Tuesday, March 09, 2010

Does Grid Parity Matter?

One of the primary assumptions in the solar industry is: "if the cost of something gets low enough, everyone will automatically buy it." In my mind there is no guarantee that solar power will become mainstream when it costs approximately the same, or even less than conventional sources.

Here's why. Even with lower and lower cost per watt, solar power is missing two key elements of market expansion: product intangibles and a compelling reason to buy.

Consider what happened with the personal computer (PC). Not only did prices go down (and performance went up) but MANY other things helped make the PC a mainstream appliance. One of the biggest factors was the addition of IBM's backing and reputation to the desktop computing industry (does anyone remember the so-called "IBM compatible PC" standard?) IBM's blessing along with other "standards" such as the DOS operating system and the ISA/EISA bus (i.e. product intangibles) all combined to reduce the perceived risk of buying a PC.

But the most powerful factor in PC market development was a compelling application called the spreadsheet. Early spreadsheet software (Lotus 1-2-3 and Context MBA) running on the PC provided a quantum leap in capability over the existing ways of manipulating numbers…with adding machines, calculators, pens, pencils and sheets of paper.

It's true there are future benefits associated with solar such as greater environmental health and sustainability, but that's like selling green bananas. The promise that someday a green banana will turn yellow is not compelling enough.

In the solar industry, there are few if any risk-lowering product intangibles (who's the IBM of solar?) and the compelling "mainstream" reason to buy hasn't been sufficiently articulated yet. So when solar reaches grid parity, it will provide something that people already get from a utility…electric power for the same price. There's no quantum leap in capability or extraordinary advantage above what a utility already offers. Plus, there's no need to install a bunch of complex equipment when power comes from the grid.

Without risk-lowering standards or intangibles, and a compelling reason to buy, the solar industry needs to use reference-based techniques to overcome these missing elements of market expansion. (more about this in future posts)

Related Article(s)
Solar Product Perception

3 comments:

Daniel said...

"There's no quantum leap in capability or extraordinary advantage above what a utility already offers."

Actually solar provides price certainty over many years/decades, something the fossil fuel based utility (demonstrably) does not offer.
So once solar reaches grid parity it is the utility that becomes "risky" in terms of price volitility.

A smart business/utility will realize this and switch to solar--as solar's early adopters are already doing.

Warren Schirtzinger said...

This is a common counterpoint in the debate about grid parity...that solar provides some very compelling "future" benefits. Examples include long-term price certainty (or less price volatility), and greater environmental health/sustainability. While these future benefits are certainly true and evident, they just aren't compelling enough to drive mainstream market adoption.

It's like selling green bananas. The promise that someday a green banana will turn yellow is a fairly weak value proposition. Discontinuous innovations like solar need a benefit that is immediate and very compelling….or they will never reach the mainstream.

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