — the way it had built market share up to that point.
Enpal: investing €100m to diversify its offering
Enpal set up shop in 2017 and has so far raised €3.6bn in debt financing and nearly €600m in equity. Investors include BlackRock, SoftBank and HV Capital.
Last year, as the demand for solar dropped, the company invested €100m into building up its offering in new areas, including heat pumps and, like other players, developing its software offering, Enpal.One+. The tech connects solar systems, batteries, EVs and heat pumps to maximise energy use when the cost is low.
Enpal CPO Ben Merle tells Sifted that the increased focus on heat pumps was always part of the company’s long-term vision but that “a market decline in solar led to us adapting plans of what the portfolio share of X versus Y was: that’s normal business.”
In 2023, Enpal installed 600 heat pumps; in 2024 it installed 4,300.
Last year, Enpal reported that revenues dropped from €905m in 2023 to €860m in 2024. The company tells Sifted that its investment into new areas meant deprioritising profitability for the first half of 2024, but that it returned to profitability for the second half of the year.
Enpal said it recorded its strongest ever revenues in February and March this year, but declined to share specific figures.
A solar rebound?
Despite the push to diversify away from solar, there are some signs that demand for the panels could be on the way up again.
Enpal said its revenue per month picked up by 20% in Q1 this year. “The demand for solar is increasing, driven by very high household electricity demand,” Merle says, putting the demand down to the increasing adoption of EVs, heat pumps and aircon units.
Management consultancy McKinsey recently predicted that the number of residential solar panels installed will stabilise to around 35 gigawatt deployed per year globally from 2026 to 2030. That’s lower than the peak seen in 2023 — when 39 gigawatts were installed — but would still mean the amount of residential solar will double by the end of the decade.
And investors behind the European startups remain bullish.
“The market will consolidate more and there will be fewer players that can really offer competitive products,” says Christian Saller, investor at HV Capital, which backed Enpal. But ultimately, Saller says, the trend will continue because “Europe wants to be energy independent.”
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