The Problem with Renewables

"It's too expensive."

“The payback isn’t there.”

“It doesn’t make economic sense.”

These are some of the complaints I’ve heard from homeowners and those trying to sell distributed generation solutions alike. The complaints seem to become even louder when energy storage, arguably the linchpin for distributed generation, becomes involved. As one of my colleagues told me over lunch: “the incentives just aren’t there for homeowners to buy it”.

This seems counter-intuitive, especially when my LinkedIn feed is consistently filled with proclamations of “renewable energy does it again!”:

  • “Solar prices fall to record lows making them cheaper than fossil fuels”[1]
  • “'Spectacular' drop in renewable energy costs leads to record global boost”[2]
  • “Renewables now cheapest, but how to enable faster renewable energy growth?”[3]

So, where is the disconnect?

Why is it that renewable energy records are being broken across the globe, and yet the main complaint is still one of cost, and the product being too expensive for homeowners? Scale is important, but isn’t the main adage of renewable and distributed generation one of “the democratization of power”?

If we’re focusing on the utility and commercial scale side of things, doesn’t this just bring us back to another version of the central generation model? A step in the right direction, yes, but certainly not the utopia of “democratization” I keep hearing about. To truly achieve this vision, we need more residential renewables and storage, but there seems to be a roadblock – why?

One reason, I believe, stems from the core theme of all of complaints and articles above: a focus on price and the functional benefits of solar, with only a simple tie being made to going green.

Price: The Only Competitive Factor?

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To put it simply, the focus on price and going green alone is a big problem. Lower prices are always great, but a huge emphasis on them brings out associations that hinder the growth of renewables in the residential sector.

Let’s get back to basics: energy is a commodity no matter how you cut it. You want to get as much energy for as little as possible, and in a perfect world, you’d get power for free (it’s a “race to zero” as I’ve heard from energy traders). Are we all in agreement so far? If not, try explaining to Ontario residents that they should be happy with a higher electricity bill every month.

Now, renewables and storage have an immediate association with energy, where this idea of paying as little as possible dominates. There have been many arguments (often using comprehensive levelized cost of electricity models[4]) that state that renewables generate energy at a lower cost than every other energy source out there. However, despite these studies, and companies like Grasshopper and SolarCity offering systems for no money up-front, there remains large untapped potential in the residential market[5][6], and we have yet to see the huge “bite” from residential customers. The focus on price and association with energy has trapped renewables in a rut.

Again, the issue here is that price is the primary talking point for going solar; the focus is on the functional benefits of doing so.

The odd thing is, while price, payback, and ROI seem to always come up for a solar investment in a home, there are some other expenditures where this doesn’t necessarily apply.

kitchen-renovation.jpeg
  • Homeowners, on average, spend between $12,000 to $33,000 on remodeling or fixing their kitchen[7]. Now, there could be some energy efficiency factors at play here, but I doubt that ROI is a consideration.
  • The purchase of an Apple product or a suite of them; many people are happy to pay the price premium that comes with the Apple brand. Look at the loyalty the brand commands.
  • The purchase of a Tesla. Now I understand this is not exactly a commonplace occurrence, but it is interesting to note only 35% of North American Tesla owners own a solar system[8] (it could be argued that they should be some of the most likely purchasers or solar systems).

So, what is it with these scenarios that shifts the conversation away from cost and ROI? It comes down to the emotional and self-expressive benefits you feel in each of these scenarios (a concept I first read about in "Brand Leadership" by David Aaker).

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  • For the kitchen renovation, it could be the case that it’s an older kitchen, and a remodel is desperately needed. But why desperately needed? At the end of the day, you want the kitchen to be an expression of you and your family to all those who walk through it. Whether it’s highlighting how practical you are, or letting people know you’re ahead of the curve with granite counter-tops, and a refrigerator that tells you when you need to go to the grocery store, your kitchen is just that – yours.
  • With the Apple suite, everything is connected, and you feel like you’re a part of the Apple family. Everything blends in seamlessly, is user friendly, and you receive high-quality customer service if anything goes wrong. You’ve seen people with their Apple products, and their sleek look commands your attention. Whether you have an Apple product or not (yes, myself included) there’s likely a small part of you that says, “I want one.”
  • Tesla has achieved a cult-like following, and their new Model 3 release saw people camping outside of their dealerships. The cars look slick, go fast, and did I mention they don’t need any gas? For more on this, my colleague Phil does a great job describing the Tesla experience in his blog post “What is Tesla Really Selling?”[9]
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These are all business to consumer products, but in the residential energy game, well, you ARE selling something to consumers. If the focus is entirely on the functional benefits, your product can be easily replaced by anything that is simpler or removes the thought from the process.

The issue is that when you keep the focus on the low cost, and the effectiveness of the solution in delivering reliable electricity, you are effectively positioning yourself to compete against the light switch.

The main question a customer is likely to ask here is:

“Why would I go through the added steps and cost of having a renewable energy system for my house when I can already flip a switch and consistently expect power?”

But Solar is Sustainable!

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Ah yes – the sustainability argument. The emotional benefit of feeling good for saving the planet, and the self-expressive benefit of telling people that you’re doing so. The assumption is that with renewable energy, the association of being green, contributing to the fight against climate change, and feeling like you’re doing something good is automatic.

While this may have been the case for early adopters, this well of potential consumers seems to be on the verge of running dry. Unfortunately, most homeowners still don’t know about the options for solar, and among those that do, the following associations are still likely to come up[10][11][12]:

  • Complicated to set up
  • Expensive
  • Responsible for my utility bill rising (especially in Ontario)
  • Unreliable
OntarioPrices.png

It also doesn’t help that, within Ontario, the Minister of Energy recently admitted that the “implementation of the Green Energy Act has led to ‘sub-optimal outcomes’ for consumers and to increased prices in electricity for families and businesses in Ontario”[13].

So much for all the studies that strive to show green energy is not to blame for the hike in electricity prices…

Sustainability is…bad?

Not at all! But, the focus on sustainability as the only emotional and self-expressive benefit also has a chance of backfiring. My colleague at Schulich told me an anecdote which really stuck with me, and one that I think illustrates sustainability backfire perfectly.

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He was on a study tour with the school in Chile, with the focus of exploring sustainable business practices in the country. One of the stops for the group was an organic winery, which used entirely organic methods throughout the whole wine-making process. From what the group could see, the winery was doing quite well, and the immediate conclusion was that it was case-and-point for sustainability moving to the forefront of the consumer’s mind.

There was a catch, however. When marketing to distributors and customers, the winery NEVER labelled its wine as being organic. The reason? As the owner described it: “If I labelled my wine as organic, it would be put at the back corner of the store where the rest of the organic wines are, and the immediate association customers have with that section is that only the hippies go there.”

Hippies.jpg
“If I labelled my wine as organic, it would be put at the back corner of the store where the rest of the organic wines are, and the immediate association customers have with that section is that only the hippies go there.”

What this story tells me is that as much as we would like to think that being sustainable is enough to market products, the brutal reality is that outside of the sustainability space, being green is still considered a nice-to-have feature or a luxury. Unfortunately, the sustainable lifestyle is viewed as a more expensive and effort-intensive way to live. As an example, think about the associations you make when you think about Whole Foods.

Whole Foods.jpg

To this end, residential energy providers seem to rely on the “obvious” functional benefits, while making the effortless tie to being green. In my view, there seems to be a huge reliance on external factors such as an overall growth in environmental consciousness, and the assumption that this alone will grow to a point where eventually all consumers will jump to renewables.

While it may happen eventually, at this point I do not think it is happening fast enough. Renewable energy companies need to focus on creating new customer experience models that make customers trust them, and feel proud to have a system in their home that go beyond the functional benefits and sustainability. Tesla Energy is perhaps the only company that is even close to making this happen with a natural integration of their cars, solar shingles, and battery packs, though even they still have a way to go.

A Marketing Issue

The apparent focus of renewables being on the functional benefits of price with a dash of sustainability causes customers to immediately go into price evaluation mode. When this happens, a likely train of thought might be:

“Is the price hit, and hassle of installing a renewable energy system on my home worth it? Right now, I walk into my home, hit a switch, and the lights immediately come on. You’re now telling me that I have to go through the effort of finding contractors, going through the permitting and installation process, and likely have to worry about whether my system has enough juice to power my home instead of just walking in and hitting a switch?”

"You’re now telling me that I have to go through the effort of finding contractors, going through the permitting and installation process, and likely have to worry about whether my system has enough juice to power my home instead of just walking in and hitting a switch?”
The more difficult a solution is perceived, the less likely it is to be adopted.

The more difficult a solution is perceived, the less likely it is to be adopted.

Now, unless the desire to be sustainable is extremely strong, this line of questioning doesn’t exactly make the installation of a residential system sound compelling…

If renewable energy companies want to succeed in growing into the residential market, they need to remember that they are marketing to customers in a similar way to Apple and Tesla. Price, sustainability, and political commitment are factors, but to succeed, renewable energy companies should strive to create more meaningful customer experiences throughout the consultation, installation, and yes, even the operation of the solar system. These experiences should bring out emotional and self-expressive benefits that go beyond sustainable living, and make it effortless to go renewable.

BrandPyramid.jpg

While utility and commercial scale renewables have skirted the need to interact with non-business customers (and they have taken off[14][15]), to solidify the renewable energy revolution the residential market must be tapped. Right now, the industry has fallen into a trap of marketing only the functional benefits to residential customers, which do not really offer much added value compared to flipping a switch in a house. Using sustainability and going green as the sole emotional and self-expressive benefits unfortunately doesn’t cut it.

Solar and renewable energy providers should not focus on the low-cost, the payback, and the ROI when speaking to customers. Instead, they must focus on creating intangible benefits that go beyond sustainability, the benefits that would make someone proud to own a system, to show it off to their neighbours, and be part of the “in” crowd.

Renewable energy has a problem, one where it is focusing on marketing itself on the functional benefits and business cases. While this has worked for commercial and utility scale, the marketing paradigm of renewables needs to change if the industry hopes to move beyond the hippie section of the everyday customer’s mind.

References

1.      The Independent. “Solar energy prices in India tumbles to new record low making it cheaper than fossil-fuel generated power”. Article from 2017 May 11. <http://www.independent.co.uk/environment/solar-energy-prices-india-drop-record-low-cheaper-fossil-fuel-power-phelan-aaada-bhadla-plyush-goyal-a7730226.html>

2.      The Guardian. “'Spectacular' drop in renewable energy costs leads to record global boost.” Article from 2017 June 6. <https://www.theguardian.com/environment/2017/jun/06/spectacular-drop-in-renewable-energy-costs-leads-to-record-global-boost?

3.      CleanTechnica. “Renewables Now Cheapest, But How to Enable Fasater Renewable Energy Growth?”. Article from 2017 January 22. <https://cleantechnica.com/2017/01/22/renewables-now-cheapest-renewable-energy-costs-low-too-high/>

4.      CleanTechnica. “Low Costs of Solar Power & Wind Power Crush Coal, Crush Nuclear, & Beat Natural Gas”. Article from 2016 December 25. <https://cleantechnica.com/2016/12/25/cost-of-solar-power-vs-cost-of-wind-power-coal-nuclear-natural-gas/>

5.      Engadget. “Google: 4 out of 5 US homes have solar power potential”. Article from 2017 March 15. <https://www.engadget.com/2017/03/15/google-4-out-of-5-us-homes-have-solar-power-potential/>

6.      US Office of Energy Efficiency & Renewable Energy. “Solar Energy in the United States”. Accessed 2017 November 12. <https://energy.gov/eere/solarpoweringamerica/solar-energy-united-states>

7.      Home Advisor. “How Much Does It Cost To Remodel A Kitchen?”. Accessed 2017 November 12. <https://www.homeadvisor.com/cost/kitchens/remodel-a-kitchen/>

8.      CleanTechica. “28–40% of EV Drivers Have Solar Panels (CleanTechnica EV Report)”. Report from 2017 July 25. <https://cleantechnica.com/2017/06/25/28-40-ev-drivers-solar-panels-cleantechnica-ev-report/>

9.      Phil G’s New Economy Blog. “What is Tesla Really Selling?”. Article from 2017 October 10. <https://www.pgarber.me/home/2017/9/23/what-tesla-is-really-selling>

10.  GreenTech Media. “What Really Motivates Consumers to Install Residential Solar?” Article from 2011 March 23. <https://www.greentechmedia.com/articles/read/what-really-motivates-consumers-to-install-residential-solar#gs.yXBGCU0>

11.  Business Insider. “Here's what more than 41,000 people think about solar energy”. Article from 2017 April 20. <http://www.businessinsider.com/sc/public-opinions-about-solar-energy-2017-4>

12.  European Commission. Science for Environmental Policy. “What are the barriers to solar energy adoption?”. Paper from 2017 January 14. <http://ec.europa.eu/environment/integration/research/newsalert/pdf/what_are_the_barriers_to_solar_energy_adoption_442na2_en.pdf>

13.  Global News. “Ontario energy minister admits mistake with green energy program.” Article from 2017 February 24. https://globalnews.ca/news/3272095/ontario-energy-minister-admits-mistake-with-green-energy-program/

14.  Solar Energy Industries Association. “Solar Industry Growing at a Record Pace”. Accessed 2017 November 12. https://www.seia.org/solar-industry-data

15.  Greentech Media. “US Solar Market Grows 95% in 2016, Smashes Records”. Article from 2017 February 15. https://www.greentechmedia.com/articles/read/us-solar-market-grows-95-in-2016-smashes-records#gs.IpLBt7g