Strengthening Solar, part 1

I’ve been studying clean energy – and solar in particular.  Solar appeals to me for its technical elegance and ability to address a number of challenges we face.  The upside for the category is stunning:  today’s $30B solar sector accounts for only 0.15% of the world’s electrical generating capacity, while total consumption from all sources is projected to rise 77% by 2030.  And due to its environmental benefits, it is well aligned with public and political sensibilities.

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However, the industry is at an important juncture which threatens its profitable growth.  Fortunately, marketing can be applied to help.  I’ll propose an approach in three posts.  First, an assessment of the problem.

Like many high tech industries, solar companies and advocates pay much attention to technical advancement and cost (the most output per dollar wins, right?).  New levels of electrical generation efficiency and lower cost are achieved on a regular basis.  Cost per kilowatt hour is a particular focus for manufacturers, as solar electricity is currently more costly than alternatives, even with solar manufacturers lowering prices aggressively.  Lobbyists and politicians have been working on bridging this gap through a variety of pricing interventions, but the gap is projected to remain for a few years, and buyers are holding out.  In fact, I submit that they are being trained to buy on price.

We can envision a kinked demand curve, where quantities demanded vault higher once “grid parity” prices are achieved (equal price to alternatives).

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[Source of charts: me, deducing from much industry data.  I’m not an economist, but I play one on my blog.]

There is another issue.  A great deal of new production capacity has been brought online, exceeding quantities demanded, even at subsistence level prices.

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Since there is a surplus, we can anticipate prices and margins will fall further. Government incentives may not be sufficient to enable supply and demand to balance at sustainable margins, which will force solar suppliers out of business, leaving the remainder with scorched earth (low margins and a commoditized category).  Sources of investment capital consider this a Bummer, and are largely opting out of new solar deals, stalling innovation and growth.

Unless we believe that governments will make up the remaining pricing gap in a sustainable way*, some other variable must change to promote profitable growth.  Here it is:  in order for purchasers of electricity to increase usage of solar, they must desire solar electricity over other sources, and be willing to pay a premium.  Demand itself needs to shift.  This can be accomplished through marketing.  Further, if customer desire can be fostered, margins will be sustained even after unsubsidized grid parity cost is achieved.  More to come in part two.

*Note:  Even where governments have created compelling incentives through feed-in tariffs, there is reason for concern that pushing supply without a balance of demand “pull”  leads to an unhealthy market. Witness Spain, where extremely high feed-in tariffs led to fraudulent installation claims, oversupply, and now a cap on incentives that will shrink the 2009 market to perhaps 20% of last year’s sales.

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3 Responses to “Strengthening Solar, part 1”


  1. 1 Andrew Casad July 15, 2009 at 11:50 am

    Have you visited MegaWatt Solar in Hillsborough (started by fellow parishioners Chris Clemens and Dan Gregory)? They are doing excellent work and I think it would interest you. They have an open house every Thursday for lunch if you’re interested.
    http://www.megawattsolar.com/


  1. 1 Strengthening Solar, part 2 « Offering Trackback on July 13, 2009 at 2:21 pm
  2. 2 Strengthening Solar, part 3 « Offering Trackback on July 14, 2009 at 7:40 pm

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