Marketing 101 teaches us that the most important question any business has to answer is this: What is your business’ value to your customer? While we often hear news telling us about the latest multi-megawatt deal, trends in financing, global patterns of demand, spot prices of polysilicon and so on, it pays to see through the static and ask the essential question: What do end-users value most when choosing solar energy?
More specifically, I wanted to answer a question that lies at the very heart of the debate between using renewable energy versus using traditional, non-renewable energy. Are customers willing to pay an additional premium for renewable energy in order to “go green” and fulfill their sense of duty to the planet?
My question led me to three customers who plan to install photovoltaic panels to power their operations: Mahindra plans to build multiple grid-connected solar power plants in India in the Punjab, Rajasthan and Gujarat regions; Clark Associates has started installation on one of three PV arrays for their distribution warehouses; and McGraw-Hill has recently entered a contract to install solar arrays on two of its office buildings in East Windsor, NJ.
The answers were surprising because they indicated that the question seemed like a false dichotomy. While the notion of saving the planet is important for all three companies, it definitely did not rank as their most important reason for choosing solar. Instead, cost was the most important factor.
Simply put, using PV panels as an energy source makes monetary sense. Chris Ichter of Clark Associates mentions that “the energy produced [from solar] and sale of excess energy generated will benefit the business by $225,000 annually,” while Tom Rooney, director of the PV project at McGraw-Hill, states that the project is expected to significantly lower long-term electricity costs.
When we look deeper into the issue however, the idea of a false dichotomy is misleading because solar energy is still more expensive than non-renewable energy. The extra cost is absorbed at the government level through subsidies where the final cost for the consumer becomes cheaper than obtaining energy from traditional utility companies. Clark Associates and McGraw-Hill both enjoy offsetting costs from SRECs. In addition the project at McGraw-Hill will benefit from a 30 percent federal investment tax credit. For Mahindra in India, the picture is somewhat similar – India has provided a 30 percent subsidy for off-grid applications and feed-in tariffs for grid-connected projects.
The essential question then becomes: What will happen if one day, government support is no longer available? The choice of bearing extra costs in order to go green will then lie with the end user. What will be their likely response? Can history be used as an indicator? Pessimists would point to the cautionary tale of Spain’s devastating demise in the solar sector due to the sudden withdrawal of government support. Optimists would instead point to the glowing example of the Toyota Prius, which is arguably one of the most successful “green” products and has thrived even when sold at a hefty premium.
Ultimately, companies that would survive in a scenario without government subsidies would need to be able to convince its customers why it matters to choose solar energy over an intrinsically cheaper non-renewable source. Otherwise, they would be extremely vulnerable to changes in cost structures due to unstable government policies – especially during this time of economic and political instability.