In 2007 in this column, I compared the growth of solar power with the history of wind power. One of the key drivers in both markets, I argued, were transaction costs.
“In wind power, …there have been economies of scale realized in manufacturing, installing and operating larger machines and putting more machines in one location. What may be less well-understood is that in wind power another important reason for the scale-up of installations has been “transaction costs” in the broadest sense: the effort and costs of siting, negotiating, financing and managing a project is about the same whether the project is small or large, so one maximizes profits by making an installation as large as possible.”
In the current phase of development of the PV industry, I continued, these costs downstream of manufacturing have been high-particularly in the U.S. That’s why, for example, “…there is a major opportunity for those companies that reduce transaction costs for small purchases, such as in residential applications.”
Now there is new research that illustrates this issue perfectly.
In a study entitled “Solar Employee Purchase Programs: Will Corporate Customers Take It Home?” AltaTerra Research analyst, Anneke Mueller observes that:
” the solar industry…is developing a number of service delivery innovations to improve operational efficiency, lower the cost of sales, and spur higher rates of adoption. These include new financing mechanisms… and new product and installation concepts …. There are also sales and marketing innovations such as aggregated volume discounts for retrofits by geographic area, new housing development construction installation, and system sales through large retailers, such as Home Depot….”
The new approach along these lines is to set up a “Solar Employee Purchase Program (solar EPP)”– a kind of marketing program that involves outreach to and discounts for employees of large corporations and other organizations:
“Solar EPPs, primarily oriented toward the existing home (retrofit) market, offer a way to increase awareness inexpensively by leveraging corporate education efforts and to boost affordability by means of manufacturer, installer, and/or employer discounts. They can also be combined with consumer financing arrangements, including PPAs and leasing.”
Examples of initiating companies she cites include SunPower, REC Solar and Solar City. One of SunPower’s programs, for instance, grew out of a deal with Hewlett-Packard (one of the world’s largest technology companies) to install a commercial system at an HP facility. The arrangement that SunPower put in place was to offer HP employees-near that facility or any other location-a residential installation rebate from both HP and SunPower (maximum US $2,000 from each).
One of the key issues that solar EPPs seem to address is awareness. While most American consumers like the idea of solar, according to many opinion surveys over the last decade, many of them still do not know much about the details of how to make solar power a reality at their own home. In other words, U.S. consumer sentiment is way ahead of consumer education. This mismatch was confirmed again in a broad-based set of original research released in October.
In a recent blog posting, Mueller says that solar EPPs represent an important shift in the solar industry’s business environment: namely, the increasing importance of environmental issues for large organizations:
“In many ways, solar EPPs are similar to other aggregated sales efforts in the residential PV sector. However, the key differentiator is the involvement of the employer. Big business tends to have a big carbon footprint and many large corporations are already taking steps to become more environmentally friendly. Many employers are also looking for ways to engage their employees in reducing their personal environmental impact.”
Since this is an emerging trend, there is a great deal that is in formation and still being discovered and invented by the participants. It is not clear in these types of programs, for example, how the “business ecosystem” will or should play out, or in other words, which types of companies in the solar industry should do what in these programs. While manufacturers, distributors and residential/commercial integrators all have important roles to play, the exact form of these roles is still developing.
It does seem clear, however, that these types of programs have the potential to lower transaction costs in the residential market. There appears to be a kind of “economy of scale” that builds on the size, geographical reach and-increasingly-the environmental concerns of large employers. Solar employee purchase programs appear to be a promising development, reaching as they do the large and challenging market of existing homes by building on ties to the office.
Jon Guice is AltaTerra’s head of research. Prior to AltaTerra, Dr. Guice was responsible for creating and executing the business strategy of the solar power and clean technology design engineering practice at GreenMountain Engineering, building a customer base of innovative startups, publicly-traded firms such as SunPower Corporation and research groups such as PARC, and establishing the firm as the leader in the field. Earlier he had played leadership and strategy roles in an early-stage renewable energy company, a NASA R&D organization and a new product research program at Stanford University and the Royal Institute of Technology in Stockholm. Jon Guice earned a doctorate as a Regents Fellow in the science and technology studies program at the University of California, San Diego and has spoken and published widely on global industry trends, research management and product innovation. His community activities include serving as co-chair of the American Bar Association’s Cleantech & Climate Change Committee.