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Solar Power: Making the right choice, the easy choice … (revisted)

December 15th, 2008 · 3 Comments

One of the key Energize America principles is to strive to

Make the right choice the easy choice.

Right now, throughout the United States, structural issues of regulation, financing, taxation policy, and otherwise make it difficult for individuals, businesses, communities, and governments (at all levels) to make the right choice when it comes to holistic approaches to energy choices. Home Owner Associations (HOAs) ban solar power; tax policy favors deducting energy costs now versus longer-term deductions of building improvements to reduce energy use; purchase and operations budgets are separated, hindering investment in better quality purchases that lower long-term operating costs; and so on …

What creates these disincentives and what might be done to change the situation? Two Top Line Strategy studies offer some insights when it comes to solar power.

A caveat … Beware the Silver Bullet

There is a real tendency to seize on a piece of news, a technology, a single item and say THIS IS THE SOLUTION TO ALL OUR PROBLEMS. (That’s right, if I only win the Mega-Millions lottery.) This is the “Silver Bullet” solution concept, the idea that there is something magical out there, one single path toward solving all our problems. The other idea is the Silver BB, that there are a myriad of responses and answers to our challenges. Each Silver BB (and silver speck of dust … do you compost?) is part of the a larger, system-of-systems, holistic response to our global challenges (energy, water, global warming, food, economic development, etc …). And, if a Silver BB turns out to be a false path, to not be a precious metal but something less, then we continue with our other approaches, not having made a bet on that single Silver Bullet.

We must continue to tackle our challenges in a holistic manner. We must tackle energy efficiency. We must look toward paths for retiring coal from the electrical system. We must pursue renewable energy. We must look toward non-oil based transportation paths. We must … approach our challenges in a holistic, system-of-system manner. And, we should do this in a flexible, (mainly) technology-neutral fashion, ready to incorporate (and even embrace) Silver Specks of Dust that might turn into Silver BBs and that might … might … might … turn into true Silver Bullets that change the game.

What is the reason for this prologue? Because, of course, PV is not a Silver Bullet to solve all our problems, there is no such thing as a Silver Bullet. In any event, any investments in the energy arena (personal, community, business, government) must be first, second, and third into energy efficiency (both in reduced demand and more efficient production). And, ‘then’, we turn to clean (non-GHG) energy production. Clearly this needs to be done in parallel, on national scale, but truly, efficiency is where the fastest (and largest near term) payoffs are.

This discussion, however, highlights an arena that we should all remain aware of, not just for the PV sector: often it is the technology or practice that is far easier than finding paths toward large scale adaptation.

Solar PV: Obstacles and Opportunities

For an interesting look at a potentially critical arena for moving the nation toward a more prosperous and sustainable future, Top Line Strategy published two studies in January 2007 in relation to solar power, suggesting paths toward faster expansion. For me, their work has true insight and merits consideration …

The first report is What the Solar Power Industry Can Learn from Google and Salesforce.com (co-author from Sun Light Electric). This looks critical obstacles keeping solar from going ‘mainstream’. With growth at some 44% per annum, hard to see a problem. The authors, however, point out that the semi-conductor industry provides a cautionary tale:

history demonstrates that even hypergrowth industries are subject to ups and downs and concurrent shifts in market share as some market players successful navigate challenging times. The Semiconductor industry is a great example. Despite growing by 30,000% over the last forty-five years, the industry suffered several painful downturns including six separate years when revenues actually shrank.

Thus, the potential is there for serious problems.

To start with, the study describes solar power in a way that mirrors issues discussed in The Innovator’s Dilemma. When discussing solar (which they equate to PVs)L

One of the unique aspects of solar electricity is that is most attractive to the smallest electricity users and not major industrial users and commercial power producers.

What does this mean? For a variety of reasons, the true “market” for solar is the individual as solar best takes on high cost electricity (at this time), which is that electricity charged full market rates: e.g., the individual homeowner who pays retail rates with no options for discounts.

In addition, there is minimal economy of scale. Buying 1000 kilowatts of solar PV for a rooftop doesn’t signfiicantly reduce costs for the equipment (although, per watt, it can cut the installation costs). Thus a homeowner should be able to buy solar for about the same cost as a major business operation.

Thus, according to Topline, solar PV’s top potential market space: 106 million homes.

But, what are key challenges for faster solar PV penetration? They lay out five:

1. Lack of Confidence in “Solar Power” Technology
2. Large initial investment
3. Lack of Standards and Best Practices
4. Concerns about impacts on resale values
5. Lack of an Effective Channel to Serve Small Accounts

Each of these is well discussed in the report. How, however, to think about speeding solar adoption.

For example,

Introduce Preconfigured Packages
Auto manufacturers learned years ago that offering customers unlimited flexibility in choosing the configuration of their cars was a losing business practice. It introduced incredible cost to their systems without offering much incremental benefit over having a handful of packages.
Today, the solar industry is still operating under the unlimited flexibility paradigm. Nearly every PV system is custom designed to the unique specifications of the property, driving up sales costs, installation costs and equipment costs (since each vendor incurs the cost of selling their components separately and ancillary components, such as inverters, are rounded up to the next size).

Preconfigured packages, perhaps for 1, 2, 3, 4 and 5 kilowatt systems, would positively impact practically every customer objection. By eliminating design costs and simplifying installations, it would make it profitable to sell smaller systems, stimulating the development
of a high quality channel for smaller systems. Smaller systems also lower the initial investment and reduce aesthetic concerns.

Well … to put it simply … they are right.

Imagine simply walking into basically any hardware store (whether small or a Home Depot/Lowe’s) and being able to buy a warrantied Solar PV/hot water system, basically off the shelf, and schedule an installation at the counter.

Right now, it is hard to navigate all the options and hard to find an installer. This not only limits market space due to confusion but also increases the cost. (Installers might spend more than half their time on site visits and talking to people about various options rather than actually putting in systems.)

Other recommendations include:

  • Standardization: Whether in rating (a “Watt” in capacity for system A is not necessary a “Watt” for system B, it IS confusing) or in warranty or in standards …
  • Simplify Interconnection and Permitting Processes for Small Systems: Make “net metering” standard, across the country, with expedited processes that make this even easier than hooking up a new home to the grid.
  • Solar Power Loans Terms Merit More Favorable than for Other Loans Made to Homeowners and Small Businesses: Now, I would make this the Architecture 2030 concept, to make the loans based on energy efficiency achievements, of which solar power is potentially part (to achieve carbon neutral buildings via clean energy generation).
  • Implement Manufacturer Financing

All-in-all, what do their concepts add up to: Making the Right Choice the Easy Choice when it comes to solar PV installations.

It is an excellent report, well worth examination by anyone interested in these business case challenges, their relationship to policy, and solar energy.

Let’s take a quick look at some of the material from another Top Line Strategy report on solar power: Massachusetts Surprising Candidate for Solar Power Leadership

Massachusetts isn’t the first place that comes to mind when you think of solar power.

Most people think of California where plenty of sunlight and a $3.2 billion subsidy program have combined to create a thriving solar industry. When asked which states are likely to follow California as a hotbed of solar power activity, most people respond with Arizona, Nevada, or Florida. However, it is Massachusetts, and not those Sun Belt states, that is the second most economical place in the country for solar power.

Have to say, I wouldn’t have put Massachusetts near the top of my list in terms of best economics for solar power.

This surprising finding comes from the fact that the economics of solar power are driven by a
combination of latitude, cloud cover, and the price of electricity. In Massachusetts, high electric rates and relatively light cloud cover combine to make it number two on the most economical list. Nevada, Arizona and Florida rank third, tenth and eleventh respectively. While Florida is the furthest South, it is also very cloudy and has electric rates that are only slightly higher than the national average. Nevada and Arizona rank first and second in terms of the amount of total sunlight but enjoy cheap power.

Okay, this is starting to make sense to me. Need to think holistically: amount of sun, cloud cover, and overall electricity prices.

For a region concerned about its job base, this natural competitive advantage in solar power presents Massachusetts with a golden opportunity. Not only can solar power deliver clean energy for the state, it can also position Massachusetts as a leader in what the U.S. Photovoltaic Industry Roadmap envisions as a $44 billion industry employing 260,000 people in the United States by 2030. The only missing ingredient is a solar power subsidy program.

Okay, perhaps this is the hint. Actually, that is the key point of the report: introduce subsidies and you can change Massachusetts’ solar energy picture and competitive situation with solar power.

The report provides some data and explanation as to how much subsidy is required to make solar power competitive fiscally (at least if one worries about COST TO OWN rather than cost to buy). And, what is the result for Massachusetts?

In Massachusetts, solar power currently requires a 26.8% subsidy. Our calculations show that a 10 year program that funded enough solar equipment to generate 5% of Massachusetts’s electricity would cost $80 million per year.

For $800 million, in a decade Massachusetts could be generating 5% of its electricity from its rooftops? That sounds pretty good. Along with windmills (want to talk Cape Wind anyone?) and, perhaps, tidal power, this suggests serious options for Massachusetts in cleaning up its power supply.

Figuring out how to lower the burdens to make the right choice is critical to helping turn the nation toward a more sustainable and prosperous energy future.

These two studies will help those of us striving to Energize America.

NOTEs:

1. Solar is far more than PV (passive solar design, solar water/air heating, solar cooking) and there are options developing other than solar PV for solar electric in distributed environments (such as Stirling systems) and concentrated solar thermal power is the lower cost option for large. The studies I was looking at focused on photovoltaiics.

2. There are many paths to reducing the obstacles to getting greater solar penetration. One of the most interesting, right now, is the financing path pioneered by Berkeley to have government based financing, with repayment to come out of additional real-estate tax payments. See that discussion for some of the very interesting elements of that program. There are starting to be spin-offs/knock-offs of that approach being explored and adopted elsewhere in the nation.

Tags: Energy · Solar Energy · analysis · business practice · financial policy · government energy policy · renewable energy · solar

3 responses so far ↓

  • 1 Total Solar Energy // Dec 16, 2008 at 8:35 am

    give it 5-10 years and i believe solar will be a mainstream source of energy. there is too much at stake for it not to be.

  • 2 sunny // Feb 18, 2009 at 11:09 am

    In the period of time where the world is trying to find new ways and solution to never ending issues such as power consumption and “how to save electricity dilemmas”, solar power is somehow next in line. Stating all the advantages and long term effects, It is more safe to use and economical as well. I believe that this era will be the era of solar power usage. It will be utilized in all aspects and ways of life. And with this article, this will serve as a catalyst to speed up the campaign of shifting to solar power. I think every person should have a basic knowledge or at least advance know-how with regards to the installation of this particular system. I wouldn’t be surprised if one day, solar power will be the trend and majority of us will benefit from this natural wonder.

  • 3 Energy COOL: Direct Wafer // Aug 4, 2010 at 3:35 am

    [...] before this note, increased business to carve down the costs in other arenas.  But, there are many other things that need to occur before a 50% reduction occurs across all the system [...]

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