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Can Perception Sell Renewable Energy?

February 16, 2013

Cat perceptionEveryone in the sales side of renewable energy is confronted with a litany of financial measures and the same questions- “What is the IRR?” “How much is the CAPEX?” and “Where is the offtake (purchase) agreement?” Fairly universal questions between buyers and sellers in almost every industry!  For the most part, the renewable energy industry suffers from a financial imbalance. Without incentives and/or compliance penalties, it’s somewhat difficult to justify the project on financial measures alone; this makes for a hard sale.

A discussion with Brian F. Keane, President of SmartPower (a renewable energy and energy efficiency company) touched on a model that was somewhat novel, at least in the renewable energy industry. Brian mentioned cars. Why do people buy a certain car knowing that once it’s off the lot it has depreciated at least in-half. A Lexus SUV LX 570 with a base sticker price of $81,530 does essentially the same thing as a Toyota Highlander with a msrp of $29,020.

Brian used another outlandish example for consumer behavior. In 1975, “the pet rock sold for $3.95 and estimates state Gary Dahl (advertising guru) sold over 5 million of his pet rocks in a six month period. With these totals Dahl earned over 15 million dollars during this period which would be estimated at $56 million today.” If interested, you can still purchase a pet rock at Amazon for $6.00 less shipping. Last Christmas a customer wrote “I bought this as a Gag for my brother. The package was in great shape, and the whole construct of the gift was great! Overall he said he loved this gift the best. Great holiday tradition carried on with such a simple and affordable gift.”

Similarly, granite countertops can start around $50 per ft2 uninstalled while a faux granite laminate countertop are as low as $15 per ft2 uninstalled. True kitchen upgrades add value to the house and may provide a quicker sale, but there certainly isn’t a dollar-per-dollar gain. What is it then? Value perception, peer pressure, curb appeal, expected quality level, so on and so forth.

Looking at this another way, a good question to ask is “Why People Really Buy Hybrids such as Toyota’s Prius?” The obvious answer is fuel saving. A closer examination of this question suggests something very different.  An excerpt from an article that ran in the New York Times in 2006 captures the essence of the conventional wisdom about why people buy hybrids.

“If you own [a hybrid car], you could feel good about using less gasoline and being a trendsetter, but you couldn’t expect the fuel savings to make up for the thousands of extra dollars that the hybrid cost. There was no financial reward for environmental virtue.”

According to a recent article in the LA Times, “The Toyota Prius has become the bestselling car in California. It makes a bold fashion statement that the owner is eco-friendly. Edmunds goes on and says “It also makes the statement that the owner is not facile with basic ROI math. Even at the currently outrageous gas prices, it will take more than 6 years to make up for the approximately $5,000 up front premium over an equivalent non-hybrid vehicle.

Taking this line of reasoning to the commercial sector, businesses can leverage renewable energy to gain a competitive advantage not by being green but by being “New and Improved.”

In closing, renewable energy’s penetration of the residential and commercial markets requires new thinking. Sales cannot be generated on dollars and cents alone. It’s obvious few will pay more for a product or service that only benefits the environment. Motivation lies in making a personal or corporate statement on perception. People and companies want to keep up with the Jonases or be the Jonases of the world. It’s value perception, not value. As my friend Brian pointed out, renewable energy is not a pet rock, but to be honest paying for a packaged rock makes as much sense as living next to a coal-fired electrical generation plant.

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One Comment leave one →
  1. February 17, 2013 7:38 PM

    To answer the first paragraph: WACC 12.4%, 23% IRR over 7 years, Multiply of 3.9x in 5 years time, CAPEX US$ 11.3 M, To be disbursed in 2 years time. Offtake agreement for 5 MW with delivery of 7,000,000 kWh/year/MW minimum with duration of min 20 years and guaranteed price of P6.63/kWh, feedstock contract for minimal amount of energy to deliver at plant conversion efficiency of 27%.
    The perception: container based, available in any color you like, semi movable so no need to be affraid to look at some ugly stinking plant for all time to be. It isn’t in my opnion, but “Digustibus est non disputandum”. Output next to the o so wanted electricity are fertilizer feedstock, heat and or cold, employment and a disposal facility of your solid (seperated) household waste.
    Security perception: Become part owner of the plant and have yourself provided with, in home electricity backup, to ride through the regular blackouts if some authority decides that the -uninteruptable- power supply is deployed at better paying sites. As part owner of both generator and distributor you have at least some say into this matter. Being able to shout not soleley into thin air might give an feeling that what you say does matter.

    But sitting on ones ass, complaining that ‘they’ do nothing for you doesn’t get you so tired.

    Oh, electrons don’t have a color, basicly. And the biochar can be delivered in any color as long as it is a shade of black.

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