Opinion #3: Solar Energy

Solar Energy.

That mythical creature every whispers of. We speak of it in hushed voices. In recent years it has assumed almost utopian standards. “One day..solar energy will be the new oil and gas.”

Okay wait, I may be exaggerating to a slight extent. But Solar Energy is still a very exciting prospect. It promises a future of clean, reusable energy that has none or very little of the side effects of oil and gas.

But (and there’s always a but) it just isn’t happening. For some reason Solar Energy just hasn’t taken off. A possible reason is that the initial cost of entry is very high.

HOW COULD IT BE CHEAPER?

Here’s the thing pretty much everyone involved in, or waiting to be involved in, the solar energy business is waiting for to happen:

Once there are a sufficiently large number of competitors in this business, their individual efforts will culminate in an increase in demand for solar panels (they convert solar energy into electrical energy) on the consumer side of things. This increase in demand for solar panels will basically lead to an increase in production for these panels. This means that there will be an increase in production of panels, but they will be produced in the same factories as before. Why is that important? It basically means that your total fixed cost remains the same (cost of maintaining the factory, electricity,etc.) however, your going to be producing more panels. Essentially this means that you will be producing more but for the same. Which would mean that the cost “per panel” would be lower than it was before as you are producing more than before. This drop in costs would, presumably, be transferred onto the consumers and therefore lead to a decrease in the barrier of entry into this market both as a producer and a consumer.

If that was a bit too much economics for you, it’s fine. Basically, more demand will lead to more supply which will lead to lower costs, creating a virtuous cycle of sorts.

However, the thing is, this isn’t happening. This may be because the barrier of entry is too high, the consumer side demand is very low, there isn’t enough interest in the market, or there just aren’t enough incentives for this market. It could be any of these factors or it could be all of them.

WHAT I THINK CAN BE DONE

The problem with the way people are approaching this industry is that they are opting for the traditional: sell the solar panels approach. But there is another way.

Look at the solar energy sector like the music industry before Spotify. The “traditional” method was that you bought your music. But with Spotify, there was no more “owning music”. You paid Spotify a monthly fee and in return you got to consume as much music you wanted. So long as you paid your bills.

I don’t feel like the exact model could be applied in this situation, but a similar one is a possibility. Instead of a single fee, I believe we could opt for the tiered model. The consumer chooses, much like a pre-paid phone plan, how much electricity he/she wishes to purchase for the month. This would be in the form of a tiered subscription plan.

The customer would also be expected to pay an initial fee. This would be larger than the subscription fee, but would serve two purposes: It would act as a deterrent to those people who did not wish to actually become long-term customers of the company but merely wished to sign up and cancel shortly afterwards, leaving the company with solar panels and solar batteries that had just been installed; it would also serve to cover a certain amount of the initial set-up cost that the company would absorb.

Another method of revenue generation for the company would be through selling the excess electrical energy created. Assuming the company is successful in creating a grid network, it would then draw in all energy created by the large amount of solar panels in operation. After the energy drawn upon by consumers, all remaining energy generated could then be either sold back to consumers who have exceeded their limit and/or be sold to State Electricity Boards/Grid Networks.

HOW WOULD WE CREATE THE ENERGY REQUIRED? This is the part where a substantial investment is probably required the most. To cope with the consumer demand and assuming that the electrical energy produced by the solar panels placed in consumer’s homes are not enough, the company could further invest in the creation of solar farms.

An installation or area of land in which a large number of solar panels are set up in order to generate electricity. -google.com response to “what are solar farms”.

THE VIRTUOUS CYCLE THIS WOULD CREATE

Remember how we spoke about the barrier of entry being very high, and how this could act as a detriment for consumers. Our model tries to tackle it, however we still have a large initial fee that could act as a barrier of entry.

However, we also spoke about how an increase in demand could lead to a decrease in the cost of the solar panels and other solar related goods.

Apply this to our model, as we get more members, the demand for panels would increase, this would lead to a decrease in the “per panel cost”. If we decide to pass on these savings to our consumers, it would mean that we could reduce the initial cost as well as the subscription payments.

By decreasing the initial fee, we are effectively lowering the barriers of entry for consumers. This means that more people can subscribe to this service, increasing demand, decreasing panel costs, and therefore creating a virtuous cycle, with each element feeding off the other.

TO CONCLUDE…

There are many parts of this idea that remain unexplored. It isn’t a complete concept. However, I believe that if this idea could be refined a bit more, it could potentially be a game-changing (again with those exaggerations) idea.

“Those who are crazy enough to think they can change the world, are the ones who do.” — Apple, Think Different Ad