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The challenge with Renewable Energy is not Price.. it’s Marketing!


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One of my favorite RE (Renewable Energy) professionals and Venture Capitalist Jigga Shah from the Energy gang podcast said, and I am paraphrasing here, “the economic argument about switching from Carbon intensive energy sources to Renewable Energy sources surrounding price is no longer a factor. The Renewable Energy industry has a Marketing problem”. I think he is right. This problem does not only exist in the US, but also in Trinidad and Tobago.


According to the World Economic Forum in April of this year “data from the Energy Information Administration showed that wind, solar and hydroelectric energy generated nearly 68.5 million megawatt hours of power, while coal only generated 60 million megawatt-hours of power” Rosane (2019). This is huge for us who believe that decarbonisation of the power grid is critical for managing the risks associated with anthropogenic (human-caused) climate change. This is great news, but if the fundamentals of economic theory remain true, shouldn’t the switch to a low carbon future be a lot more rapid? The work of Daniel Kahneman and Amos Tversky, the fathers of behavioural economics, gave us a framework to think about this. They were able to show us that there is no such thing as rational economic man that makes decisions based on price and utility. Humans make many of their decisions based on heuristics [1]. In their early work Judgement under Uncertainty: Heuristics and Biases they said “people rely on a limited number of heuristic principles which reduce the complex tasks of assessing probabilities and predicting values to simpler judgmental operations. In general, these heuristics are quite useful, but sometimes they lead to severe and systematic errors” Tversky and Kahneman (1974). So we do not make decisions with complex data, but predictable unconscious biases. This is not limited to the common man but to scientists, economists and all persons we may assume to be educated and aware (if you wish to look at the studies, I suggest you read ‘Thinking Fast and Slow’ by Kahneman and Tversky).


For those of us who think about Economics and Energy, this should be important to note. I would go as far as saying that political consultants and marketing executives have known about this since the beginning of the political and industrial age. Choice is not always about price. It's also about value. Value and price are not always the same thing. Value is malleable and can be influenced. Steve Jobs also showed us that we also are not aware of what we value. Just look at the innovations with the iPod and iPhone where they created a new segment of consumer goods we didn’t even know we wanted, at a price point much higher than other phones. We purchase them because of how they make us feel.


Renewable energy has a lot going for it. It’s clean, abundant and it’s good for the planet. We need marketing that helps us connect RE technology to our values. So, we would line up to purchase solar and wind products just like the latest iPhone. Most of us want a clean and safe planet. Plus, RE technology is cheaper than fossil fuels (just google research the average cost of a Solar project in the US or Mexico or the UK). For us in Trinidad and Tobago, our price for power is US $0.04 kW/h, this is the subsidised price that we pay, not the true cost of generation. There are projects in the US “for example, a 100-megawatt solar farm that goes into service in Arizona in 2021, coupled with a 25-megawatt storage system with four hours of capacity, will be able to provide power for $36 a megawatt-hour, according to Bloomberg New Energy Finance” Eckhouse (2018). If we convert this the price would be US $0.036 per kW/h. To put this in perspective the most expensive part of this project is the storage, and the price of utility scale batteries are falling rapidly. The argument that Solar energy is to expensive for Trinidad and Tobago may not be 100% true. So, I will ask the question again in closing. Do we have a Marketing problem in the Renewable Energy industry space? I believe the answer to this question is yes.


I will be writing a part II to this article to identify Marketing strategies to be employed locally.



Author

Brendon James,

BA Geography, MBA Occupational Health and Safety, MSc Process Safety Management, MBA SEM (expected 2019)

LinkedIn: https://www.linkedin.com/in/brendon-james-94332a18/

"I am a lover of Economics, Energy, Stoic Philosophy, Crix and Milo in that order."


REFERENCES:

[1] A heuristic is any approach to problem solving or self-discovery that employs a practical method, not guaranteed to be optimal, perfect, or rational, but instead sufficient for reaching an immediate goal. Wikipedia


Eckhouse, Brian. 2018. “Solar with Batteries is cheaper than Gas in Parts of U.S Southwest”. Bloomberg. Accessed 20 July, 2019. https://www.bloomberg.com/news/articles/2018-09-17/solar-with-batteries-cheaper-than-gas-in-parts-of-u-s-southwest


Rosane, Olivia. 2019. “America’s shift from coal to renewable energy has begun”. World Economic Forum. Accessed 20th July, 2019. https://www.weforum.org/agenda/2019/07/renewables-beat-coal-in-the-u-s-for-the-first-time-this-april/


Tversky, Amos and Daniel Kahneman. 1974. “Judgment under Uncertainty: Heuristics and Biases Biases in judgments reveal some heuristics of thinking under uncertainty”. Science, New Series, Vol. 185, No. 4157. (Sep. 27, 1974), pp. 1124-1131

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