It’s simple and obvious – the less something costs the consumer, the more likely people are to buy it.
“At the end of the day, if it’s not economical, people won’t do it,” said Lux Research analyst Matt Feinstein. “That’s the bottom line. Cost is what’s really important.”
Feinstein took a step back to look at distributed power generation, a decidedly young enterprise with tremendous growth potential. He wanted to see what it would take to increase sales and pervasiveness. He looked at different distributed generation technologies, including solar, on three building types in 18 different geographies and found only 245 combinations of the 1,824 he evaluated had a payback period of 10 years or less.
That payback period will be a key determinate in technology adoption and there are several factors that can impact payback period from power prices to government incentives. But the best is a capital expenditure reduction.
Feinstein said solar and biomass have a lot of promise.
“The price free-fall in solar should provide optimism for potential adopters that ongoing technical advances will lead to positive economics,” he said.
“They can really, really make solar attractive if they can find technological advances that will bring costs down,” he said.
He tested market sensitivity to different factors. The economics for renewable energy adoption increased with a tax of $100 per metric ton on carbon emissions. But a tax that high is unlikely, though there have been discussions in congress, Feinstein said.
Payback periods also dropped drastically when Feinstein factored in electricity cost increases of 50 percent. But increases like that are also unlikely given the glut of natural gas today.
“A 50 percent capital expenditure reduction is where you really start to see an impact on the payback period,” he said. “That internal cost reduction is the way to go.”