Solar: Torn Between an Industry and a Market

Solar power has enjoyed great success in the United States over the past few years, with dollar sales rising at more than 20 percent annually. Yet while this growth is impressive, it is only relatively so. Compared with Japan and Germany, U.S. solar gains have been shallow. Moreover, relative to sales of U.S. conventional electricity, solar power pales in significance, its apparent rapid rise representing only incremental gains at the margins.

So yes, current U.S. solar growth is good, yet it could be infinitely better. How to accelerate growth? In answer to this “$64,000 question,” I contend that the solar trade could go far in advancing the accelerated-growth goal by first taking a step back and clearly conceptualizing itself as a “market” rather than an “industry.” Defined here in simplified schematic form, an industry is associated with manufacturing, supply, and process products (e.g., steel and semiconductors), while a market is associated with marketing, demand, and finished products (e.g., cars and computers). Industries and markets are further distinguished by their degree of interaction with end-users — indirect for industries, direct for markets –and by their qualitatively different growth strategies. When I first began researching the solar trade two years ago, I was amazed at how fully it had begun to blossom into a classic competitive market, with dynamic, resilient manufacturers, distributors, and dealers supplying demand within the nascent structure of a neatly imbricated limited- and mass-distribution system. On further study, I was struck by how underappreciated this market structure seems to be by the trade. Of course this makes sense, given the solar trade’s development based on business models inherited from the utility industry, which engages in no traditional marketing activity. Nevertheless it looks to me like the solar trade suffers somewhat from this confused identity, torn between an industry and a market. Looking into the future, what will it be? Will the solar trade remain a random assemblage of cottage industries — PV, thermal, CSP, pumps, lights, BOS components, remote systems and consumer products — existing solely to supply process products/systems only indirectly to end-users? Or will it explicitly define itself as a coherent, demand-driven market offering finished products and systems directly to consumers? I would argue that by firmly situating itself within the matrix of a competitive market structure, the solar trade will be in a much stronger position to tackle the two fundamental obstacles that obstruct accelerated growth and perennially bedevil solar potential — namely, affordability (lack of) and ignorance (plenty of). Take the well-known problem of solar’s high price. From a market-centric perspective, it is obvious that the solar trade will eventually have to work out favorable financing mechanisms with the FIRE sector (finance, insurance, real estate). Why not begin this negotiating process in earnest now? Certainly an inordinate amount of time currently seems to be spent on hitting up the government for subsidies and tax breaks to circumvent affordability issues. While I see nothing ideologically wrong with this public-subvention approach (“nice work if you can get it”), all this effort tends to displace attention from the inevitable task of persuading private interests to assist in inventing creative lending vehicles for solar power financing (Recent startup SunEdison is taking a step in the right direction in this regard.) Lord knows, the FIRE sector has plenty of well-rehearsed, good reasons to do so — as does the investor-owned utility sector, for that matter — even if they don’t know it yet. The second formidable obstacle facing solar is ignorance, or lack of awareness and knowledge of solar power. As with affordability, this problem might best be tackled by a solar trade that positively embraces its identity as a market. For in a stroke, such an acknowledgment would instantly reorient the solar trade away from the industrial supply to the consumer demand side of the business equation, where advertising, promotion, and other demand-stimulation marketing techniques come most intensively into play. Now, any objective observer would have to admit that the solar trade in aggregate falls short when it comes to marketing. Most companies spend their ad/promo budgets exclusively on cultivating the distributor/dealer trade. Meanwhile, almost nothing goes to developing solar awareness among potential end-users or even the general public. Granted, few firms can afford television advertising, but where are the obvious ad placements in the cheaper (and proliferating) alternative lifestyle print and internet media? Where are the outdoor billboards announcing “Solar Power Is Here” to freeway commuters and public transit riders? Indeed, where are the celebrity endorsements (pro bono, of course), or entertaining solar demonstrations at concert events? In sum, I believe it would be in the interest of the solar trade to embrace a clear definition of itself as a market in order to maximize leverage of its obvious economic and ecological strengths. This would better position solar market participants to overcome affordability and awareness obstacles and to take advantage of demand-side opportunities — and in the process just might add some much-needed glamour to solar power. About the author and The U.S. Solar Power Market (October 2004)… David Cappello is senior writer and analyst for ARS Insights. ARS Insights, a research firm devoted to providing business intelligence on emerging energy markets, has just published The U.S. Solar Power Market (October 2004). In five chapters and over 250 pages, this new syndicated study presents a comprehensive overview and in-depth analysis of the $1 billion U.S. solar power market in its ongoing struggle to enter the electricity mainstream. For more information, contact ARS Insights through the link below. Cappello is a seasoned veteran of the market research world, having written and edited numerous book-length analytical studies on a vast range of markets. Starting out in 1987 as a writer/analyst for Packaged Facts, Inc., a research firm based in New York City, he has since gone on to become the author of top-selling business intelligence studies for (Rockville, Maryland). With ARS Insights, Mr. Cappello is now turning his skills to investigating markets in Alternative, Renewable, Sustainable energy and related fields.
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