Whether to bet on the low-carbon energy transformation now well under way — or stick with business-as-usual. That’s the decision facing investors, from American families with 401(k)s to managers of the world’s largest pension and sovereign wealth funds
MEDIUM — At stake is not only retirement security but whether the fossil fuel era ends with a crash landing or a (relatively) smooth transition to the low-carbon future — and whether that future comes quickly enough to avert the most extreme effects of climate change.
The shape of the future is becoming clearer, as first coal, and now oil and gas, give way to solar, wind and battery power. Can I interest you in a soot-belching coal plant? Thought not. How about a tar sands pipeline or long trains of coal or Arctic drilling?
How about mobile, distributed, connected, smart and, oh yeah, clean, solutions that are only getting better and cheaper?
The Technology StoryLow-carbon energy supply and demand are both climbing the hockey stick up and to the right. That growth has been spurred by policy; it didn’t hurt at all that Congress in its infinite bipartisan wisdom last year extended the solar and wind investment and production tax credits for five years instead of the usual one. And it could be turbocharged by a price on carbon, via a carbon tax or other mechanisms.
But as the energy story becomes, solidly, a technology story, policy is no longer the driver. Instead, renewable energy is showing the same kind of network effects, increasing returns to scale and virtuous circles that have powered the tech revolution.
The cost of solar generation has fallen more than 60 percent since 2009 and could drop another 40 to 60 percent by 2025, making solar the cheapest form of energy almost everywhere in the world. The cost of lithium-ion battery storage — key to both solar power and electric cars — has fallen below $350 per kilowatt-hour, down by more than two-thirds since 2010, and could fall below $100 per kWh within a decade.
With 60 percent of new utility-scale electricity generation in 2016 coming from wind and solar resources, renewable are no longer ‘alternative.’ Rather, fossil fuels are increasingly ‘legacy.’ Coal production for 2016 was down an estimated 17 percent from 2015, continuing its eight-year fall from peak coal production in 2008.
It will be a lumpy transition, to be sure. Solar stocks have taken huge hit while oil and gas stocks have rebounded from their lows. Wilder Hill’s Cleantech Index was down 22 percent last year. Brent crude oil is selling for about $55 a barrel, up from $28 a year ago. (Though that’s still less than half the peak price of $116 in June 2014, and any OPEC efforts to cut production seem to be met by increased supplies of U.S. shale oil.)
It’s not just activist college campuses that are divesting from the fossil-fuel economy. It’s the fossil-fuel producers themselves.The real signal to watch is the oil companies’ “capex” or capital expenditure budgets for drilling and production, where they reveal what they really think about future prospects. Chevron’s 2017 capex estimate is $19.8 billion, down 15 percent from 2016 and a whopping 42 percent from 2015. Other major oil companies have also cut back sharply. It’s not just activist college campuses that are divesting from the fossil-fuel economy. It’s the fossil-fuel producers themselves.
When the history of the 21st century is written, we’ll see that by 2017 the inflection point in the global energy rebuild had already occurred. We’ll see the new energy economy was just the next stage of the the larger technology transformation obviously well underway.
We’ll see that the energy revolution of the next 20 years looked a lot like the Internet revolution of the last 20 years. I covered that story too, back in the day, and this one’s an even bigger story. Everybody now claims that they knew all along that the Internet’s open protocols and the Web’s open architecture would carry the day. But even through the mid-1990s, it just wasn’t so. Then, as now, the heavy weight of conventional wisdom fell on the side of business-as-usual.
Disrupting CarbonA new report from the Carbon Tracker Initiative in London lays down the outlines of the case that the energy industry’s business-as-usual has already been demolished. The Carbon Tracker report suggests coal demand could peak in 2020 and fall to half the 2012 level by 2050. Oil demand could be flat from 2020 to 2030 and then fall steadily. Most major oil and gas companies do not expect peak coal before 2030 and none see oil peaking before 2040.
Electric vehicles (EVs) alone could reduce demand for oil by 2 million barrels of oil per day (mbd) by 2025, the report said, about the same amount that caused the price of oil to collapse in 2014 and 2015. By 2040, electric vehicles could displace 16 mbd of oil and 25 mbd by 2050. The oil industry generally sees continued growth in demand.
That demand-shift is more than enough to send major ripples through energy markets. The Carbon Tracker report cites the collapse of the U.S. coal industry caused by a loss of 10 percent of the market for power generation, and the loss of more than 100 billion euros by Europe’s five major utilities from only an 8 percent growth in renewables between 2008 and 2013. A separate Goldman Sachs report last year forecast solar and wind will generate more new energy capacity in the next five years than the shale-oil revolution did in the last five.
Students of disruptive innovation over the last several decades will recognize the pattern.Forecasts are dicey and these transitions always unfold in unpredictable ways. But students of disruptive innovation over the last several decades will recognize the pattern. Solar panels and electric cars, once derided as fringe products for niche markets, are marching to dominance far faster than oil companies admit.
Solar energy could supply 23 percent of global power by 2040, according to Carbon Tracker. (ExxonMobil sees all renewables supplying only 11 percent by then.) Electric vehicles could capture a third of the transport market by 2035, the report found. (BP’s EV forecast for that year: 6 percent.)
That kind of growth attracts capital. The estimated worldwide investment needed to meet the country commitments made in the Paris climate agreement is about $15 trillion. Even those commitments are not enough to keep global temperature rise below 2 degrees Celsius, and countries will ante up their new “nationally defined contributions” next year. An analyst at Barclay’s estimated the energy overhaul that’s really needed could be a $45 trillion ticket.
Financing at that level doesn’t just transform the energy mix, it transforms finance and the capital markets themselves.
Which brings us back to question facing everyone from 401(k) holders to pension fund managers who have to pay retirees in 2030, 2050 and even 2070.
This is no longer just about values-driven investing, important as that is for pointing our money toward the kind of future we are hoping to live in. Values are a weak lever to pull. Pension and sovereign wealth funds, are not much interested in aspirational, wishful thinking or, even worse, do-gooder advocacy.
Financing at that level doesn’t just transform the energy mix, it transforms finance and the capital markets themselves.Such big asset owners — those with assets of, say, more than $100 billion or so — are interested in risk. They are so broadly diversified that they “own the market,” if not the world. Forces that affect the market, up or down, will inevitably hit their portfolios. Unlike a day trader, they can’t just make bets on individuals winners and losers. And they can’t duck the coming dislocations. Social unrest, political instability, environmental catastrophes, wars — bad for long-term asset values. Owning the world means institutional asset owners have a stake in its viability. For such “universal owners,” there are no externalities, positive or negative.
Their first move is to hedge. New York State’s $184 billion Common Retirement Fund has been buying low-cost “insurance” to start to future-proof its portfolio, via its 2015 commitment to put $2 billion into a low-carbon index fund developed by Goldman Sachs Asset Management. Goldman claims the index reduces carbon emissions by 70 percent while tracking roughly even with mainstream market benchmarks.
Just last week, New York City’s $170.6 billion pension system moved to analyze its carbon exposure for the first time to determine how to incorporate “the realities of global warming,” the city’s Comptroller Scott Stringer said in a statement. State Street, with $2.47 trillion under management is sending a letter to companies it invests in asking them to disclose their climate preparedness strategies. Washington state’s public pension fund was an early mover on the issue, calling for greater transparency on climate change risk back in 2014.
For universal owners, of course, such hedging is not ultimately enough. A select few are making a more active bet on the future. If the world is going to make progress on climate action (or income equality or sustainable development more broadly), they want not only protection from the downside but exposure to the upside.
With the energy transition now on a demand-driven, tech-fueled growth curve, big investors want to get on board, as evidenced by the drumbeat of investment decisions from around the world — from UAE’s commitment to France’s massive green bond to Norway’s stake in every forestry, sustainable agriculture and climate adaptation fund.
PGGM, along with APG, one of the world’s largest asset managers, is shifting assets to explicitly align with the 17 Sustainable Development Goals, the ambitious targets global leaders committed to meet by 2030. Others, such as CalSTRS, California’s other big public pension fund, are stepping up their shareholder activism.
Optimism about the future can become self-fulfilling. Conversely, a pullback from globally-agreed goals could chill investment.Such universal owners are saying, ‘We do think the world will manage toward a two-degree budget,’” John Goldstein, a managing director at Goldman Sachs, told ImpactAlpha. Or, ‘The world will make material progress on the Sustainable Development Goals and make the investments required to do so.’”
In that thinking, “The world is moving there. Therefore the opportunities — and the risks — are there,” Goldstein says. “The upshot is you’d be more invested. You’d be making an active bet.”
How many managers of gi-normous pools of capital make a bet on such a positive outcome depends on the common perception about where the world is going. Optimism about the future can become self-fulfilling. Conversely, a pullback from globally-agreed goals could chill investment. That’s why climate pessimists might look at the election of President Trump and his appointments and conclude that global progress around the Paris agreement will stall, energy trends will reverse, and investment will dry up.
And indeed, impact investor confidence “has taken a hit,” says Matthew Weatherley-White, manager director of Caprock Group, a $3 billion asset manager based in Boise, Idaho and New York. “A lot of impact investors feel disheartened by statements from the White House on climate and sustainability, and that has shifted from optimism to pessimism.
The long-term drivers have a way of reasserting themselves in the face of short-term market swings. The 20-year energy transition is going to proceed in spurts and lags. “All we’re seeing is the manifestation of that lumpiness. It’s going to be a long transition,” Weatherley-White says. “But the transition itself is inevitable.”
So how are you going to play the great energy transition? What are you going to tell your kids and grandkids when they ask you in a decade or two, “Back in the teens, when the great energy transition was underway, which side were you on?”
Physicist Steven Desch has come up with a novel solution to the problems that now beset the Arctic. He and a team of colleagues from Arizona State University want to replenish the region’s shrinking sea ice – by building 10 million wind-powered pumps over the Arctic ice cap. In winter, these would be used to pump water to the surface of the ice where it would freeze, thickening the cap
THE GUARDIAN — The pumps could add an extra meter of sea ice to the Arctic’s current layer, Desch argues. The current cap rarely exceeds 2-3 meters in thickness and is being eroded constantly as the planet succumbs to climate change.
“Thicker ice would mean longer-lasting ice. In turn, that would mean the danger of all sea ice disappearing from the Arctic in summer would be reduced significantly,” Desch told the Observer.
Desch and his team have put forward the scheme in a paper that has just been published in Earth’s Future, the journal of the American Geophysical Union, and have worked out a price tag for the project: $500bn.
It is an astonishing sum. However, it is the kind of outlay that may become necessary if we want to halt the calamity that faces the Arctic, says Desch, who, like many other scientists, has become alarmed at temperature change in the region. They say that it is now warming twice as fast as their climate models predicted only a few years ago and argue that the 2015 Paris agreement to limit global warming will be insufficient to prevent the region’s sea ice disappearing completely in summer, possibly by 2030.
“Our only strategy at present seems to be to tell people to stop burning fossil fuels,” says Desch. “It’s a good idea but it is going to need a lot more than that to stop the Arctic’s sea ice from disappearing.”
The loss of the Arctic’s summer sea ice cover would disrupt life in the region, endanger many of its species, from Arctic cod to polar bears, and destroy a pristine habitat. It would also trigger further warming of the planet by removing ice that reflects solar radiation back into space, disrupt weather patterns across the northern hemisphere and melt permafrost, releasing more carbon gases into the atmosphere.
Hence Desch’s scheme to use wind pumps to bring water that is insulated from the bitter Arctic cold to its icy surface, where it will freeze and thicken the ice cap. Nor is the physicist alone in his Arctic scheming: other projects to halt sea-ice loss include one to artificially whiten the Arctic by scattering light-colored aerosol particles over it to reflect solar radiation back into space, and another to spray sea water into the atmosphere above the region to create clouds that would also reflect sunlight away from the surface.
All the projects are highly imaginative – and extremely costly. The fact that they are even being considered reveals just how desperately worried researchers have become about the Arctic. “The situation is causing grave concern,” says Professor Julienne Stroeve, of University College London. “It is now much more dire than even our worst case scenarios originally suggested.’
Last November, when sea ice should have begun thickening and spreading over the Arctic as winter set in, the region warmed up. Temperatures should have plummeted to -25C but reached several degrees above freezing instead. “It’s been about 20C warmer than normal over most of the Arctic Ocean. This is unprecedented,” research professor Jennifer Francis of Rutgers University told the Guardian in November. “These temperatures are literally off the charts for where they should be at this time of year. It is pretty shocking. The Arctic has been breaking records all year. It is exciting but also scary.”
Nor have things got better in the intervening months. Figures issued by the US National Snow and Ice Data Center (NSIDC), in Boulder, Colorado, last week revealed that in January the Arctic’s sea ice covered 13.38 million sq km, the lowest January extent in the 38 years since satellites began surveying the region. That figure is 260,000 sq km below the level for January last year, which was the previous lowest extent for that month, and a worrying 1.26 million sq km below the long-term average for January.
In fact, sea ice growth stalled during the second week of January – in the heart of the Arctic winter – while the ice cap actually retreated within the Kara and Barents seas, and within the Sea of Okhotsk. Similarly, the Svalbard archipelago, normally shrouded in ice, has remained relatively free because of the inflow of warm Atlantic water along the western part of the island chain. Although there has been some recovery, sea ice remains well below all previous record lows.
This paucity of sea ice bodes ill for the Arctic’s summer months when cover traditionally drops to its lower annual level, and could plunge to a record minimum this year. Most scientists expect that, at current emission rates, the Arctic will be reliably free of sea ice in summer by 2030.
By “free” they mean there will be less than 1m sq km of sea ice left in the Arctic, most of it packed into remote bays and channels, while the central Arctic Ocean over the north pole will be completely open. And by “reliably”, scientists mean there will have been five consecutive years with less than 1m sq km of ice by the year 2050. The first single ice-free year will come much earlier than this, however.
And when that happens, the consequences are likely to be severe for the human and animal inhabitants of the region. An ice-free Arctic will be wide open to commercial exploitation, for example. Already, mining, oil and tourism companies have revealed plans to begin operations – schemes that could put severe strain on indigenous communities’ way of life in the region.
Equally worrying is the likely impact on wildlife, says Stroeve. “Juvenile Arctic cod like to hang out under the sea ice. Polar bears hunt on sea ice, and seals give birth on it. We have no idea what will happen when that lot disappears. In addition, there is the problem of increasing numbers of warm spells during which rain falls instead of snow. That rain then freezes on the ground and forms a hard coating that prevents reindeer and caribou from finding food under the snow.”
Nor would the rest of the world be isolated. With less ice to reflect solar radiation back into space, the dark ocean waters of the high latitudes will warm and the Arctic will heat up even further.
“If you warm the Arctic you decrease the temperature difference between the poles and the mid-latitudes, and that affects the polar vortex, the winds that blow between the mid latitudes and the high latitudes,” says Henry Burgess, head of the Arctic office of the UK Natural Environment Research Council.
“Normally this process tends to keep the cold in the high north and milder air in mid-latitudes but there is an increasing risk this will be disrupted as the temperature differential gets weaker. We may get more and more long, cold spells spilling down from the Arctic, longer and slower periods of Atlantic storms and equally warmer periods in the Arctic. What happens up there touches us all. It is hard to believe you can take away several million sq km of ice a few thousand kilometres to the north and not expect there will be an impact on weather patterns here in the UK.”
For her part, Stroeve puts it more bleakly: “We are carrying out a blind experiment on our planet whose outcome is almost impossible to guess.”
This point is backed by Desch. “Sea ice is disappearing from the Arctic – rapidly. The sorts of options we are proposing need to be researched and discussed now. If we are provocative and get people to think about this, that is good.
“The question is: do I think our project would work? Yes. I am confident it would. But we do need to put a realistic cost on these things. We cannot keep on just telling people, ‘Stop driving your car or it’s the end of the world’. We have to give them alternative options, though equally we need to price them.”
THE BIG SHRINK
The Arctic ice cap reaches its maximum extent every March and then, over the next six months, dwindles. The trough is reached around mid-September at the end of the melting season. The ice growth cycle then restarts. However, the extent of regrowth began slackening towards the end of the last century. According to meteorologists, the Arctic’s ice cover at its minimum is now decreasing by 13% every decade – a direct consequence of heating triggered by increased levels of carbon dioxide in the atmosphere.
Climate change deniers claim this loss is matched by gains in sea ice around the Antarctic. It is not. Antarctic ice fluctuations are slight compared with the Arctic’s plummeting coverage and if you combine the changes at both poles, you find more than a million sq km of ice has been lost globally in 30 years.
As a residential solar professional, sitting across the kitchen table can be a hallowed arena where you battle with homeowners over the benefits of rooftop solar for their homes. Of course, the battle is likely not with the actual homeowners but rather with their resistance to change or their doubts about the incredible upsides of solar.
SOLAR INDUSTRY — Making matters worse, leads need to meet certain factors to even be considered viable. Common situations, including if a person is renting or is unable to qualify for credit and if a house has too much shading or an old roof, will eliminate nearly half of all prospects. What this means is that your qualified leads become even more valuable, as maximizing sales from viable prospects can make the difference between just getting by or achieving high levels of business success.
This brief guide aims to help business owners and sales professionals identify some of the most common reasons homeowners say no to solar and describes effective ways to overcome objections and win more deals. For clarity’s sake, please note that these tips focus on homeowners who might outright buy a rooftop solar system or finance to own an installation; this guide does not necessarily cover leasing objections.
That said, five of the most common reasons homeowners might not buy rooftop solar include the following:
1. They think solar is too expensive.
This concern is the elephant in the room. Don’t shy away from it. Sure, solar can be expensive up front, but the ultimate savings make the investment worthwhile for homeowners. That’s why calculating a return on investment (ROI) for a prospect is so important.
Don’t assume homeowners consider solar a good deal. If you are not already presenting prospects with an ROI projection, which shows them the amount of money they will likely save over the life of the solar panels, you are making a huge mistake. An ROI helps justify a solar purchase, and there are a few ways to calculate one.
Rather than on payback terms, try focusing on immediate cash gains that are available on most home solar deals. The ROI method that could give you the biggest advantage is using the 25-year guarantee, under which you figure out the amount of money a homeowner will pay the electric company over that period then subtract that from the amount the homeowner will pay by going solar. That will show your prospect he or she can save an impressive amount of money.
Furthermore, calculating the ROI results at 10 years and then 25 years will allow homeowners to see how their savings will compound over time. The table below is an example of an ROI based on a 10 kW system. This example is based on a 20-year, 5.95% financing option with a net system price of $22,750. To figure out how this amount is calculated, take the current monthly 10 kW power bill equivalent of, say, $165 and multiply that by 12; take that amount and multiply that by 1.035; take that total and multiply that by 1.035; and repeat 23 more times. This calculation might sound daunting, but if you are familiar with Microsoft Excel, you can create a compounding formula that will simplify the process. The 1.035 represents the electric utility’s 3.5% annual rate increase. According to the U.S. Department of Energy, the average annual rate increase over the last 20 years has been about 3.7%. Using conservative numbers will help you create ROIs that you – and your prospect – can be confident in.
Perception is reality, and changing the narrative using an ROI will give you the leverage you need to close a deal. Don’t insult your clients’ intelligence by trying to convince them that solar isn’t expensive. Instead, use the ROI to show homeowners that it’s worth the expense and that they can use the money they currently pay their electric utilities to finance their very own solar power systems. The key to a perception shift relies on the homeowners’ understanding that they are already spending this money and that simply reallocating it can have a tremendous financial benefit.
2. They want to wait for the next best technology.
In this day and age, everyone wants the newest and hottest technology. Potential solar clients are no different. Homeowners might have read that a brand-new panel will soon change the face of solar and want to wait for that technology to come out. It’s a common enough situation, but it’s also an easy one for you to overcome.
Ask homeowners about a technology they already own, such as a cell phone, computer or car. Yes, there will always be a newer and flashier version of that technology slated to come out, but homeowners nonetheless need a cell phone now to make calls, a computer now to conduct business and a car now to get to work. So, too, do they need solar now to save money.
Using this approach will help you explain to homeowners that there will invariably be technological advances in the future, but there is no reason to wait because a core product function already exists. Current solar panels already produce electricity, and they also do it very well and are capable of handling a homeowner’s power needs. Make it clear that the only thing a prospective solar client will gain by waiting is an ever-rising power bill.
3. They aren’t sure how incentives work.
What better way to entice a prospect than with a government-backed incentive? The federal tax credit, which is available in all 50 states, has long served as one of the most important solar incentives in the U.S.
Homeowners are currently able to receive a 30% federal tax credit from the total cost of their rooftop solar systems. In our previous ROI example, the system cost would be $32,500 and the amount of the tax credit the homeowner would receive back is $9,750, making the net system price $22,750. That is no small difference.
However, homeowners are sometimes uncertain about how the tax credit process works. Don’t be lazy! Your prospects should know that you are there for them and will help them throughout the entire solar conversion process. Providing form submission assistance, during which you show homeowners how to fill out the necessary paperwork they’ll need to redeem their available incentives, can prove to be invaluable.
If you go to the IRS.gov website, you can find Form 5695 and instructions. Print out and keep a few copies of the form in your briefcase so you always have them on hand. Before a sale, you can show homeowners examples of a completed form.
After a sale, take it a step further: Schedule a follow-up appointment with homeowners a couple of months after they have had their systems installed. You can then help them actually fill out Form 5695. While you are there, it is a great time to ask for referrals. Your clients will likely open up their contact books for you because of how helpful you were throughout the entire sales and installation process, and now they are seeing the results on their power bills. Congratulations – you just created new solar advocates and earned some more leads.
Aside from the federal tax credit, there are other municipal- and state-level solar incentives available. Get to know your region’s incentives before making any sales calls or knocking on a homeowner’s door.
DSIREUSA.org is a helpful source where you can search your local area and state for all available incentives. Find all the ones that apply to your viable leads. Do the research, and be prepared. The more incentives you can present to a homeowner, the more enticing a solar purchase becomes.
4. They are concerned about their credit.
This situation is a little tricky because homeowners usually will not tell you about their credit concerns, so you need to put on your detective cap to uncover them. The use of simple verbiage about qualifying for loan financing goes a long way. Say “let’s get you qualified” instead of “let’s see if you qualify.” The former phrase implies that you are doing the work and a positive outcome is likely; the latter suggests the result relies strictly on the homeowner and the outcome is questionable. Be encouraging, and avoid raising your prospect’s stress level.
Although it is always possible that a homeowner will turn out to not have the credit needed to qualify for loan financing, surprisingly, many homeowners do have adequate credit but are just nervous about being rejected. Your goal is to submit an application and let the process decide. Don’t make the mistake of reading a homeowner’s nerves as a reason not to take an application.
There are several factors that go into financing approval. The most important are credit score, income and lender standards. Most of the main lenders in solar are looking for a 640 or 650 credit score. There are some lenders that will lend at 580, but they diversify their risk onto installers through higher transaction fees and onto the homeowners with unattractive interest rates.
Approval rates for loan financing can be as low as 40%. So, don’t give up on homeowners who don’t qualify. Many people may already have available home equity lines of credit. They may also have plenty of equity in their homes and can do a second mortgage or a refinance. If they fail the initial credit check, keep your cool because this is very common. Move forward with qualifying questions about additional credit lines and equity in their homes. Also, ask if homeowners are in the position to pay in cash or combine cash and credit cards to complete the purchase. Use the “if there’s a will, there’s a way” approach. Keep going until you and the prospect have exhausted all viable options.
5. They don’t understand solar.
Besides price, this is the most common reason homeowners don’t buy solar. They are often not educated enough about solar to make a decision on the spot, and they may be intimidated by all of the information you provide.
Make sure you cover the basics, and explain how solar works. Give them a tutorial from photons from the sun to the excess energy being sold back to the grid and all the steps in between. Don’t assume homeowners know. Spend the time to educate them about net metering and the installation process.
It is also essential that you encourage questions as you are presenting. Use trust checks like “does this make sense?”
If homeowners are unfamiliar with solar, overwhelming them with information is very likely. If you’ve come to that point, overcoming this on one phone call or home visit can be difficult. You can spend time reaffirming and gaining trust, but until homeowners feel certain about all the information you shared, they will slow down. They will want to think about it. Once that happens, your probability of gaining a sale begins to go down. If you do have to back out of a call or visit without closing a sale, make sure you isolate what a prospect needs to think about. Schedule a follow-up appointment before you hang up or leave. That way, you have established an expectation that he or she will consider the information and locked in a set time and day to reconvene regarding a decision.
However, the best time to overcome the education problem is before you even meet a prospect. By using an inbound marketing solution, you can give homeowners valuable decision-making information in advance. Sending them a guide or a tutorial prior to an in-person conversation can make all the difference. It gives you a tremendous amount of credibility. You took the time to educate them, and they will be further along in the buying cycle when you meet with them. That will increase your success rate and your perceived value as a professional.
In conclusion, the next time you find yourself in a homeowner’s kitchen, be prepared to address the most common reasons prospects say no to buying solar. Employing the simple strategies discussed here can improve your closing ratios, which in turn, will supercharge your sales results and lead to higher business success.
Good luck, and happy selling!
Andrew Beebe riffs on the “revenge of the long tail.”
GREENTECH MEDIA — Powerhouse is a solar startup incubator in Oakland. The effort was founded by the industry veterans Emily Kirsch and Danny Kennedy, both of whom have ridden through the many ups and downs of the solar industry over the last decade. Of course, like any good incubator, they needed some swag to share with visiting dignitaries. Given their history in the space, then, it’s no surprise that Emily came up with drink coasters to share, calling them “solar coasters.”
The solar industry’s famous ups and downs are often the result of supply and demand booms and busts, followed by whiplash in the profit margins of module suppliers, project developers and installers. But the solar-coaster ride has some other important implications.
One is playing out in the U.S. residential space right now. While much will be written about a potential decline in the overall solar market this year, the real action will be in residential solar rooftops. Utility and commercial-scale solar will likely see a decline this year. However, residential installations will continue to rise. This is due to nationally diverse demand, continued lower prices, and solar-friendly state policies.
The other big driver keeping residential solar on the upward track is the growing simplicity of financing. Over the last decade, companies like SolarCity, Vivint and Sunrun have helped bring solar within reach for millions of Americans with the innovations of tax-equity-based power-purchase agreements (PPAs). Primarily because of the need to aggregate very large amounts of tax equity, these new third-party ownership models favored larger, consolidated companies such as those mentioned above.
During the period 2010-2014, we saw what looked like an inexorable march toward a market forever dominated by a few third-party ownership players, with no room for what is known as the "long tail," best articulated by Chris Anderson. The long tail in solar is made up of the vast array of thousands of small solar installers across the country. This long tail system of vendors you trust as neighbors, friends and local businesses is prevalent in most aspects of the service industry — from electricians to plumbers to contractors.
We are now about to witness a reversal of this consolidation and enter the period I call "the revenge of the long tail." The solar industry’s long tail has been losing ground over the last decade. Now, it is coming back — with a vengeance. Here’s why.
Financing is democratized again
After nearly a decade of needing complex financial structures to make the economics work, solar is so inexpensive that we can get back to basics in the world of solar finance. PPAs and complex leases are no longer needed, and therefore aggregated tax equity is no longer needed.
Companies like Mosaic (an early Powerhouse company) and Sighten (both portfolio companies of Obvious Ventures) are stepping in with solutions to help small installers jump on these straightforward finance mechanisms. For these next-generation solar service providers, there’s no need for the expensive overhead, thousands of employees, and national networks. They simply serve the network that’s already out there in the form of the long tail.
Solar solutions are becoming commodities
Both the physical equipment and the professional platforms used to do the selling have also advanced in the last decade. Panels, inverters and the balance-of-system hardware can all now be bought in kits at costs only previously dreamed of, even in small volumes. Additionally, companies like Sighten are offering modern, single sign-on software-as-a-service toolsets which can help the small business installers across the country compete at the highest levels.
Solar finance gets simplified
This removal of the need for a large provider with Wall Street tax equity capabilities once again levels the playing field. Furthermore, with solar becoming more and more commonplace and technically standardized, the need for specialty know-how has been reduced. More likely than not, if you’re in a top 10 solar market, your trusted local electrician, roofer or contractor has some solar experience.
As the above chart from GTM Research shows, the revenge of the long tail is upon us. This is great news for solar consumers and small businesses across the country. It’s particularly exciting for states that haven’t been deemed large enough markets to warrant the attention of the major players in the industry. Dominant national players will have to prove their ability to adapt to lower-margin loans, and likely shed the vertically integrated corporate structures. Additionally, they’ll have to work with emergent software providers who are already proving more nimble than these large players.
The next big battlefield
The largest players out there will also have to show they can make progress on their customer acquisition costs. Recently, the news hasn't been good. While solar equipment prices are plummeting, the cost of acquiring new customers has been increasing for the largest players. Bottom line: Loans are a better solution for most customers, and working with local vendors simply makes more sense. This brings competition back to the local level for the national players.
As the solar coaster continues and you read about the inevitable woes of the major players, don’t forget the little guy. This long-tail group is precisely what we need to create a more resilient, dynamic and customer-centric industry.
Nearly 10 months ago, Tony Seba, author of the 2014 book Clean Disruption of Energy and Transportation, posted a video on YouTube, “CleanDisruption.” In both, he projected that a nearly complete disruption of the energy industry would begin in 2020 and be well underway by 2022, the year he projects for distributed solar power with battery backup to fall below the cost of transmitting electricity.
CLEANTECHNICA — It’s a point at which centralized power plants, if they are to compete with solar-plus-storage, will have to provide power for free. Seba projects that all centralized electric power producers will be obsolete by 2030, as will conventional cars and utility companies.
Anyone reading the book or watching the video should keep in mind that the projections are wrong. It appears that he was much too conservative; change is happening much faster than he anticipated.
In his March 2016 video, Seba talks about how the cost of electricity from solar power dropped below 5¢/kWh. Less than a year later, it dropped below 3¢/kWh in multiple auctions. This is far faster than he anticipated, and would make the disruption happen sooner than 2022.
While the decline in the cost of solar power is clearly very great, the decline in the cost of grid storage appears to be taking off. Seba spoke of a decline in cost of 19% per year, but that rate has been exceeded by new technologies.
Lazard’s Levelized Cost of Storage Analysis – Version 2.0 shows some important changes from version 1.0. While the Levelized Cost of Storage (LCOS) for several types of storage have declined at the rates consistent with what Seba suggested, three stand out — one of these is reported by Lazard, and the others appeared in recent news.
First, in version 1.0, the LCOS of compressed air storage was reported at $192/MWh. This is a low figure for natural gas peaking plants. In version 2.0, however, the figure had dropped 33% to $116–140/MWh, well below what those peaking plants normally charge. This shows a technology for storage that is getting competitive with nuclear power generation.
Second, we saw a 23% decline in the costs of lithium-ion batteries. Lazard’s analysts may not have known that Tesla would essentially double the storage capacity of its Powerwall batteries with an increase in price that really only covered the addition of new inverters. The Gigafactory has come online, even though it’s only about 35% completed, and this will drive the price of lithium-ion batteries down further. These changes point to reductions in the costs of storage on the level of 50%.
A third story that could change the market has come from US battery manufacturer Eos. This company has announced a partnership with Siemens on storage solutions. Eos’ batteries are built on a minimum unit size of 1000 MW & 4000 MWh, at prices ranging from $160 to $200 per kWh. Eos’ website gives the LCOE of energy stored in the battery at 12¢/kWh to 17¢/kWh. The LCOE is well below the minimum cost of that of a gas peaking plant, and at a point where it is starting to get competitive with nuclear power.
Combined with the Lazard LCOE reports for solar and wind, these prices for storage are already getting to the point of being very much disruptive. In Lazard’s latest Levelized Cost of Electricity Analysis (version 10.0), solar power is at an average of 4.6¢/kWh to $6.1¢/kWh and wind power at 3.2¢/kWh to 6.2¢/kWh.
The new low-cost storage solutions do not really have to compete with nuclear, coal, or gas. What they need to do is to combine with wind and solar power to compete with baseload power. It looks like that could be happening already.
The Great Energy Disruption may already have begun.
At one point, 2016 looked like an abysmal year for Australian solar, but it turned out to be a record-breaking year for solar, in many regards. Here are some of the highlights:
RENEW ECONOMY — Though the headline utility-scale figures indicate a come-down of large proportions, it was always going to be impossible to fill the gap left by Nyngan, Broken Hill, and Moree – heavily-subsided projects over five years in the making.
However, if we exclude systems exceeding 20MW (Baracaldine being the only project last year above this threshold), there was actually significant growth. There was a record volume of systems in the 5-20MW range: Mugga Lane, Williamsdale, and Dugrussa (Sandfire), as well as growth in every other size category above 100kW.
Commercial systems in the 10-100kW range had a lacklustre start to the year, but finished strongly with a record 27MW of systems in the 10-100kW range installed in December alone – 32% of STC systems exceeded 10kW in the final month of the year.
As a result, the average system size climbed to a record high, finishing the year at 6.25kW/system (for sub-100kW systems). Greatest growth was seen in the 75-100kW range, and the image below shows a skyrocketing level of installations of 100kW systems in December 2016.
Electricity price increases are the talk of the town in states like WA and Queensland, and are again driving interest in solar power. As a result, residential PV underwent a bit of a renaissance, at least in WA where it drove the market 33% higher than 2015’s values, in the process setting a new record for annual installation volume (all without a feed-in tariff or STC multiplier reduction) – as seen below.
Australia became a hot spot for battery sales globally. International companies staged global launches of energy storage products in Australia. SunWiz’s Battery Market 2017 report shows that there over 5% of new PV systems included energy storage in 2016.
It’s fair to say 2016 exceeded the expectations of many in the industry, and set the stage for some stellar market growth in 2017. But it wasn’t all residential installations – the chart below shows there was a record 11MWh of major projects installed in 2016, with highlights including Sandfire Copper Mine, Nauiyu Aboriginal Community, Bunninyong, and Alkimos Beach Community systems.
All in all the year ended up on 839MW, comprising 87MW of identified LGC systems and a projected 752MW of sub-100kW systems.
The 2016 Year in Review provides data on the volume in each market segment of the top PV retailers and of the market as a whole.
Powur CEO Jonathan Budd speaks about creating a crowdsourced distribution channel for the clean energy grid of the future on John Biggs' podcast, Technotopia.
TECHCRUNCH — Jonathan Budd sees solar power as a money-making opportunity. His new company, Powur, essentially lets people add solar to their homes with no upfront costs. While there isn’t much technology in his solution he does have some interesting ideas about the future of solar.
In this podcast we talk about when he expects solar to overtake fossil fuels – not for a long time – and what it will take to make solar a worldwide phenomenon. Now that solar is so cheap – far cheaper than it was even half a decade ago – services like his are starting to make sense and affecting the energy grid in interesting new ways.
You can subscribe in Sticher or iTunes and download the MP3 here.
Something very unusual is happening on this planet of ours. The chart below shows the total extent of floating sea ice in the Earth’s oceans at any given point in time. Normally it waxes and wanes with the seasons.
VOX — But ever since September, global sea ice has utterly collapsed, as the red line shows. By mid-January, total sea ice extent was at its lowest level since satellite records began in 1978 — and likely the lowest it’s been for thousands of years. And yes, global warming is an important part of the story here.
There are two major sources of sea ice in the world. There’s the ice covering the open water in the North Pole that tends to melt during the Northern Hemisphere summer (reaching a seasonal low in September) and then refreezes in the winter. And then there’s the sea ice that surrounds the coast of Antarctica that tends to recede in the Southern Hemisphere summer (which is now) and refreeze later in the year.
What’s so odd is that both are near record lows for this time of year. Hence the ominous plunge seen in the chart above. Let’s break these two down:
1) Arctic sea ice is at record lows for this time of year. Thanks to global warming, the extent of Arctic sea ice in the North has been steadily declining for decades. In September 2012, Arctic sea ice extent reached an all-time record low. In 2016, meanwhile, sea ice extent fell to its lowest October, November, and December levels ever (months when the ice normally begins to grow again as cold weather sets in):
The reasons for this are straightforward enough: 2016 was a record hot year globally, and the past few months have been exceptionally warm in the Arctic, with warmer-than-average ocean temperatures and persistent winds bringing in warm air from lower latitudes. That has prevented the Arctic sea ice from refreezing as quickly as it usually does in the winter. (According to NASA’s Walt Meier, persistent winds may have also inhibited sea ice from pushing southward.)
The map below from NASA shows how Arctic sea ice extent in November 2016 compared with previous years. It’s a very noticeable change:
This is no fluke: Researchers have estimated that up to 95 percent of the long-term decline in Arctic sea ice has been driven by human activity. Not only has global warming drastically heated the region (the Arctic is warming even faster than the rest of the planet, for reasons explained here), but dark soot particles from factories and cars in Europe and Asia are traveling up north, settling on the ice, and absorbing extra sunlight.
That said, natural variability still plays a significant role. In 2012, a large storm in August helped break up the slushy sea ice and cause it to melt even more rapidly. That was one reason why we saw a record low minimum in 2012 but then a slight rebound the following years. That's also why scientists expect Arctic sea ice extent to bounce around erratically in the years ahead — though the overall trend will be down.
2) Antarctic sea ice is at mysterious lows. Now, the disappearance of Arctic sea ice is technically old news. What’s new is that the sea ice around Antarctica has also been at record lows in November, December, and parts of January. That’s what’s driving the breathtaking lows in global ice right now. Here’s a chart from the National Snow and Ice Data Center showing Antarctic sea ice extent:
And here, via NASA, is what Antarctic sea ice extent looked like in November 2016 compared with the historical median:
Scientists aren’t sure whether the current shrinkage of Antarctic ice is related to global warming at all — there’s so much more natural variability in Antarctica because the ice is thinner than Arctic ice is (it disappears almost completely every summer) and the ice along the Antarctic coasts is more vulnerable to rough weather.
In recent years, Antarctic sea ice has actually been expanding slightly even as the planet gets warmer, and scientists still aren’t exactly sure why (weather patterns and even the ozone hole have been mentioned as possible culprits). But in 2016, a sudden shift in wind patterns caused southern sea ice to collapse. What drove that shift in wind patterns is tougher to say.
Because of that volatility in Antarctica, it’s too soon to say whether this year’s collapse in global sea ice is an aberration. But we do know that total sea ice has been trending downward over time — driven by steep losses in the Arctic — even before this year. So the broader trend is plenty unnerving.
Why should anyone care about Arctic sea ice?
One important thing to note here is that we’re talking about sea ice that’s already floating in the ocean — when it melts and disappears, it doesn’t directly affect global sea levels. (The ice was already displacing its own volume; much like when an ice cube melts in a drink, it doesn’t raise the water level.) So the disappearance of sea ice won’t, on its own, flood our coastal cities.
But melting sea ice can have important indirect effects. For instance: As more and more sea ice in the Arctic vanishes, more of the ocean underneath is exposed to sunlight. Because the ocean is darker than the bright ice, it absorbs more heat — and the broader region heats up more quickly. (This “feedback” effect appears to be quite significant in the Arctic.)
That’s important because right next door to all that Arctic sea ice is the massive ice sheet sitting atop land in Greenland. When that ice heats up and melts, it flows off of the land into the ocean, which really does raise sea levels. Greenland's ice sheet is currently 1.9 miles thick and contains enough ice to raise global sea levels by about 25 feet in all. And that ice sheet is indeed shrinking:
Greenland’s ice sheet is losing mass
The vanishing sea ice can matter for other reasons too. In the Arctic, we could see oil companies or shipping lines move into the newly open waters. And there’s some debate over whether the disappearing Arctic sea ice could muck up winter weather patterns in North America (though this is still being hotly debated).
But disappearing sea ice is also a bellwether of sorts. By piling greenhouse gases into the air, we’re imposing all sorts of drastic changes on this planet — changes that are likely to shock us constantly and elude our ability to control them.
If you're looking to switch careers, you may want to look towards the sun… or listen to the wind.
BUSINESS INSIDER — A new report, published by the Environmental Defense Fund's Climate Corps program, says that solar and wind jobs are growing at a rate 12 times as fast as the rest of the US economy and that 46% of large firms have hired additional workers to address issues of sustainability over the past two years.
“Wind turbine technician” is now the fastest-growing profession in the US. The growth in wind power is just one example of the rising employment numbers associated with the clean energy and sustainability sector. The industry now has at least 4 million jobs, up from 3.4 million in 2011.
According to the EDF report, the annual growth rate of employment in the fossil-fuel industry was -4.5% from 2012 to 2015.
Renewable-energy jobs had a growth rate of 6% during that period. Oil and gas production jobs increased in November 2016 for the first time in two years, following a slump caused by low oil prices. The average number of employees at US coal mines dropped by 12% in 2015, according to the Energy Information Administration.
When it comes to electricity generation in the US, the Department of Energy's 2017 Energy and Employment Report suggests that the solar industry now employs more people than coal, oil, and gas combined.
"Our findings would lead us to believe that the right place to invest dollars are in renewable energy rather than fossil fuels," Delaney says. "These jobs are widely geographically distributed, they're high paying, they apply to both manufacturing and professional workers, and there are a lot of them."
Delaney says one of the most surprising findings of the EDF report is that 70% of the 2.2 million Americans who work in jobs related to energy efficiency are employed by companies with 10 employees or fewer.
"What we're talking about here are American small businesses," she says, adding that because many sustainability jobs involve installation, maintenance, and construction, they're harder to outsource.
Though federal subsidies and tax credits have helped foster the growth of solar and wind power in the US — thereby adding jobs in those industries — much of the trend is due to the falling prices of both technologies. The EDF's report suggests the cost of production for solar PV panels dropped 72% from 2010 to 2015, making solar power much more competitive in the energy market. Solar deployment, consequently, has expanded tenfold since 2010, from to 10,727 megawatts installed annually from 876.
The Department of Energy's Energy and Employment Report predicts that energy-efficiency employment will have a 9% growth rate over the next 12 months — higher than any other energy sector.
Question: What advice might a small business owner give as to what they have learned in managing their business over a lifetime
Answer: They won't give you platitudes. They will give you advice that was earned the hard way:
THE INQUIRER AND MIRROR -- Frame your future by setting specific, focused, measurable objectives. If you are specific about what you plan, when you plan to achieve it, and what resources are needed, you can review the objectives periodically to assure you are on track.
Failure is not the end. When you fail, you are experiencing a learning moment. If you don't fail at some point in your business's life, you aren't trying to differentiate yourself or experiment with new ways to expand your reach. Failure is part of learning.
Leave your ego at the door. Remember: your business is about serving the needs of others. It’s all about them and not about you. If you focus on you, they will find someone who will focus on them.
Be a lifelong learner. There is so much to learn in owning and operating a small business. You need to invest some time every day, 30 or 45 minutes, to learning something you don't know. With the available digital inventory of material it is easier than in the past when it took a trip to the library or enroll in a course.
Take time for yourself. Life is short and if your entire existence revolves around your business, you’re going to miss out on a lot in life. Most small-business owners know from experience it is "24/7" but if you’re going to make it for the long term, you need to carve out some "me-time." This element of personal management is even more important for solopreneurs.
It takes commitment to do this, but in the long term, you need it to avoid entrepreneurial burnout. The flip side of me-time is personal health. If the business depends on you being healthy, then you need to take time to ensure your health. Eating right, sleeping enough, and getting exercise. No amount of business success will replace your health.
Get connected face to face. We live in a connected world. We’ve become glued to a screen and depend on tweeting, texting, and emailing rather than creating relationships face to face. It's tempting because it’s easy and fast to communicate digitally, but it’s not as fulfilling.
Collaborate with others. There is a saying, "You can go faster alone, but further with others." Identify other small businesses with whom you can collaborate with. Working with others increases the satisfaction of entrepreneurship. Sharing what you know with others and having them do the same is a win-win situation.
Action is the key to success. Fear and worry are natural, but don't let them overtake your passion to succeed. If you spend your time worrying about failing, then you won’t take the steps necessary to build and grow your business. You need to be open to trying new approaches in order to make significant change.
Attract great coaches, mentors, and a support team. You can’t do it alone. Those who try often fail. There is just too much to do in launching and growing a small business. Create a support group of other business owners. Find a coach who will challenge you to be your very best.
I'm your go to solar energy expert here to guide you step-by-step through all of your solar options.
James The Solar Energy Expert