Why Solar Needs Snowden

edward-snowden

So before this turns into a debate about patriot vs. traitor let’s just say that he was someone who exposed information that only a few people knew.

So why does this matter for solar? Because of an economic principle called quality uncertainty. This was first publicized in a Nobel Prize winning paper called

“The Market for Lemons: Quality Uncertainty and the Market Mechanism”, written by George Ackerlof.

In this famous paper he discussed information asymmetry, which is a situation where the seller knows much more than the buyer.

This creates an imbalance of power in transactions which can cause the transactions to go awry, a kind of market failure.

It is this issue that gave rise to the phrase “Buyer Beware”

“The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”- George Akerlof.

A recent GTM  article highlights a recent example of this. These issues are few and far between and represent   The Tragedy of the Exception in which one bad apple can spoil the bunch.  (Not to be confused with  Tragedy of the Commons which those of us in sustainability normally worry about).

 

The implication for solar is clear. Solar projects, at all stages have a degree of complexity that the average buyer most likely does not understand. There are all sorts of ways to play on information asymmetry in this market. And it doesn’t only apply to the end customer. It can apply to equipment manufacturers, financiers, developers and installers.

How good is the panel?  How much are the transaction fees for this deal? Can you really install for that price or are there a bunch of change orders right around the corner? Are we really going to be able to find an off-taker for those SREC’s? Is the production estimate done by industry best practices? These are all cases where information asymmetry can become an issue.

And as Akerlof makes clear this is not only a problem on the individual transactions, it becomes a market problem. If you can’t tell who is above board then every transaction becomes riskier. In this case bad actors can drive good actors out of the market.

So back to the provocative headline…The more that we educate every level of participants in the solar market and the more transparent we make the buying process the stronger the marker becomes as a whole.

I’m glad to see things like Mercatus Single Point of Truth, TruSolar’s uniform credit screening, Energy Sage’s consumer research and Principal Solar Institute’s PSI ratings. These can all serve useful purposes,  in the same way the used car industry has Kelly Blue Book, Edmunds.com and Carfax these are all ways to decrease information asymmetry.

We will spend more time in the future on some of the services listed above as well as how individual players can reduce their exposure to information asymmetry.

Original Article on Tipping Point Renewable Energy





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