Crossing the chasm for solar: What’s the willingness to pay?

lalleby Adrienne Lalle, MBA ‘15

This article was written in response to a seminar given by Matt Eggers, a senior cleantech executive who has worked at Tesla Motors, Sunrun, and Bloom Energy, in an EDGE Seminar on Sept. 24, 2014 at Duke University’s Fuqua School of Business.

What will it take for residential solar technologies to “cross the chasm” from early market adoption to mainstream consumers? Supporters of solar are often quick to bring up the need for stronger policy to drive higher adoption rates, citing the much-used case study of Germany. I have never found this to be a fair comparison. Sure, nearly 30% of Germany’s generation portfolio comes from renewable energy sources such as wind and solar, and the country is often portrayed as setting the standard for the rest of the world. But what no one talks about is the cost. German residents pay an average of $0.35/kWh, which is nearly three times the average cost of electricity in the US, which averages $0.12/kWh.

Only when Americans are willing to bear the brunt of increased renewable generation will we see renewable portfolio targets as aggressive as those in the European Union.

Professor Dalia Echeverri at Duke University’s Nicholas School of Environment, summarizes it best: there is currently no generation option that is clean, reliable, and cheap for the U.S. electricity consumer. The feed-in tariff law in Germany, which provided the motivation for aggressive development of renewable generation caused a 60% increase in average energy prices over the last 5 years.

But it is not just the average resident who’s feeling the burden of increased energy prices. There is a growing concern that German industry will lose its competitiveness as it continues to pursue Energiewende, or energy revolution. Nearly 75% of Germany’s small- to medium-sized businesses site rising energy costs as a major risk. A nearly equal number of American businesses operating in Germany have said that the Energiewende has made Germany a less attractive place for business.

As the U.S. economy still struggles to recover from the 2008 recession and faces cost competition from developing nations, drastically increasing energy prices will only hinder “Made in the USA” movements. However, this post is not meant to advocate for a cheapest-at-any-cost position on fuel sources. Rather, there needs to be a reasonable balance between cheap, reliable, and clean until true grid parity can be achieved without subsidies. The recent tariff on cheaper solar panels coming from China will further delay grid parity.

If clean energy advocates want to see higher percentage of renewables in utility generation portfolios, they will need to have an honest conversation with consumers about the eventual increased cost to residents and businesses. Companies like SunRun and First Solar do an excellent job of mitigating start-up costs for residential solar, but will not be able to prevent the increased cost of energy that currently coincides with increased renewables. Blaming policy support or utilities is always an easy out, but the honest truth is we have not yet achieved grid parity, and until we do, consumers will have to choose between cheap, reliable and clean. For now, Americans have ranked their preferences in that order, sending a clear signal that aggressive renewable standards are not more important than cost.