Standing your ground in support of an objective, unbiased analysis is always in the best interest of the client as long as the methodology practiced for the survey effort is consistent, the survey questions appropriate and focused on quantitative results and you remain aware of and factor in, the potential for error in the available primary data.
The practice of classic market research teaches you that by-in-large people over inflate their own opinion even to the degree of ignoring data that would tend to contradict that opinion.
Pressure applied by clients to support the client’s desired outcome can result in analyses and conclusions that serve no positive value to the client and often do harm by confirming risky decisions.
The analyst must work to eliminate his/her own bias as well as the bias of the client, though the latter is difficult, and should in all cases refrain from supporting the optimistic outcome.
As an industry we spend significant time and effort and rare $ fighting to keep incentives, all of which are developed by Governments with little understanding of the true costs of developing and deploying solar, and few of which actually help develop a healthy, thriving industry. The push/pull environment of these incentives (all of which are designed to time out) has increased the flight or fight response among industry participants and stakeholders, a cycle that is very hard to break out of.
What we need is public education (the system on your neighbors roof feeds electricity into the grid for EVERYONE), strong net metering that helps us move into a 70% renewable generation future, a carbon tax, a near term requirement for utilities to upgrade transmission and that calls for more use of RE, and an end to direct and indirect subsidies for fossil fuels as well as rewards for conservation.
Right size the energy demand and allow the true price of energy to be revealed and PV (as well as other RE) is immediately competitive.
Markets have fragile ecosystems and, just as in nature, artificial interference can upset the balance and bring fundamental damage to the ecosystem’s structure and the relationships within it.
When governments tinker with an industry’s delicate balance, particularly industry’s with many substitutes and where the most significant competitor enjoys deep direct and indirect substitutes, the outcome will eventually be a virtual jihad of market disorder. The market in Europe for solar installations, primarily PV, provides just such an example.
The feed in tariff incentive model that began so successfully in Germany was an orderly and carefully scripted incentive and the expectation was that the market would have an orderly response to it. Costs were expected to decrease, demand would be stimulated and a robust demand and supply side industry would grow up around the incentive as it gracefully decreased overtime.
Yes, a robust market was stimulated followed by a crash in prices because of an aggressive pricing strategy that almost wiped out Europe’s manufacturing base similar to the importation of the cane toad into various regions to control the population of other invasive species (as well as noninvasive species) but which eats everything in its path, invasive or not; the Water Hyacinth, a beautiful plant imported to the US from Latin America as decorative ground cover but which takes over the landscape in which it is planted obscuring the sun and crowding out other plant life, and many other examples of the unexpected consequences of tinkering with an ecosystem.
Germany’s FiT was rapidly emulated by other countries in Europe, most of which had far less robust economies. The FiTs rapidly stimulated huge and difficult to support markets. These markets were essentially overrun, much as the rivers and lakes in the US were overrun by the importation of the Asian Carp, a species that breeds fast and grows up to be a very large fish that threatens the other fish in the ecosystem.
The overstimulated markets created a demand side ecosystem (installers and system integrators) that was appropriate to the fast growth, but severely outsized for the correction that followed. Meanwhile, imports dominated the market for photovoltaic modules in Europe, crowding out domestic manufacturers.
Governments in the European FiT countries struggled to put on the breaks. In nature, typically when one imported species does its job and then begins creating havoc, another imported species is brought in to clean up the problem after which it becomes the new problem.
The governments in Europe implemented rapid degressions of FiT rates, retroactive changes to control payouts and still the market grew. At one point Europe had >80% share of global demand. In 2013, its share will be between 15% and 23% of global demand, give or take a decimal point.
The governments in Europe did not foresee either the overstimulation of the market (and how difficult it would be to control this), the destruction to domestic manufacturing by imported products, and the devastation of the robust domestic demand side participants (installers, system integrators) when drastic measures were put in place to control the market.
When you include price fixing (setting of prices on technology imported from China) you further strain the potential of the market to stabilize and recover as well as applying pressure to demand side participants who, at this juncture, are simply struggling to survive.
And this is what happens when governments tinker with markets that are fragile due to lack of stable incentives, competition with subsidized conventional energy, have little to no control over their price function and for which a massive change of consumer behavior is required.
The current situation is painful to observe and more painful to participate in. The solar industry must adjust to a low incentive environment where tender bidding is the preferred format for setting rates. New FiTs are on the horizon in some countries and the solar industry should take time before enthusiastically embracing these new incentives to consider the example of Europe. Unfortunately, the after effects of government intervention will happen again – at least when it comes to solar and other renewable technologies.
Conventional energy, preferred by the majority of utilities, continues and likely will continue to receive indirect and direct support. The conventional energy industry (natural gas, oil, coal) would put up a mighty fight to keep these supports in place and if these supports were taken away the true financial cost of the electricity would be immediately apparent and then there might well be true grid parity.
Painful as it may be to learn to operate in the current environment it is better than continuing to rely on the vagaries of government decisions. There really is no time to wait – environmentally humans and the conventional energy technologies used to power progress are the most invasive species on earth. Renewables (particularly solar) are the solution to the damage that has been done and continues to be done.
Market researchers should be naturally curious as well as born noticers, observers, filers and compilers with enough patience to sit back, observe the gathered catalog of primary data and understand its meaning as if reading a novel. The data should not only speak, it should sing.
In market research practice, the process is more important than the outcome. A focus on the outcome will almost all of the time lead to skewed results.
Working to prove that a client’s market outlook and strategy are correct, that is, coming to the client’s conclusion, will almost all of the time lead to skewed results thereby failing the client. The point is to provide clients with objective, independent analysis without fear of losing follow on business. Saving a client money and time is as worthwhile a result as identifying the potential for increased income.
An object lesson is a concrete example of a negative outcome and though sometimes overused, is almost always worth paying attention to.
When governments tinker with markets the end result depends on more than the specific market, it depends on the level of support provided to competitors and other actors important to the industry as well as the economic climate and the approval or disapproval of potential customers. When support is added the level of generosity of this support can accelerate the market to an unsupportable level and invite actors whose self-interest is counter that of the market. When support is removed, be it abruptly or slowly, this removal can accelerate the market abruptly, leading eventually to a crash. When controlling, retroactive measures are put in place, stability is almost never restored and participants are punished. When punitive measures such as price setting and taxes are imposed it can complete the destruction of the market’s fragile ecosystem.
The most telling comment that can be made about the market in Europe in 2013 is to recall the region’s historical demand shares: In 2004, Europe had a 45% share of global demand. BY 2006 Europe’s share of global demand had increased to 55%. In 2007, Europe’s share of demand was 71%, in 2009 83% and in 2013 Europe’s expected share of the global market for photovoltaic installations is 23%.
Though the global PV industry is healthier with a diversified portfolio of markets, none of these markets are as easy to traverse as the early European Feed in Tariff markets, nor are these new markets necessarily profitable. Rapid and often retroactive changes to feed in tariff programs in Europe have left installers, distributors and other PV industry participants in Europe unprepared and struggling. The current price setting agreement between the EU and China has not righted the situation for Europe’s cell and module manufacturers, and it has strained the resources of demand side participants.
During the 2004 through 2011 time frame accelerated growth into this region was driven by the feed in tariff incentive. Originally, this incentive, which was pioneered by Germany, was a transparent mechanism with efficient rules regarding interconnection and easy permitting. The German FiT was an orderly market instrument. Unfortunately, as the incentive spread among other European countries transparency and efficiency gave way to overly generous tariffs that encouraged speculation and led to over stimulated markets, broken rules, poorly installed systems and the development and deployment of less than robust technology. To be blunt, the generous FiT landscape did not bring out the best in new entrants, nor did it often stimulate the best behavior in long time participants.
In the period before the global recession banks and other investors did not require performance guarantees with the result, again of poorly designed systems and poorly assembled module product. Countries in Europe with FiTs underwent abrupt changes to the rules and the tariff rates. These abrupt changes shook investor confidence and drove down IRRs, specifically, with retroactive changes returns that were assumed to be stable abruptly became unstable. For example, a retroactive tax established in the Czech Republic led to a market crash with no expectations for recovery, while changes to the amount of electricity that would be reimbursed in Spain (as well as other countries) along with the abrupt cessation of that country’s incentive in 2011 has shown clearly that the feed in tariff is an unreliable instrument – as are all artificial market supports.
The global PV (solar in general) industry competes against heavily subsidized conventional energy that is delivered in some regions at the cost (or below the cost) of production. The supports that conventional energy enjoys are deep, historic and multi-faceted it. The supports that solar has received were temporary. These supports when applied to an industry with so many constraints and a well-supported competitor did nothing to encourage the industry to prepare for the time when a low incentive environment would return. Nor did punitive measures, particularly those applied after the fact, heal the wounds of government interference.
The fact is that the global health of the climate and the health of current and future generations require a switch to renewables and away from polluting sources of energy. At the very least a level playing field – removing supports for conventional energy (including fracking) would let the participants battle it out somewhere in the vicinity of fairly.
At its heart and soul, market research is about measuring (counting) to establish trends — or, as I prefer to think of it, to understand the beating heart of the industry, product, etc, that you are studying.
There are three basic criteria for good measurement:
1. Reliability: The degree to which measures are free from random error and thus yield consistent results.
2. Validity: The ability of a scale (a series into which an item can be placed according to its quantification) to measure what was intended to be measured
3. Sensitivity: A measurement instrument’s ability to accurately measure variability in stimuli or responses
Basically … quantify before you qualify.
Many a demand/supply PV industry participant has met their Waterloo/Alamo – choose your dramatic historical analogy – on the issue of pricing strategy. During this ten year period ASPs declined by a compound annual rate of -12%, with demand increasing by CAGR of 48%. Compound annual growth and decline rates smooth over the natural bumpiness in a market; for example, in 2006 over 2005, ASPs increased by 12% and increased by 3% in 2007 over 2006 before beginning several years of often dramatic decreases. The price/demand crossover point was ~2009, the equilibrium price for modules (theoretically the point at which seller and buyer maximize value) would have been ~$1.50 — the market price was about a nickel lower than the assumed equilibrium price. Of course, there is theory, and there is the real market. The real market will almost never behave according to theory, thus spawning many new theories.
Aggressive pricing for market share has come and gone in the PV industry since its inception. Traditionally, buyers of PV cells and modules have had the most control over the price function. This is because sales of PV systems, particularly into the grid connected application, have relied close to 100% on government and utility demonstration projects and on incentives – that is, demand was ‘push’ not ‘pull’ market.
During the early days of the feed in tariff in Europe (which coincided with a shortage of polysilicon) demand pull was artificially created by the profitable FiT instrument. Manufacturers of cells and modules were then able to charge a premium. Unfortunately, this also coincided with a disastrous period of aggressive pricing as well as capacity building. Currently, with buyer expectations set as to price (meaning low prices for modules and for systems), the best the industry can hope for on the cell and module side of the supply/demand equation, is stability – that is, for prices to settle and stay flat until cost improvements can catch up.
Supply: One day you’re on top and One day you are not
As any PV manufacturer of cells and modules knows, even costs are not 100% controllable, so, the cost curve is also bumpy though less bumpy than the price curve. Costs for inputs, including consumables, increase and decrease given market dynamics; and currency adjustments for global buyers and sellers can be, well, difficult.
One method of lowering costs that has a historical (though not necessarily successful) basis, is to attempt to leapfrog over the traditional time (years and years and years) from R&D through pilot scale to commercial production by developing champion (or lab) cell technology on commercial manufacturing lines. Typically manufacturers discover that instant gratification in PV manufacturing is almost always (leaving room for miracles) unachievable. However, cost reduction is a vital and necessary manufacturing function – in PV, higher efficiency and lower cost are twin goals. Quality is a goal that should never be shortchanged for demand and supply side participants.
As with the top ten lists of manufacturers, overtime, regionals shifts are common. The US was the shipment leader in 1997, Japan the shipment leader from 1999 through 2006 and Europe the shipment leader in 2007 and 2008. Manufacturers in China have dominated shipments since 2009. It is worth noting that despite regional dominance, PV manufacturers have traditionally battled constrained margins. Currently margins for c-Si manufacturers are less constrained because raw material prices (polysilicon) are low — this is not a miraculous recovery, it is simply the availability of lower cost raw materials.
Demand, Off Grid, Grid Connected and Regional shifts
It has not been easy for the demand side of the PV industry to maintain healthy margins or regional dominance. Europe dominated demand from 2004 through 2012. Despite dominating demand, Europe’s manufacturers only enjoyed two years of a controlling market share.
A significant demand side presence (installers, system integrators, distributors) grew up in Europe along with the FiT-driven demand. At one point Europe accounted for over 80% of all global demand. As the FiTs have declined, disappeared and changed (often retroactively), both demand and supply side participant have been forced to seek new markets for PV modules and systems. These new markets are less profitable, nor are they easy to penetrate.
Currently, and likely for the long term, PPA, tender and tariff rates are set by bid. Bidding in a vehicle that, other than art auctions and the like, tends to hold prices and margins down (low bidders may lose, but so will high bidders and the mid-range is not always the winner). PV industry participants had several years to develop new markets, however, a tantalizingly (albeit briefly) profitable FiT market was difficult to ignore and it was hard for many to justify expending effort on developing emerging markets
And now …
The PV industry has successfully commoditized its product and is now maturing business models that will, hopefully, allow for more reasonable and sustainable margins. The lease model is one that, in its various iterations, is being pursued by solar firms as well as investors. Third party ownership, however, is unlikely to be a panacea for everything that ails – and has historically ailed – the PV industry. Vertical integration (typically, manufacturing owning a system business) will also not ameliorate decades worth of strategic missteps. Neither vertical integration nor leasing is new to solar. These strategic tools have been in the industry toolbox for decades. So has educating the system buyer as to the true value of independence from utility rate volatility. Now that margin recovery APPEARS (note that this is in caps) to be returning, it’s time for a long term strategy to refocus and plan for the future.
The first job of a market researcher is to eliminate bias. This is very difficult to do and requires rigor and consistency in methodology.
Examples of bias include:
Random Sampling Error: A statistical fluctuation that occurs because of chance variations in the elements selected for the sample.
Systematic Error: Error resulting from some imperfect aspect of the research design that causes respondent error or from a mistake in the execution of the research.
Sample Bias: A persistent tendency for the results of a sample to deviate in one direction from the true value of the population parameter.
Respondent Error: A classification of sample biases resulting from some respondent action or inaction such as nonresponse or response bias. (Qualitative questions on a survey are prone to this error).
Nonresponse Error: The statistical differences between a survey that includes only those who responded and a perfect survey that would also include those who failed to respond. (It is crucial to include the effect of nonresponse)
Self Selection Bias: A bias that occurs because people who feel strongly about a subject are more likely to respond than people who feel indifferent about it. (This is the primary problem with focus groups).
Response Bias: A bias that occurs when respondents tend to answer questions in a certain direction that consciously or unconsciously misrepresents truth. (This is why a variety and a lot of quantitative questions should be asked).
Other biases include:
Acquiescence bias, Extremity bias, interviewer bias, auspices bias, social desirability bias
Bias is always the enemy in market research.
In his satire, Network, Paddy Chayefsky gave the following lines to his character Howard Beale: (shouting) “Edward George Ruddy died today! Edward George Ruddy was the Chairman of the Board of the Union Broadcasting Systems, and he died at 11:00 o’clock this morning of a heart condition, and woe is us! We’re in a lot of trouble!”
In honor of the NCPV hotline: “The NCPV Hotline died on August 16! The NCPV Hotline provided a quick, unambiguous and unbiased link to its followers to solar industry news and it died on August 16 and woe is us! We’re in a lot of trouble!”
Well not really trouble, but a valuable and eminently simple tool for industry participants to keep abreast of the myriad and often whacky goings on of the fragmented and PR laden solar industry is gone. It may be replaced by a commercial entity – if so, it will not be the same.
Readers have checked into the NCPV hotline since its inception in September 1999. Jack Stone, the father of the hotline said about it: “We’re not looking to replace any of the excellent PV newsletters and magazines-our niche is in rapidly communicating the latest PV news to PV specialists around the world.” As NREL put it in another newsletter published in 2000, “If you were a subscriber to the National Center for Photovoltaics (NCPV) Hotline, you’d know a lot. And you’d know it instantly, as soon as the news is available.”
Jack Stone passed away on May 9, 2003, but he had already passed the reigns to Carol Riordan. Carol more than ably kept the worldwide solar community informed and updated with the ever timely hotline.
When asked, a former Hotline reader had this to say about the demise of the hotline: “It was my first introduction to the solar industry, it was crisp and clean, basic and informative – it was an elegant way to aggregate content without judgment.”
Unfortunately, the hotline fell victim to budget pressures. It will be missed.
paulamspv 