Between Vanity and Commodity

Monday, September 3, 2012

    

Between vanity and commodity lies opportunities for innovations in solar power, if we can only get there.

 
The fate of California's Community Shared Solar bill, SB843, or "community net metering,"  died in the Assembly Committee on Utilities and Commerce on Friday, due to last-minute lobbying by PG&E and Southern California Edison. A moment of silence is due for what might have been one of the most significant opportunities in advancing solar power.

SB843 would have allowed you to participate, whether through a subscription or fractional ownership, in community-scale solar projects. In other words, if you wanted to pursue solar power, your choices would no longer be limited to (a) investing in (or leasing) solar panels for your rooftop or (b) taking out federally-subsidized loans totalling hundreds of millions of dollars to build utility-scale solar plants in the high desert.

A lot of the talk was around how this bill benefited consumers, the economy, and the state's renewable energy goals. Schools, churches and other organizations would have been able to sell shares, or subscriptions, to their communities and congregations and gain operating revenue (or at least reduced energy costs) by putting solar panels on their land, parking lots, or rooftops.

All good, but there was an additional and far more important benefit at stake. The bill would have freed the technology from having to operate at the margins of the market, where it was neither efficient nor effective, and instead allow us to find where it could provide the most value. To understand why this is so important, consider two things we know about emerging technologies.

First, any new technology has a sweet spot. A place where the particulars of the solution (e.g., cost and performance) best matches the particulars of the problem (customer needs, market size) and profitable businesses can emerge - attracting yet more entrepreneurs, innovators, and investors into the field.

The first computers were vacuum-tubed behemoths that were expensive, required constant care, and only performed relatively straightforward calculations. Initially, they were only valuable for large companies (and government operations) that could afford to buy and maintain them, and that needed to process reams of relatively simple calculations.

Similarly, the first transistors were expensive and relatively poor replacements for vacuum tubes, but consumed less power and could withstand considerably more heat and vibration. The ideal initial markets? Guidance systems in missiles, then portable consumer radios.

The first electric lights worked well in small circuits, yet required either battteries or their own steam engine and dynamo. The first markets were public areas, like the Brooklyn Bridge and New York's Central Park, or relatively self-contained place like ships, hotels, and office buildings.

The second thing we know about emerging technologies is that the vast majority of their performance improvements follow rather than spark their initial market adoption. We know what happened to the computer and the transistor. Electric lighting had been around, yet barely changed for nearly 50 years before Edison opened his Pearl Street Station in 1882. Once Edison proved a profitable business could be built by tweaking the technology to fit a larger market opportunity, dramatic innovations followed quickly.

The next decade brought alternating current (for transmission and use) and new steam turbines (for generation), and more kept coming. All told, while the basic structure of electric lighting - from generation to transmission to lighting - has barely changed in the past century, electric lights are about 100 times more efficient and, on a cost-per-lumen basis roughly 4,700 times cheaper now than in 1900. That's because, while the basic structure of electric lighting has barely changed, countless improvements in how each element of the system works, and works together, have combined to produce enormous gains.

So if we want solar power, we need to find its first foothold in the market, where it can be commercially viable without subsidies and other transient policy supports. That's difficult while 100 year-old legislation - and intense lobbying by incumbents - prevents new businesses from pursuing the vast middle ground between rooftop solar (up to 5 kilowatts) and utility scale (50 megawatts and up), a market large enough to attract investors (like communities and congregations) to individual ventures, yet small enough to encourage many ventures to enter and experiment.

Certainly, the devil is in the details and there are many still to be resolved, not the least of which is ensuring that these community solar projects don't benefit at the direct cost of other customers (who must pay to maintain the infrastructure that these community ventures rely on). But these can and must be fixed.

When it comes to innovation, betting on solar power will have little effect if we continue to restrict it to the vanity markets, where rooftop solar competes with kitchen remodels, or the commodity markets, where utility-scale projects compete with natural gas plants. Only by opening up the space in between will we open up the real opportunities for innovation.

 

 
 
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AndrewHargadonAndrew Hargadon is the Charles J. Soderquist Chair in Entrepreneurship and Professor of Technology Management at the Graduate School of Management at University of California, Davis. Hargadon's research focuses on the effective management of innovation, particularly sustainable innovation, and he is author of numerous articles, essays, and the book How Breakthroughs Happen: The Surprising Truth About How Companies Innovate (Harvard Business School Press).

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