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What
kind of a saintly person is willing to wade through the decision-making
complications and spend the big upfront money it takes to put a solar
system on the roof?
The answer is Innovators and Early Adopters. After them, there will be an Early Majority. These terms come from Everett M. Rogers’ Diffusion of Innovations. There
is one thing important about that Early Majority: If it starts buying
solar soon enough, the community of nations may have a shot at
restoring this good earth’s steady-state climate. So it is crucial to
understand what drives the Innovators and Early Adopters and what needs
to change to convince the Early Majority. To better understand
the solar buyer, the Solar Electric Power Association (SEPA) designed
an online survey and obtained data in the fall of 2007. Photovoltaic Incentive Programs Survey: Residential Participant Demographics, Motivations and Experiences
had 2 specific goals: (1) To get answers for state utilities and
incentive program designers and (2) to obtain data that explains how
and why one part of the public sees a good thing and gets involved and
another part turns away and waits.
The survey is broken into 5
sections: (1) The demographics of solar customers; their attitudes and
experiences (2) in the Pre-Installation period, (3) in the Installation
period, and (4) in the Post-Installation period; and (5) their
Financial Considerations.
The survey revealed patterns: Demographically, solar customers very much resembled the Early Adopters described in Diffusion of Innovations theory.
More
specifically, the 3 top concerns of these Early Adopter solar
purchasers prior to installation were the quality of the equipment
(17%), the initial cost (14%) and finding a qualified installer (14%).
Their
3 top motivations for purchasing a solar system were environmental
concerns (24%), cutting back dependence on foreign oil (20%), and
producing their own electricity (20%).
The 3 most common methods
for paying for the systems, after incentives, were cash (67%), home
equity loans (21%), and mortgage refinancing (8%).
The 3 parts
of the process they found easiest and most positive were getting
utility approval (19%), getting the payment through the incentive
program (19%), and getting information about solar energy (18%).
The
3 parts of the process that were the most difficult and negative were
getting utility approval (25%), getting through the installation (24%),
and getting the payment through the incentive program (17%).
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The
bottom line: PV system Early Adopters are in a higher income bracket,
have a post-graduate degree, live in a smaller household, and are aware
of and concerned about the environment and solutions. In short, they
are a niche market. Whereas,
The anticipated PV system Early
Majority will have a more median income, median education level and
median household size. It will be more wary of new technologies and
more risk averse. It will worry about system maintenance and whether
the system will perform as marketed. Therefore,
To achieve higher levels of market penetration, the solar industry must meet these changing concerns.
The
Early Majority will want and require straightforward and reliable
information on solar technologies presented by qualified, personable,
informative installers. Good websites that provide customer reviews
will also help move the marketplace.
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To
win over the Early Majority, the solar industry must also sell reliable
systems that fulfill the promise of low maintenance. It must make grid
connection and incentive applications simpler and it must make the
presentation of its information simple, realistic and comprehensive.
There must be no hidden costs and all aspects of financing and payment
must be clear.
In short, the Early Majority customer will require a seamless process overseen by an installer they can trust.
The
survey’s results reveal much about customer motivations, concerns and
experiences before, during and after a PV system is installed. Because
the field is so new, the data will at least provide a baseline for
future surveys. SEPA believes the data will be useful in designing
incentive programs to drive solar industry growth.
Most
importantly, the data reveal that short- and medium-term marketing and
incentive programs should be directed at Early Adopters and designed
similarly to marketing for environmental products (hybrid-electric
vehicles, organic foods). In the long-term, however, the solar industry
will only achieve a bigger market position by making solar more
understandable, affordable, and accessible and reaching customers who
are not willing or able to overcome information and/or cost barriers by
themselves.
Right now, the saintly people who go through the
tribulations of installing a home solar system do so because they
believe. The market the solar industry needs will need to be convinced.
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COMMENTARY
On solar incentive programs:
(1)
The key solar market drivers are Renewable Electricity Standards
(RESs), especially those with solar carve-outs, the federal Investment
Tax Credit (ITC), and the various solar incentive programs.
(2) In
2008, there were ~100 solar incentive programs; ~70 were
non-governmental (utilities, private entities) and ~30 were state
programs.
(3) They are all intended to ease the cost burden of
purchasing and/or installing a solar system and can be broken down into
3 main types: rebates, performance, and financing.
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With
rebate incentives, administering agencies give money back to people who
buy a system. It can be an upfront payment that discounts the purchase
price, a cash-back payment made when proof of purchase is demonstrated
or it can be a one-time deduction from the capital cost. Though rebates
are typically given through an open and ongoing process without
performance conditions, they may require verification of short-term
performance. They differ from grants in that they do not require a
competitive application.
Performance incentives reimburse system
owners on the basis of actual electricity production. There are three
kinds: Feed-in-Tariffs (FiT), Performance Based Incentives (PBI), and
Renewable Energy Credits (RECs).
An FiT (sometimes called a
standard offer) is a guaranteed, above-retail rate paid by utilities
for all the electricity generated by a system’s owner over a
guaranteed, long-term period (usually 15-to-25 years). Since the
electricity is sold at a higher rate than the system owner pays to buy
it from the grid, the FiT has no impact on an owner’s utility bill.
FiTs are common and have been successful at driving solar industry growth in Europe but are uncommon in North America.
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A
PBI is used when there is no FiT arrangement but there is a net
metering arrangement instead. The system owner uses the electricity
generated by the solar system to wind back the utility bill to zero but
cannot earn money from the system’s output. This means that with a PBI
the system owner is not selling electricity, which in many states is
illegal for private individuals, but earning an incentive.
A REC
is a certificate awarded to a system owner for every unit of
electricity (usually in megawatt-hours (mWh) or kilowatt-hours (kWh)
that is produced by the system. Its value is determined by the markets
into which it is sold (usually voluntary emissions-trading markets like
the Chicago Climate Exchange), where it is purchased by businesses
seeking to offset their emissions with investments in emissions-free
energy. A REC is considered a supplement, not a primary incentive.
(Exception: New Jersey)
In an FIT arrangement, the utility that
purchases the system’s output owns the REC. In a net metering
arrangement (rebate or PBI), ownership of the REC varies.
Financing
incentives make money more readily available to system buyers.
Below-market interest rates on loans can come from governments or
nongovernmental institutions such as utilities. Loan guarantees or
non-traditional loans get banks to make the purchase money available. A
popular new financing incentive has municipalities putting up the money
for the system purchase and being repaid through home and building
owners’ property taxes.
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Financing incentives are less effective with small system buyers because they do not really reduce the cost of the system.
Tax
credits are not, in SEPA’s terminology, considered incentives in the
technical sense because there is no administrator, they are part of the
tax process, there is no prequalification or application and there is
no long-term performance consideration.
SEPA surveyed only participants in rebate incentive programs.
U.S.
grid-connected photovoltaic (PV) installed capacity grew 48% from 2006
to 2007 and 60% from 2007 to 2008. Residential growth, which was 33% of
the capacity but (being small) 84% of the systems installed, followed
the trend.
More importantly, residential systems are usually
the leaders in new markets because residential electricity rates are
the highest. This makes residential systems the ones most important to
small installation companies.
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Other
polling has been done but never with so much specific emphasis on those
who made the leap and the kinds of incentives that drove them.
SEPA
developed, with input from PV incentive program managers, a
standardized online survey of PV incentive program participants. 10
state and utility programs participated, largely in the fall of 2007.
Results
analyzed (1) the demographics of solar customers; (2) their attitudes
and qualities in (2) the pre-installation period, (3) the installation
period, and (4) the post-installation period; and (5) their financial
considerations.
Part (1): 5 survey questions sought information
about solar PV system buyers on the demographic subjects of (a)
household size, (b) income, (c) financial decisionmaking, (d) education
level, and (e) home size.
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More
than half of solar PV system buyers had a 1-to-2 member household
(below the national average of 3), suggesting most PV owners either do
not have children or no longer have children in the home.
The
biggest PV owner income categories were >$100,000 and
$50,000-to-100,000 (while the national average is ~$26,000) so more
than three-quarters of PV owners have at least twice the national
average household income.
Almost three-fourths (78%) make
financial decisions with somebody else and only 22% are sole financial
decision makers. This means that the decision to buy a solar system
usually comes from 2 people.
81% of solar buyers had a Bachelor’s Degree or higher and 51% had a post-graduate or
professional degree (while 29% of the U.S. has a Bachelors degree and only 10% have a post-graduate degree).
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In
summary, solar owners live in a smaller household, have higher than
average incomes, share financial decisions, live in a smaller house and
were highly educated.
Part (2): 3 questions were about pre-installation purchasing motivations and concerns, using a qualitative ranking system.
Environmental
concerns were the primary driver, reducing dependence on foreign oil
was second (64%) and personal generation of electricity was third
(63%). There was no important link between purchasing New Energy and
concerns about human health.
On pre-installation financial
concerns, the initial price was the first consideration (47%), the
incentive program application process was 2nd, and the system’s effect
on property taxes, the resale value of the home and aesthetics ranked
lower.
On pre-installation technical concerns, the quality of
the solar equipment was the top concern (57%) and finding a qualified
installer was 2nd. Maintenance came in ahead of the region’s solar
resource.
Consumers who installed a PV system on their home also
purchased a CFL light bulb (93%) and organic food on a regular basis
(57%), both indicators of a green inclination, though much less
expensive choices. The least frequent purchases, in the same cost
category as a solar system, were a high-efficiency heating ventilation
and air-conditioning system (HVAC) (18%), a hybrid-electric vehicle
(18%) and/or a solar hot water system (10%).
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Solar
system purchasers tend to get their information via the Internet or at
local events (fairs, expos, etc.). An overwhelming 86% majority said it
was easy to get such information.
Part (3): Installation comes
after the incentive program application is complete. It most often
involves a 2-to-4 kilowatt (kW) solar system (45%) capable of
generating ~ 2,500-to-3,500kWh/year of an average U.S. household’s
11,000 kilowatt-hours per year (kWh/yr), or 25-to-35% of electricity
consumption.
Almost half of all the survey’s PV systems were
installed in the preceding 1-to-3 years. A little under one-fourth
(23%) were less than one year old. 83% did not have battery backup.
76%
of surveyed solar system buyers went through a solar dealer for
purchase, installation and management of the process. Only 4% installed
their systems themselves. 45% discussed other New Energy and Energy
Efficiency options with their dealers, solar hot water systems most
often (23%), then energy efficient appliances (18%), efficient heating
or cooling systems (13%), weatherization (12%), and finally, wind
energy (9%).
Only 4% of survey respondents said they had enough
knowledge of New Energy and Energy Efficiency and had no need for more
information from their dealer/installer. This means that providing
information as part of a package of services is a means of reaching the
Early Adopter market and likely will be even more important in reaching
the Early Majority market.
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The
SEPA survey asked if the homeowners did other New Energy and Energy
Efficiency installations with their solar systems. 17% installed two or
more new efficient appliances and 16% did efficient roof repairs. Most
(49%) did nothing else.
75% of system buyers rated the
installation process as easy. 18% did rate it difficult. 19% did not
utilize the services of a professional solar installer but there was
little difference in how many found the process easy. There also seemed
to be no complication with getting the system integrated with the local
grid.
Part (4): Post installation questions focused on how the
system performs, unexpected maintenance issues and how buyers rate the
customer support they get.
95% of buyers were satisfied or
very satisfied with the performance of their systems and many noted
they liked the lower electricity bills. There were a few complaints
that the systems did not meet predicted performance levels and a few
complaints of equipment failures.
21% of 500 owners had
unexpected maintenance issues (inverter malfunction, lightning, roof
leaks and, rarely, the need to replace panels). This is a troublingly
high number because PV systems are marketed as “no maintenance.” But
even this 21% reported 95% satisfied or very satisfied rates, perhaps
because Early Adopters are forgiving of new technology. Performance
needs to improve as the Early Majority becomes the focus of marketing.
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44%
were satisfied with the customer support of their utilities, 35% were
somewhat so and 13% did not get the support they wanted.
Part
(5): The most frequently heard excuse for not buying solar systems is
the cost. Incentives do not dispense with this obstacle. Paying means
cash, a bank loan, using the house mortgage, refinancing or some other
form of borrowing.
Rebate programs sometimes spread the
reimbursement over weeks and tax credits only come in April. This means
most systems require a lot of financing.
67% of the people in
the survey paid cash. 21% took out home equity loans. Only 5% used more
than one payment method (i.e., cash + loan) with their incentives.
Bottom
line: Accessible, easy to understand financing will be crucial to reach
a market not so easily able to pay cash as the Early Adopters.
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67%
of utility incentive programs were described as “easy” or “moderately
easy” and 70% of state incentive programs were so described. 81% found
submitting for and getting the payment from the incentive program
easy-to-moderately-easy and only 12% found it difficult. Delays and
inaccurate amounts of payment were the most common problems.
54%
of the solar system buyers in the survey said they would consider
performance based incentives (PBI). Of those who wouldn’t consider a
PBI, 21% indicated they needed the
upfront rebate money and 10% saw
a PBI as too risky because the system might not perform as expected.
SEPA believes this is an area that, like others, requires more study.
Future
Steps: (1) More of the same kinds of surveys again; (2) More states,
regions and cross sections; (3) Deeper analysis, especially of
incentive programs; (4) Time-based analysis to evaluate learning curves.
Ultimately,
this is an incipient industry with a fantastic product that can meet a
virtually unending need. Part of what is holding it back is
technological, part of what is holding it back is political and part of
what is holding it back is its own need to learn how best to sell
itself. Clearly, it is learning.
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QUOTES
- From the SEPA paper, describing Diffusion of Innovations, 5th Ed, Everett M. Rogers. 2003:
“…In 1962 Everett Rogers’ published his “Diffusions of Innovations”
theory on the process of how and when new innovations are adopted by
consumers. He used five categories for consumer types and analyzed the
sequence at which technologies would be adopted in the marketplace: [1]
Innovators>Customers willing to take a risk and try a new
product…[2] Early Adopters>Educated opinion leaders responding to
positive reactions of Innovators…[3] Early Majority>Customers avoid
risk and trust opinion of Innovators and Early Adopters…[4] Late
Majority>Skeptical customers by nature, only buys commonplace
products…[5] Laggards>Customers will only adopt technologies when
there are no other alternatives, resistant to change…Many of the
results of the demographic survey questions indicate that PV consumers
fall into the category of “early adopters” – high income, high
education, smaller households, etc…This has two implications for PV
stakeholders. First, current education and/or marketing efforts should
target this demographic in the short- and medium-term to develop sales.
Parallels to other environmental products, such as hybrid-electric
vehicles or organic foods, could be the basis for drawing out strategic
outreach plans. However, in the long-term, the larger PV markets will
move into the “early majority” customer segment. Efforts to make solar
more understandable, affordable, and more accessible need to be
developed that have a new approach to consumers who may not be
receptive to overcoming information or cost barriers on their own…"
posted by Herman K. Trabish
Photovoltaic Incentive Programs Survey: Residential Participant Demographics, Motivations and Experiences
Yasmeen Hossain, Mike Taylor and Ming-Jay Shao, November 2009 (Solar Electric Power Association)
