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Switching Costs, Personal Identity and the Difficulty of Switching to Solar

Self-interest, which does not necessarily mean selfishness, is the primary motivating factor in decision making. When properly stimulated, well, people will buy almost anything. Case in point and rhetorically, who really needs a Bugatti, a Rolls Royce or an Alfa Romeo? Owning one of these vehicles implies something about the buyer though the real point is transportation. Somewhere along the line the need to get from point A to point B began a status game and people who could afford to pay the price (or, go into debt) began plunking down money or credit for the privilege of opening very expensive car doors.

A sustainable environment would seem the highest order of self-interest. Distributed generation solar has the attribute of energy independence, which should render it the Bugatti of energy generating technologies.  Unfortunately, the solar industry has not been able to confer the same cachet on owning a solar electric system as is conferred by owning a Rolls Royce. Realization of the harm that climate change has done and continues to do is not enough to stimulate a switch to solar on a significant scale. YES there has been an increase in adoption market to market but momentum for a wholesale change is still needed. One reason for this is because the vast concept of climate change is difficult to personalize until there is a disaster.  Until climate-based disasters become more common (at which point it is probably too late) the dominate value is guilt, or, something akin to guilt.  In general, people will tend to look for the least expensive way to ameliorate guilt.

A customer-owned DG residential or small/medium commercial solar system should be viewed as more than a hedge against volatile utility electricity rates – energy independence should confer the highest order of cachet.  Owning a solar system implies personal independence and courage to take an environmental stand.  Since these values should not be unique to the wealthy, financing instruments specific to achieving this independence need to be developed and for this to happen the banking community needs help in understanding the values that the solar industry is really selling. Oh yes, and politicians need to understand why it is in their best interest to stop subsidizing conventional energy and take down the remaining roadblocks to going solar (bring back PACE). 

If the subsidies (direct and indirect) for conventional energy disappeared tomorrow, solar would not need its own subsidies and competition would be fair – what a concept.  Educating the energy buying public about conventional energy subsidies will not help because the point will be made that without them conventional energy would be much more expensive.  This will not help people switch or engage them in the fight; it will likely scare them into complacency.  The goal should be to end these subsidies.  Until conventional energy subsidies are rolled back the concept of grid parity is an oxymoron, the playing field will remain uneven, and solar will be stuck in low margin limbo.  The latter outcome relates to the painful downward pressure on prices for solar hardware and solar systems.

Switching Costs

Switching costs have halted many a technological or brand change in its path.  Switching costs refer to the effort needed for a buyer to change to another brand or new technology. The more entrenched the behavior, the harder it is to switch, and the stronger the motivation needs to be to make the switch (back to the values ascribed to the things people own, for solar it needs to be stronger than guilt). The strongest barrier to going solar is that most people are used to renting their electricity and are not convinced of the value of owning the means of production. Many people rent their homes, or own apartment-like condos and are thus unable to own the means of energy production – unless the landlord or complex owner invests.  In areas where condo complexes are common the majority of owners would need to agree (condo complexes are perfect vehicles for community solar projects).  Solar leases attempt to get around the energy renter mentality. 

Barriers to switching are behavioral and include financial (there needs to be an economic reason to switch), procedural (how hard is it and in many parts of the U.S., permitting is a mind-numbing nightmare), and relational (the utilities may be viewed by some as the enemy, but it is the known enemy).  Switching to solar electric system ownership requires a significant change in behavior and uncovering the way to the energy consumer’s heart is nontrivial.  Back to solar leases, these models do not lead directly to the necessary change in paradigm, but, they are a start. 

The energy consumer’s relationship to utility-rented electricity is embedded in the psyche, engrained to the point that the stimuli to change must be extreme. Referring to a market with a significant degree of residential solar, Germany’s initial zero interest financing answered the financial hurdle, and its successful FiT crossed both the financial and the procedural hurdles.  In markets where electricity is imported and electricity prices are already high the financial, procedural and relational barriers should be easier to overcome but often are not.  In these markets the extra stimulus of a financial incentive pushes entrenched buyers over the line.

Focusing on the U.S. psyche – key words to describe the U.S. include pioneering, stubborn, persevering, inventive, innovative and independent – all attributes that can be pinged when designing a campaign to encourage solar ownership. U.S. citizens hate to be told what to do, so, offering them independence from utility rate increases and control over their energy future will pique interest after which there must be a seamless road to ownership.  Moreover, once the consumers are behind the solar industry the politicians will follow. 

It’s a lovely dream but by no means an ensured reality – primarily because the entrenched status quo will need to become un-entrenched to make it come true. Keeping the lights on can become a status game and the end result has the cachet of helping to save the environment. 

Lead image: U.S. Flag with Wind and Solar via Shutterstock


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Volume 18, Issue 3


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