Leasing the Sun

November 29, 2006

An interview with Jigar Shah, CEO, SunEdison

SunEdison was founded with the goal of making solar power accessible and affordable for businesses.  It has done just that.

Traditionally, an investment in solar energy was complex, requiring a company to acquire new skills and make significant capital investments with uncertain returns.  For solar marketers, such deals – with so many inherent barriers to overcome – are complex to message, let alone to explain.  Quite simply, how can companies be convinced to invest in solar energy when such an investment is not core to their business? 

SunEdison pioneered a way that makes it possible.  Through its model, SunEdison finances, installs and maintains solar cells for businesses in exchange for a long-term commitment to purchase the energy at a competitive rate.  For SunEdison, such installations break even in 7-10 years, and provide a low risk annuity for the company and its investors thereafter.  

Recently, Marketing Green caught up with Jigar Shah, SunEdison’s Founder and CEO.  Here is what he had to say: 

MG: You are considered by most to be the pioneer of the “solar energy services” model. When SunEdison launched this model, it represented a clear shift in the way solar energy was financed and marketed. What was the impetus for the change? How has this model evolved over time? How successful has it been?

JS: Deploying solar has always been complex. It still is. For many years there were significant disincentives that deterred commercial, government and utility customers from turning to solar energy. No one could justify the upfront capital outlays or the lengthy periods required to recognize a return on investment, and no one wanted to manage the complex transactions.

So that was the impetus: By moving from a manufacturing-based product model to a turn-key services model, SunEdison was able to absorb the upfront costs of building a solar system at the customer premise. Most important, we have simplified the entire process for the customer.

The model is evolving. We’re becoming more refined and looking at our solar services model in terms of a complete service. For example, while our primary offer is renewable power services, we also offer complementary services such as power usage monitoring for internal recordkeeping. We expect to continue to evolve in that direction because the services model has been very successful. It’s has been adopted by high profile users such as Xcel Energy, the State of California and Staples.

MG: What is SunEdison’s brand promise?  How does your company fulfill on this promise each day?

JS: Our brand promise is that we simplify solar and deliver predictable pricing of renewable energy services that meet our customers’ energy requirements at or below current retail utility rates.

At the end of the day, we sell electricity, not just solar equipment. Unlike a traditional product vendor, who might sell you an installation of solar panels and then walk away, we go in under the promise of selling the customer electricity that we generate at their facility. If we don’t generate it, they don’t pay for it. Because we own the solar energy systems, we have a strong, built-in check to maintain our brand with the customer. We only make money when our systems actually produce energy.

MG: Selling solar services must require a high touch sales process with along sales cycle. What role does marketing play throughout this process? What channels are used – both online and offline – and how are they leveraged? 

JS: It does indeed require a high touch sales process. That said, the sales cycles aren’t necessarily as long as you would expect. We’ve removed many of the barriers that would slow down other offers: financing, installation, maintenance, etc. For our customers, if it makes business sense the decision becomes a no-brainer. Solar is really becoming a mainstream component for commercial, government and utility entities. People are more comfortable with it. They see the opportunity costs of traditional solutions and there are coming to the point now of saying, “Why not solar?”

From a marketing standpoint, I’ve never been in a space where there was such pent up demand for a service as I’ve seen in this industry.

The real marketing challenge is how to position us relative to other vendors in the industry. For us, this is clear: We are a solar energy service provider. We’re the first and largest solar company to offer solar electricity as a service, so we’re in a pretty good spot in terms of differentiation.

Most of our customers come to us through references. We cover a lot of national accounts that provide good revenue and new development opportunities. Plus, we also pursue a lot of channels in government and the utilities sectors. We stay acutely aware of the government environment through extensive research – whether it be RFPs or other funding vehicles.

MG: What are the key factors that influence your customers’ decision-making process? Does the decision to sign a solar energy contract have more to do with the underlying ethos of their brand or is it simply based on cost-saving considerations? 

JS: First, none of them want to own a power plants – it’s just not core to their business. But they want solar power to lower energy costs through predictable pricing, and to improve the state of their environment. They want a solution with little or no disruption to their existing business. An example is Whole Foods. We offered a contract that locked in electricity rates for ten to twenty years. That removes volatility from their utility bills and provides a hedge against increasing rates in the electricity market. So that’s a strong business rationale. There is literally no other solution on the market where you can lock in part of your electric utility costs for that length of time.

So, it’s got to be cost-effective or people won’t make the decision. In addition, renewable energy provides a lot of supporting messages that ultimately are emotional triggers for decision makers, which helps them justify the proposition. Those supporting measures are everything from global warming to a keen desire, especially in the U.S., to break away from our current dependency on foreign oil.

MG: How will this model be scaled in the coming “solar decade?”  What are the key barriers in doing so? 

JS: From a scalability standpoint, the industry confronts a number of challenges. One is straight forward logistics; we’ve got to have trained and qualified installers – people who can install systems in such a way that they’ll last for 20 to 30 years – and second, we’ve got to have the supply chain built out sufficiently for the demand. Manufacturers are doing that now but we’re not there yet.

The third major challenge is that we’ve got to look at the industry in a broader sweep. Solar vendors have tended to look at their systems as isolated energy generation systems, but they’re really all inter-networked through the connectivity of the grid. There is a tremendous untapped network effect that’s not being accounted for by most players in the market. That is, the ability to monitor, control, and dispatch energy or shed load onto or from the public grid in a highly centralized manner from thousands of distributed energy assets. That will be incredibly valuable. Right now the industry lacks some key standards that will really enable that market and that function, but those standards are being worked on and as they evolve the effect will be knock down those barriers.

MG: Can this model be extended to the residential market?  If so, how will the way it’s marketed be different than it is today?

JS: It doesn’t really for work for our business model just yet. The economies of scale really don’t come into play when you’re dealing with thousands of small power plants at each home. Having said that, I think the right way to look at this is to recall the way in which the PC and the networked PC model evolved. What kind of computing power was available to the average homeowner in 1975? There were really no PC’s, and nobody was buying a mainframe or mini-computers for their home use. The switch really didn’t happen for another five to ten years. Broad scale adoption will probably happen in a similar manner in this market as well.


Climate Change in the UK Market – Part II: Consumer Tipping Point

November 18, 2006

Carbon Trust (CT) predicts that by 2010, the UK consumer market will have reached a tipping point: Purchase decisions will take into account climate change impact and how companies are actively addressing it.  Like all tipping points, the shift will be marked by abrupt and rapid change in consumer behavior with potentially significant consequences for corporate profitability and brand value (see Climate Change in the UK Market – Part I: “Brand Value at Risk”). 

According to CT, three factors must align for consumers to reach a tipping point on climate change.  Specifically, consumers must:

 

·         “Be concerned about climate change

·         Make the link between environmental issues and their daily actions, and

·         Modify their purchasing behavior to reflect their concerns about how companies are addressing the issue.”

 

CT offers analogies where similar tipping points have been reached on social and environmental issues: unleaded gasoline, dolphin-friendly tuna, and more recently, mass market organic foods.  Tipping points such as these occur when consumers “both want to, and can, take action”.  As such, there are two critical questions for today’s marketers to consider: Are similar dynamics in motion for climate change and, if so, when will they reach a tipping point?

 

If you were to make a prediction solely by examining the mindset of the average British consumer today, you would be hard pressed to conclude that a tipping point may be fast approaching.  While 67% of British consumers claim that they know “a great deal” or “a fair amount” about climate change, there is little evidence to suggest that a substantial number of consumers have made a clear link between their own actions and the environmental consequences. 

 

Nonetheless, CT identifies five factors in play that may accelerate these dynamics:

 

·         Personal experiences (e.g. draught, perceived temperature shifts) make the issue more relevant and “provoke the strongest reaction” from consumers

·         Exposure to media which enables consumers to better comprehend and “internalize” the message

·         Leadership by other countries provides a road map for others to follow

·         Supporting regulation which reinforces desired consumer behavior

·         Realistic and available substitutes enable consumers to make other choices without changing consumption patterns

 

While CT projects such factors will accelerate the onset of a tipping point by 2010 in the UK market, do similar dynamics exist in the US?  It could be argued that such dynamics may be emerging:

  • Though a more-mild-than-anticipated hurricane season defied forecasts this year, heat waves, droughts and continuing recovery from Katrina will keep the potential consequences of climate change fresh in consumers minds
  • Exposure to climate change issues is increasing, and is becoming more ingrained in our mass culture (keep an eye on An Inconvenient Truth at Oscar time).  This will only be reinforced next year as a massive awareness campaign spearheaded by Al Gore is set to launch in early spring.
  • Given the political climate in Washington, at least until this month, leadership on climate issues has emerged from states such as California or New York (both, incidentally, led by Republicans). These states have passed bills that cap carbon emissions or mandate use of renewable energy.
  • Substitutes are emerging: Green energy is becoming more cost competitive and hybrid vehicles are being rolled out in conventional styles.

While the US consumer market may still lag behind the markets in Europe and Japan, seeds continue to be planted that will inevitably move US consumers closer to the tipping point. Marketers should take note.


Climate Change in the UK Market – Part I: “Brand Value at Risk”

November 18, 2006

 

The Carbon Trust, a UK government-funded think tank, makes the case that many companies’ brand value – a key component of the market value measuring intangible assets – is at risk from climate change.  The logic is straightforward: UK consumers may be four years away from a tipping point (2010) whereby purchase decisions will be increasingly based on how a company addresses global warming issues (see Part II of this series).  At this point, brand value – the % of market value that is based on intangible assets including image/reputation, trust and perceived consumer experience – may erode. 

 

Carbon Trust (CT) forecasts suggest that diverse industries face the prospect of brand value erosion.

CT data suggests that companies with both high operational exposure (measured as the amount of CO2 emitted per $ of EBIDTA) and high % of total market value based on intangible assets are especially at risk of losing significant value.  This risk is compounded by the long lead times required to reduce operational exposure (e.g., airlines, oil & gas), as it will be difficult to change course quickly to mitigate lost market value by reducing carbon footprints and reshaping its brand image with consumers.

 

Somewhat surprisingly, industries such as food & beverages and banking have more market value at risk from climate change than the carbon-intensive airline and oil & gas industries.  While airlines may face the prospect of losing 50% of their market value due to climate change issues, it is projected that for banks, the absolute amount of the decline will be significantly higher.

 

For banks (and other low carbon emitting industries including telecommunications), the critical issue is not whether their own carbon levels will influence consumer purchase behavior – as “the absolute levels are not sufficient to influence mainstream customer choices”.  Instead, the issue is whether there are “material indirect effects that are within companies’ control or area of influence”.  Brand value, therefore, may rest on whether a company is viewed by consumers (and shareholders) as taking a ‘leadership’ role on climate change issues or as lagging behind its competitors.

 

For banks, material indirect effects may include its “investment and lending exposure” – especially if consumers view such investments as “irresponsible” given the potential ramifications from climate change.  Moreover, shareholders may view bank portfolios as increasingly risky if, for example, they include a high concentration of mortgages for properties located in flood-prone areas. 

 

CT estimates that for a bank, 17% of its market value is derived from its brand.  Of the 17%, CT estimates that 6-12% (or 1-2% of overall market value) is potentially at risk due to climate change.  Given bank valuations today, even a 1-2% erosion in value would result in a significant decline in market value for its shareholders.

 

The telecommunications industry faces similar risk based on indirect carbon use.  Examples include “computers left permanently on standby to support ‘always-on’ broadband, or mobile phone chargers left plugged in when not in use”.  While the industry may not face significant losses in market value from such issues (perhaps a 1% overall decline in market value), the situation may, conversely, provide a leadership opportunity that will help protect, or perhaps enhance, existing market value.

 

So, marketers and strategists should take note: a tipping point may be approaching which could put brand value at risk.  While dynamics in the US market may delay the arrival of this watershed event, its onset may be sudden and rapid and, thus, take companies by surprise.  It is interesting to note that many US companies are already preparing for this shift.  For example, Goldman Sachs has already committed itself to being carbon neutral while GE, which competes in more carbon-intensive industries, has purposefully repositioned itself as a more eco-friendly brand.  It may be prudent for more US companies to consider following suit.


Turning Advertising Publishers Green

November 16, 2006

An Interview with Rachael Ostrom, Director, Consumer Marketing and Advertising, Aveda 

Since its founding in 1978, Aveda (an Estée Lauder Company) has been leading the personal care product industry toward a more sustainable future. Sustainable practices not only guide its business practices but serve as inspiration for a “corporate culture that breeds personal responsibility, value-based decision-making, rigour and frugality.”

It is not surprising, then, that a company with such a religious adherence to sustainable principles is also committed to ensuring that its suppliers and partners do the same.  In doing so, Aveda has become an activist in the publishing industry, requiring that its advertising publishers adopt sustainable practices as the price of doing business.  Aveda not only wants to change the percentage of post-consumer recycled paper in the magazines where its ads are placed, but also wants its publishers to rethink their internal practices in order to lower their overall carbon footprint from their day-to-day activities.  Such an activist approach has facilitated real change in the industry, and sets Aveda apart from even its most eco-friendly competitors.

This week I had the opportunity to speak with Aveda’s Rachael Ostrom about the company’s sustainability initiatives in the advertising industry.  Here is what she had to say:

MG: Aveda strives to demonstrate that profitability and environmental responsibility are synergistic goals.  It has done this by making sustainability one of its core operating principles as a manufacturer, distributor and retailer of natural beauty products.  While this is commendable in its own right, it is fascinating that the company is able to project these goals on to its suppliers and partners – for example, by requiring advertising publishers to adopt similar goals. Why this commitment?

RO: It is one of the big things that makes Aveda different.  Aveda is tasked with doing so from the President on down – not only to improve the way we do business, but to “green” our partners as well.  

In 2003, we wrote an environmental media strategy which outlined gradual steps to begin working with advertising partners.  We primarily spend media in national magazines so we have focused on identifying ways to change their [environmental] impact – like printing on recycled paper or using post-consumer recycled office paper.  We have communicated our goals with them, shared best practices and told them what we wanted them to do.

In 2004, we developed a survey to assess how environmentally-friendly their practices were and to give our partners things to think about such as recycled paper, chlorine free paper, soy-based inks. 

MG: Were publications receptive to your survey?

RO: Most of the magazines completed the survey. 

MG: How were survey results leveraged for change?

RO: We developed standards based on two consumer media plans:  One for fashion and beauty-driven publications and one for environmentally-driven magazines.  We have different standards for each: for environmental publications, we require a minimum of 10% post recycled consumer paper for environmental publications.  This aligns with our consumer messaging in these publications that focuses on our sourcing practices and sustainability.

For fashion and beauty publications, one of the questions that we ask in the RFP process is what the percentage of post-consumer recycled paper is used.  This is a strong factor in our decision making processes [on whether to advertise in the publication or not].

MG: Have you seen real results?

RO: Yes. For example, since we started working, Shape magazine – one of our fashion and beauty magazines – made the switch to 30% post consumer recycled paper.  Natural Health was already doing so and Shape is its sister magazine.

MG: How does this reflect the core beliefs of your company and brand? 

RO: From a brand perspective, our initiatives are aligned with what we do.  It is similar to how we create the product and package it. 

MG: What are the expectations by your customers? Are they a driving source?

RO: Our guests [customers] expect this from us.  They want to feel good about what they purchase from us.  They are interested in the environment and it is important to them. 

This is not explicitly coming from our guests though.  We have not publicized this to them.  But, we make sure that we are telling these stories. 

MG: How can you expand compliance with your sustainable principles?

RO: Ideally, we will come up with choices [for publisher compliance].  We would love to look at the bigger picture footprint of publisher.  If it’s not recycled paper for one company, then look at cutting back other things or changing processes.

We have also started working with other [environmentally conscious product] companies – Patagonia, Timberland, Stonyfield Farms, Seventh Generation.  We have shared our survey with them.  All have agreed that [sustainability] is a very important topic and plan to bring it up in conversations [with advertising publishers].  But standards are not in place yet.

We have worked with Co-op America [a non-profit that focuses on economic strategies to solve social and environmental problems] to help facilitate these dialogues.  We have also printed a tool kit with them to share with other companies.

MG: Tell me about the Aveda Environmental Awards

RO: Aveda sponsors two Environmental Awards at the Folio:Show – a magazine industry show.  Two environmental awards [given annually to magazines that demonstrate environmental leadership] in two categories: one for magazines with circulation 250k or more and one for magazines with circulation less than 250k.  Natural Health and explore magazines won at the second annual event.

MG: Were you surprised by recent News Corp announcements regarding its commitment to reduce its carbon footprint?

RO: We were surprised on a couple of levels.  We did not think that it would be easy to open a dialogue with some magazines.  Some people get it right away, while other people you have to repeat the message many times.  It depends on the publisher.  It is more difficult with larger publishers.

MG: Are attitudes changing in the publication industry? If so, what are the primary drivers motivating this change?

RO: Environmental issues are becoming more mainstream.  We do not have to fight people to believe that global warming is real.  Not as much education is needed for people to see that it is happening.  Instead, people are focusing on steps to help solve the problem.


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