The key to saving the environment is not by building a better clean energy product, imposing mandates or even addressing a need, but by giving consumers what they want, Richard Kauffman, Chairman of the New York State Energy Research and Development Authority and Chairman of Energy and Finance for New York, said at a recent conference at Columbia University. Thus far, energy advocates have failed to do this.
“The simple fact is that most customers don’t seem to care enough,” Kauffman told his audience in a keynote address.
Prior to his current appointment in June 2013, Kauffman served as senior advisor to U.S. Department of Energy Secretary Steven Chu. His career spans the public and private sector, in both energy and finance.
Clean energy proponents need to learn from consumer marketers that focus on targeting different market segments and addressing specific consumer needs. But the proper way to achieve this, even for these companies, isn’t always clear-cut.
Kauffman related the tale of Febreze, a product invented by Procter & Gamble in 1996 to mask and eliminate odors. Febreze’s makers sought to solve a common problem for the increasing number of consumers who worked long hours and had little time to clean.
After the product debuted with an expensive branding and marketing campaign—that had obtained a positive response from a test group comprised of consumers who had no time for household cleaning—the product failed to gain a big following. Only after Procter & Gamble reached out to consumers actually purchasing the product was it able to realize it had not properly identified the product’s target market. The key group of consumers purchasing the product was women who spent a lot of time engaged in household cleaning; in fact, they loved to use Fabreze in a specific fashion: to freshen up a room once they finished cleaning it.
The company revamped its marketing campaign to target these women and Febreze turned into a huge success.
“The reason I’m telling you this is because it was more than a product need and a good product,” Kauffman said. “It was more [a matter of] trying to figure out what the trigger was to make customers buy.”
Clean energy can learn from Febreze’s initial flop and subsequent success by understanding customers’ wants and then tailoring products and campaigns to address them, Kauffman explained. The demand that follows will spur and encourage innovation in the private market. This will drive more effective products and efforts to get customers to adopt clean energy faster than government regulations and good-will campaigns imploring people to save the earth or to be green.
What is Wrong Now?
Promoting environmental programs that can cut pollution may resonate with most people. The sticking point is whether they are willing to pay for it. But basing people’s motivation to change solely on dollars and cents is also a faulty premise, Kauffman explained.
In New York State, for example, the average electricity bill? makes up about 2.5% of a household budget.
“We can do better, but [cost savings] is not going to move the needle,” he said.
He added that current programs and efforts to reduce emissions and to build and rebuild energy efficient infrastructure are moving at a snail’s pace. Seventy percent of the housing stock in New York State is more than 70 years old.
“At the current rate of programs that we have to provide incentives, it will take 550 years to retro-fit the housing stock in New York State,” Kauffman said, adding, “If we are going to build new infrastructure systems around people we need to figure out how to engage people.”
Applying the Febreze Model to Clean Energy
There has been low market penetration with green power purchasing, but solar is growing, Kauffman said. So what does this growth mean in targeting consumers?
“Well, it could mean that there are some categories of customers who seek independence or who want to stick it to the man,” Kauffman said. “Or maybe they want to be seen as virtuous and we can look at the Prius and its penetration relative to hybrids.”
Kauffman also pointed to how solar leasing has “revolutionized” the solar market. This could speak to customers motivated by affordable and easy ways to implement changes.
In addition to the independence and make-it-easy segments of the residential consumer market, there are commercial and industrial customers. This customer-base may prefer efforts that allow them to tell their children that they have been good stewards of the planet.
“Consumer marketing companies will tell you that there are dozens of segments,” Kauffman said. “The better we get at recognizing segments and designing solutions for each, the better and faster we’re going to have market adoption.”
Fast Road to Clean Energy – Focus on Markets
Imposing rules to achieve clean energy at a fast enough pace will not work, Kauffman said. Removing market barriers will encourage innovators to act. It’s also about leveraging better the money that state authorities collect for renewable energy and efficiency programs.
“We want to see if we can get more leverage on the money, and how we can use grants as a bridge to animate markets,” he said.
Funds can be used to capitalize a green bank that can finance “market gaps so we can get leverage from the private sector financiers,” he said. Once industry achieves volume and scale, then they will no longer be reliant on further support from the state, he said.
“What we need to do is set some broad rules and market signals” and try to remove the regulatory barriers, Kauffman said. “Let market actors work as best as they can [and] in order to do that, we hope to engage with the private sector better than we have.”
What is New York State Doing?
New York State is demonstrating a leading role on how government can facilitate innovation among the private sector.
Under Gov. Andrew Cuomo the state opened the New York Green Bank. The bank will complement private sector investments in clean technology initiatives such as renewable energy, energy efficiency and other low-carbon technology projects.
The Green Bank initiative was introduced January 2013 with the dual goal of increasing lending for green projects while cutting the need for government subsidies in the long run.
The New York Green Bank’s mission is to remove market barriers to private sector clean energy financing and encourage innovation, such as for small solar and energy efficiency projects where there is currently no financing available, said Kauffman. He points out that regulatory uncertainty is a key barrier to private institutions lending to clean energy projects now.
New York’s goal is to raise a total of $1 billion for the New York Green Bank. However, it was initially funded with $210 million, which was announced on Dec. 19.
Partnering with private institutions, the Green Bank announced that it started offering its first financial products on Feb. 11, which include credit enhancement, loan loss reserves and loan bundling to support securitization and build secondary markets.
NYSERDA’s $24.3 Million Energy Efficiency Bonds
Last August, New York State issued bonds to finance loans for consumers to pay for residential energy efficiency improvements. The issuing agency is the New York State Energy Research and Development Authority (NYSERDA), and it raised $24.3 million in the bonds’ first issuance. The AAA/Aaa-rated bonds are backed by a guarantee from the New York State Environmental Facilities Corporation.
The issuance won the “Deal of the Year for Small Issuer Financing,” by The Bond Buyer, a fixed-income industry trade publication.
New York Takes Lead In Solar
Another Cuomo-led effort, the NY-Sun Initiative, has helped propel the state to 10th in the nation for installed solar power last year. Much of that growth came from a big drop in solar installation costs, at least 40%, going back to 2008. But since 2011, the NY-Sun Initiative has helped lead to the installation of more customer-sited solar photovolaitics than during the previous 10 years.
In his State of the State address last January, Cuomo committed $1 billion to extend the program throughout the next decade. The goal is to install 3,000 megawatts of solar across the state, enough to power 465,000 homes. That power also would wipe out 2.3 million tons of greenhouse gas emissions every year and spur more than 13,000 jobs in the solar industry.
Additionally, in December, Cuomo announced $30 million in funding has been made available under the NY-Sun Competitive Photovoltaic (PV) Program to encourage large-scale solar and biogas projects in the Hudson Valley and New York City.
Grid Modernization
Governor Cuomo this month announced that $4.3 million will be awarded to researchers to develop smart grid technologies. These technologies are intended to make New York State’s electric grid stronger and more efficient.
“These technologically advanced projects will further the state’s effort to modernize the electric grid and reduce the cost of delivering power in New York State,” said Richard Kauffman. “By fostering innovative smart grid projects today, the state will help New Yorkers meet the energy and resiliency needs of tomorrow.”