Good work completing our first lesson dealing with solar economics! We have transitioned from the dense topics of spherical trigonometry, meteorology, and component modeling (Lessons 2, 3, and 4) into the driving forces for our clients to make the decision to adopt a solar energy conversion system. In this lesson, we learned that our clients are situated on the demand side of the energy economic framework, and consumers such as our clients are called utility maximizers.
We saw that there are two general motives to shift the value of any commodity from the perspective of a consumer: demand for a good and the cost of alternatives. Specifically, within the solar field, the three main drivers that affect the valuation of light are:
- Increased demand by clients seeking to avoid fuel costs (choosing an alternative to fuel);
- Technological advances that reduce materials costs and/or installation costs;
- Presence of incentives (often government incentives).
Each of these should make sense within the framework by Mankiw for microeconomic principles. We also observed how light can be put in the context of a mineral commodity, much like the USGS has done for geofuels. The solar resource as a reserve is a variable quantity depending upon the value of that resource in a given locale. As such, value and quantity are joint properties.
Also, the measured response (in the market) of how the quantity of demand is changed by the incremental change in the price is termed price elasticity of demand. The demand is considered elastic if a small change in price leads to people demanding more of the product. The demand is considered to be inelastic if a large change in price does not lead to people demanding more of the product.
Finally, we tied all of the economic forces and responses together with the Hypothesis of the Energy Constraint Response. There is historical evidence across many locales, in the USA and abroad, for solar adoption tied to fuel constraints. We can even consider the pressure of climate change as a new fuel constraint for society, leading to increased demand for solar energy resource units.
Reminder - Complete all of the Lesson 5 tasks!
You have reached the end of Lesson 5! Double-check the to-do list on the Lesson 5 Learning Outcomes page to make sure you have completed all of the activities listed there before you begin Lesson 6. (To access Lesson 6, use the link in the "Course Outline" menu.)