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How much would your customers pay to be "greener"

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Manuel Carmona's picture
CEO Edytraining Ltd.

Experienced business and project development professional with a keen interest in renewable energy,  project cost estimation, project investment appraisal and project risk modelling.

  • Member since 2022
  • 2 items added with 809 views
  • Oct 3, 2022
  • 360 views

When companies plan  whether to invest in a project to generate  their own renewable energy,  they typically  consider investment and expenses such as the initial capital outlay (CAPEX), operating expenses (OPEX) charges such as maintenance or repowering costs,  and cost cost of insurance among others.

Then  cash inflows are added to the financial plan such as  energy saving costs, subsidies,  rebates from FIT’s and income from energy delivered to the grid.   

These net cash inflows and outflows should be discounted to present value to obtain  a measure of project profitability. Positive NPV usually means the project should go ahead. 

Better still is to build a probabilistic model with an MsExcel add-on  to model variations in costs and prices, considering optimistic and pessimistic scenarios to obtain a probability distribution of NPV rather than a single deterministic value.
I think there are many companies that may not consider the time value of money and rely on simple undiscounted and deterministic  ROI calculations to make a Go- No-Go decision about a renewable energy project.
 
I think companies planning a wind or PV installation  on their premises could benefit from adding an additional line of income to their financial appraisal  models representing  the monetizable utility value obtained when generating their electricity from renewable sources.

This intangible utility value can be monetized,  because  generating energy from renewables has a commercial value for a company beyond the money savings in Kwh.

Today more customers are prepared to pay a price premium for a product or service purchased from a company with proven carbon neutral credentials. For example,  by offsetting their carbon footprint when they book flights. 

According to a UK ONS survey, three-quarters of adults in Great Britain worry about climate change.
https://lnkd.in/eWg_AaeJ
Anyone  considering a renewable energy project  in a manufacturing or industrial plant, for example,  should think about how much commercial value  they  can add to the products by using most of their  energy from renewable sources. 

Would your customers pay a price premium for your product if you use renewable energy to produce it?   If the answer is yes , the premium revenue estimated should be added as an income line in your calculations.

Discussions
Matt Chester's picture
Matt Chester on Oct 3, 2022

I'd love to see a breakdown of the actual numbers. Self-reporting surveys often show people say they are willing to pay more for premium renewable products, but how many of them actually 'opt-in' when given the possibility? I have a hunch there's a notable gap between those two numbers

Nevelyn Black's picture
Nevelyn Black on Oct 8, 2022

Will inflation overpower climate change concerns? According to a report by First Insight, nearly 90 percent of Gen X consumers said that they would be willing to spend an extra 10% or more for sustainable products, compared to just over 34 percent two years ago.  They are not alone.  Consumers across all generations—from Baby Boomers to Gen Z—are now willing to spend more for sustainable products.  Unfortunately, the same survey revealed that two-thirds of retailers believe that consumers will not pay more for sustainable products.  Including the value of renewable energy and plans for a sustainable product, business or space could encourage greater participation from all parties.  

Roger Levy's picture
Roger Levy on Oct 12, 2022

Actual utility experience confirms that retail customers will pay a small premium for renewable power.  However the utilities offering those option never clarified that those options also came with significant reliability problems.  So when you next ask your customers if they would pay a few more cents for solar/wind power also let them know that when they ‘turn on the light switch’ those lights may or may not come on.  Then ask again just how willing they are to pay more fore green power.

Manuel Carmona's picture
Thank Manuel for the Post!
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