RMI Answers Your Questions from July 25th Solar Customer Acquisition Hangout
Thanks to all of you who were able to join us live at our “Solar Issues of the Day: Customer Acquisition” Google hangout …particularly if you originally intended to attend the earlier broadcast which was hijacked by technical gremlins…and to those of you who viewed the archived video later.
We received some great questions; here are answers to a few we couldn’t get to during the hangout.
Q: Since solar PV prices are coming down, is it time to start worrying more about net energy metering caps?
(Ned Harvey) This is a really important question and one that consumes a lot of our time and attention at RMI these days. Net metering is a proven policy tool that effectively encourages the retail adoption of solar and thus speeds the growth of regional solar markets.
Unfortunately, in some regions (most notably California) it has been so effective that those areas are nearing PV penetration caps and limits to which the local net metering policies were designed. As a result, PV industry players must certainly start to think about what happens next, and plan for how they will sell systems and compete under policies where their customers may get less compensation for the power they sell back to the grid. One common response is to lobby for policy extensions or expansion of the caps (this was done successfully in California).
This can work in the near term but may only prolong the fundamental challenge. In the long term however, we think its essential that the industry continue to drive down costs so that it can survive a haircut on net metering rates and, very importantly, evolve its fundamental value proposition a way that gets beyond the simple value of electricity transacted and towards other forms of customer value like power stability, Power cleanliness and ultimately grid management services that are valued by utilities and their constituents.
Q: How can we get away from using the term “solar system?” How about “solar power system” or “rooftop solar power” because we are talking about creating useful energy from the sun, are we not?
(Ned Harvey) I think there is an intriguing point in this question, however I am not sure I really understand the value of calling it a “Solar Power System” or “Rooftop Solar Power” vs. a “Solar System.” I don’t think most customers (except facilities managers in large power intensive industries) think about buying power itself. As Amory Lovins famously said a long time ago, people are forced to buy power to get other things they really want like a hot shower, a cold beer or lights for their factory workers. As a result, I do think the solar industry must evolve its language and start talking about their product in ways that people care about.
Frankly, any of the above terms probably work just fine selling to customers that are already inclined to buy solar because they just like it or like the fact that it offsets other forms of dirty electrical generation. However, to truly expand the market I think its far more likely these systems must be sold because they create value for mainstream customers by improving power reliability, power quality, and for utilities, by providing grid services cheaper faster and more accurately than their aging infrastructure can do today.
Q: I’m hoping we can see a breakdown of non-module cost differences vis-a-vis Germany, so that we know where to push for change. As soon as a region reaches solar grid parity without subsidies, in theory the PV market should take off all on its own—but all these other costs delay grid parity arrival.
(Jesse Morris) The question touches on an important theme of the hangout and of U.S. solar costs in general: how much cheaper it is to go solar in Germany than in the U.S? There are several reasons why solar is cheaper in Germany than in the U.S.
First, an aggressive, stable, and predictable national feed-in tariff program enabled the industry to reach unprecedented scale over the past five years. The tariff’s premium price guarantee for solar energy—combined with high electricity rates in Germany—quickly made solar a compelling economic choice.
Second, Germany has far less “red tape” than the U.S. In Germany, only in special cases do solar contractors need jurisdiction-specific building permits, interconnection of PV systems to the grid is given a priority over fossil-fuel plant interconnections, and developers are allowed to self-certify the electrical and mechanical safety of their work, negating the need for inspection by a local building department official.
This combination of an aggressive feed-in tariff and a friendly regulatory environment won’t magically manifest itself overnight in the U.S. Unfortunately, we currently subsidize PV systems through the tax code making the entire process more difficult, exclusive, and expensive. However, there are encouraging signs from the local government side of things in the U.S. As in Germany, many local governments across the U.S. have taken steps to reduce permitting and inspection requirements on a local level, saving installers and customers time and money. Several organizations, including RMI, are working with local governments to spread permitting and inspection related best practices across the U.S. in an attempt to remove unnecessary bureaucratic red tape from the solar installation process.
RMI is also looking to launch new work to derive better resolution and quantification of German soft costs categories and their specific cost reduction solutions.
Q: Please give us a good grounding on the costs, so we can assess where we are today and where we are headed.
(Dan Seif) Good references for current soft cost totals in the U.S. are the recent National Renewable Energy Laboratory and Lawrence Berkeley National Labs paper available here and a similar paper written by the same authors for IEEE. We’ve also provided below the IEEE paper’s total $3.33/W-dc soft cost (or “business processes”) breakdown for a 5 kW residential system costing a total of $6.60/W-dc in 2010 below (note: Greentech Media reported Q1-2012 average residential costs as $5.89/W-dc). Total non-hardware costs are $3.33/W-dc, with $1.81/W-dc associated with profit and miscellaneous costs such as overhead and financial transaction costs.
To provide more resolution specifically on customer acquisition costs ($0.67/W-dc with another $0.11/W-dc for system design), NREL and LBNL include the following cost items within this category:
- Sales calls
- Site visits
- Travel time to and from the site
- Contraction negotiation with system host/owner • Bid and financial projection preparation
- Marketing and advertising
- Sunk cost for failed bids
The Complex and Fickle Mind of the Consumer
During the hangout, all five participants spoke about the various challenges that exist in connecting a customer with a solar PV product even when it’s seemingly economically advantageous for the customer to do so. Certainly, consumer psychology looms large in this riddle, and is something the solar industry will need to think deeply about. Simply being “green” and costing less in a lease or power purchase agreement than current utility rates does not capture as much of the viable market as many of us might hope. The right mixture of the following consumer considerations must be continually considered to increase distributed PV adoption:
- Information (e.g. rating, labeling, metering)
- Quality assurance (e.g. certification, inspection)
- Financial structure (e.g. no money down, rate of increase of solar leases)
- Convenience (e.g. one-stop shopping)
- Social marketing, including community based social marketing (e.g. persuasive appeals, mass media, participatory community-based efforts, social learning, competitions, social networking)
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