Daniel Rye devel­ops renew­able energy microgrids for remote applic­a­tions, includ­ing at hotels and resorts. In this “GT” Insight, Daniel dis­cusses the psy­cho­logy behind com­mon objec­tions decision makers have against an increas­ingly effi­cient and eco­nom­ic­al energy option.

Renew­able energy is here. By empir­ic­al met­rics this is undeni­able. For example, 2015 was the first year that saw renew­ables account for the major­ity of incre­ment­al glob­al power gen­er­a­tion capa­city — 134 GW, mak­ing up 53.6% of the total (new capa­city). And that doesn’t even include hydro power.

In the sev­en years that I’ve spent devel­op­ing renew­able energy (RE) pro­jects in Asia, a lot has changed. RE used to be a ‘nice to have’ where the early adop­ters chose to ignore the shaky busi­ness case — and the oppor­tun­ist solu­tion pro­viders — in exchange for doing the right thing. Today it’s an entirely dif­fer­ent land­scape where the busi­ness case is almost always a ‘no-brain­er’ and the tech­no­logy and solu­tions are mature and well under­stood.

With my cur­rent work at Can­opy Power in Singa­pore, I help devel­op and imple­ment renew­able energy microgrids for busi­nesses and com­munit­ies loc­ated in remote loc­a­tions across South­east Asia. These places tra­di­tion­ally rely on dies­el gen­er­a­tion or a poor-qual­ity grid for their elec­tri­city.

A microgrid is an autonom­ous power sys­tem that integ­rates mul­tiple renew­able energy (RE) sources with bat­ter­ies and tra­di­tion­al power sources. Image source: Daniel Rye

Inter­est­ingly, hos­pit­al­ity forms the vast major­ity of our pro­ject cli­ent base. So why are resorts appar­ently adopt­ing RE more than any oth­er remote industry?

Busi­ness is boom­ing and the industry is grow­ing rap­idly. These cli­ents are about as likely as any to be able to afford invest­ment in renew­able energy infra­struc­ture.

Trans­ition­ing to eco-resort status or gain­ing green cre­den­tials can jus­ti­fy an increase in room rates, enabling top-line growth. Oth­er indus­tries do not have this pos­it­ive feed­back mech­an­ism.

The industry seem­ingly has a con­science about its impact on the world. It is a large con­trib­ut­or to glob­al car­bon emis­sions but is self-reflect­ive enough to real­ise it and do some­thing about it — as evid­enced by the incred­ibly aggress­ive car­bon emis­sion tar­get it has set itself.

Per­haps this is not entirely altru­ist­ic, giv­en hos­pit­al­ity often relies heav­ily on things like islands not sink­ing, air being breath­able, and pristine envir­on­ments being pre­served.

So, des­pite a clear busi­ness case, and hos­pit­al­ity hav­ing intrins­ic incent­ives, the rate of adop­tion is still at a snail’s pace. Is this a mys­tery or is it entirely pre­dict­able based on human psy­cho­logy?

War­ren Buffet’s right-hand man, Charlie Mun­ger, framed 25 tend­en­cies of human mis­judge­ment in rela­tion to invest­ment decisions. When I stumbled upon this work, some of these tend­en­cies res­on­ated with what I have exper­i­enced while devel­op­ing renew­able energy pro­jects. I decided it’s time to high­light them and try to com­bat them head-on.

Here I ana­lyse what I con­sider the five most power­ful tend­en­cies that I encounter and how they can be ration­al­ised:

The Liking / Loving Tendency

“We ignore the faults of people, products or com­pan­ies that we admire.”

Our elec­tri­city sup­ply enables so much con­veni­ence. It also brings to life much of what we find inter­est­ing while power­ing the growth of our busi­nesses. Ima­gine our life without it. It would be dev­ast­at­ing. While we might con­sciously com­plain about some aspects, be it the monthly bills or the con­stant noise, at the sub-con­scious, we are in love.

What are we in love with exactly? The product or the means by which it is sup­plied? Some would say it is the product, but the real­ity does not sup­port this. People often res­ist the simple change to a dif­fer­ent util­ity pro­vider, even in the face of clear bene­fits. Should our tend­ency to love apply to sup­pli­er and tech­no­logy choice? Does this not inhib­it our abil­ity to make smart decisions when there are bet­ter options avail­able?

Your dies­el gen­er­at­or isn’t your spouse, so you shouldn’t put up with it’s high-main­ten­ance, smell, and noise. Image source: Daniel Rye

Can­opy Power’s exist­ing cli­ents used to put up with chal­lenges that most people would assume were arte­facts of the stone age. Logist­ics in get­ting fuel to site is one example. At island resorts, dies­el is often brought in by the bar­rel every week. Typ­ic­ally, the deliv­ery craft will anchor off­shore and the resort’s dinghy will make mul­tiple jour­neys to col­lect each bar­rel, before rolling each up the beach and onto trol­leys to take them to the gen­er­at­or room. They even risk envir­on­ment­al dam­age when bar­rels of dies­el fall into the sea. To give an idea of the quant­it­ies we are talk­ing here, a smallish resort with a mod­er­ate aver­age load of 100kW, needs to ship 24,000 litres of dies­el to their island per month.

Anoth­er chal­lenge is cost. In cit­ies we are used to pay­ing 10 cents to 20 cents (USD) for a unit of elec­tri­city (a kWh). In remote loc­a­tions, the end-use cost of elec­tri­city, once fuel deliv­ery and gen­er­at­or main­ten­ance has been con­sidered, is nor­mally between 30 and 50 cents per unit. [1] A sol­ar photo­vol­ta­ic microgrid can offer lev­el­ised costs of energy (LCOE) in the region of 20 to 25 cents. [2]

On top of all of this, most resorts are try­ing to be pristine retreats for ulti­mate relax­a­tion, yet they are forced to run noisy gen­er­at­ors that chug out fumes 24/7. This doesn’t fit the pic­ture that most tour­ists have in their minds before vis­it­ing.

Some­times a divorce makes sense. Renew­able energy sig­ni­fic­antly improves all of the con­di­tions dis­cussed. And the trans­ition isn’t even that pain­ful!

As a his­tor­ic­al ana­logy, in the early 20th cen­tury, elec­tric light­ing was start­ing to be adop­ted. The hotels that stuck with oil and gas lamps while their com­pet­it­ors moved to elec­tric light­ing didn’t fare too well. The leap in safety that elec­tric light­ing brought, rel­at­ive to its pre­de­cessor, meant most of the tech­no­logy adop­tion cost was covered by the insur­ance sav­ings. But the main bene­fit was the health improve­ments for cus­tom­ers! In the end, people voted with their feet. They wanted to stay in safer, health­i­er and cheap­er hotels with the latest tech­no­logy.

The Availability-Misweighing Tendency

“We over­weigh what’s eas­ily avail­able.”

This tend­ency might lead to busi­ness-wise decisions if what we believe is eas­ily avail­able, is actu­ally eas­ily avail­able. A grid con­nec­tion that effort­lessly powers everything in our home and busi­ness seems eas­ily avail­able. But the infra­struc­ture and costs involved in gen­er­at­ing and deliv­er­ing that power to us is mon­strous. And guess what? We pay for that. In remote places dies­el gen­er­at­ors seem like reli­able, trus­ted work horses that keep on churn­ing out all that lovely power right where it’s needed. But how avail­able are the thou­sands of litres of dies­el that must be shipped to site every month? And how avail­able is that main­ten­ance spe­cial­ist or spare part that’s needed when there’s a break down?

Dies­el deliv­ery day on Koh Rong San­loem, Cam­bod­ia. Image source: Daniel Rye

This com­plex­ity and cost to ensure avail­ab­il­ity trans­lates to an energy secur­ity issue which is a sig­ni­fic­ant risk for any busi­ness that relies on a con­stant energy sup­ply. Rely­ing on pro­cesses and mar­kets out­side of our con­trol while hop­ing for good weath­er on fuel deliv­ery day, are all factors con­trib­ut­ing to the next out­age being a when, rather than an if.

We can com­pare this situ­ation with renew­able energy sources like wind or sol­ar. The ‘fuel’ for these power sources is delivered to site by nature, for free every day of the year. Sol­ar and wind energy are the most widely avail­able free energy sources on the plan­et.

Let’s start over­weigh­ing that fact next time we’re eval­u­at­ing a renew­able energy install­a­tion.

The Doubt Avoidance Tendency

“If we are unsure about a decision we quickly remove any doubt by mak­ing an ill-informed, quick decision.“

I agree that doubt is to be avoided as much as pos­sible when mak­ing invest­ment decisions. But we need to be sure about why there is doubt. Is it because of object­ive evid­ence or because of inac­cur­ate per­cep­tion and mis­in­form­a­tion?

Nowadays, most cli­ents actu­ally have very few doubts on tech­no­logy risk. Most doubts arise from some know­ledge about the intrins­ic high cap­it­al expendit­ure that’s asso­ci­ated with most renew­able energy tech­no­logy. When we buy out­right a sol­ar or wind sys­tem, we are effect­ively pay­ing for 20 years of elec­tri­city (240 monthly bills) on day one. This is a big chal­lenge for most busi­nesses. Luck­ily, we live in a highly fin­an­cial­ised world, where nearly any asset can be paid for over time.

It took a while for fin­an­cial insti­tu­tions to under­stand the (rel­at­ively low) risks asso­ci­ated with col­lat­er­al­isa­tion of renew­able energy assets, but today fin­anced solu­tions are the norm. For the off-taker (in our case, resort own­ers) this enables them to real­ise net energy cost sav­ings from day one while also allow­ing cer­tainty in cost fore­cast­ing, which is a major plus to a busi­ness.

Remote microgrids are a bit dif­fer­ent though. They are often too small and too … well, remote, to attract the big fin­an­ci­ers. To fill this gap, Can­opy Power has developed a spe­cial­ist microgrid fin­an­cing product which allows cli­ents to over­come the cost hurdle. Here the fin­ance com­pany actu­ally pro­cures, owns and main­tains the microgrid and either sells elec­tri­city to the cli­ent on a long-term con­tract (known as a power pur­chase agree­ment), or leases the equip­ment to the cli­ent over some years until own­er­ship is trans­ferred.

Because the investors’ niche is in fin­an­cing remote elec­tri­fic­a­tion pro­jects, they have the abil­ity to take on the risk that oth­er investors would reject (due to The Doubt-Avoid­ance Tend­ency).

The key to min­im­ising the risk of these remote pro­jects lies in hav­ing a thor­ough due dili­gence pro­cess and high-qual­ity solu­tion design. A robust remote mon­it­or­ing and con­trol sys­tem is essen­tial as part of this.

The Social Proof Tendency

“We tend to think and act like those around us. It’s the herd men­tal­ity.”

This one doesn’t need any explain­ing. We see it every­where. Until a crit­ic­al mass of people are doing some­thing, the main­stream will not fol­low. I think this tend­ency is one of the drivers behind the shape of Rogers tech­no­logy adop­tion bell curve.

Rogers tech-adop­tion bell curve. Image source: Daniel Rye

As I alluded to in the open­ing, renew­able energy adop­tion is hap­pen­ing. But Can­opy Power’s cli­ents in far-flung places may not have this per­cep­tion. They still see every­one using dies­el for power. So it is our job to high­light that the early adop­ters are grow­ing even in these places.

The pho­tos below show com­pleted install­a­tions at three of Can­opy Power’s cli­ents’ sites. Four more are cur­rently under con­struc­tion. That’s a total of sev­en remote resorts in just one region adopt­ing renew­able energy from a solu­tion pro­vider with only sev­en employ­ees. The social proof is here and it is grow­ing.

Top left: Misool (Raja Ampat, Indone­sia). Top right: Telunas Private Island (Batam, Indone­sia). Bot­tom two: Wa Ale (South­ern Myan­mar). Image source: Daniel Rye

In my opin­ion we are now approach­ing the chasm between early adop­ters and the early major­ity and I am optim­ist­ic we will cross that and see sig­ni­fic­ant growth in the com­ing years.

Reward & Punishment Super-response Tendency

“The power of incent­ives.”

This is a ‘super-response’ tend­ency, mean­ing that it has extra power over us. There­fore, instead of try­ing to com­bat it, we will attempt to work with it to encour­age adop­tion.

Here we focus on the pos­it­ive incent­ives to adopt renew­able energy in busi­ness and life. For example, by decreas­ing energy costs a resort can increase its gross oper­at­ing profit per avail­able room (GOP PAR) — a key busi­ness per­form­ance met­ric in hos­pit­al­ity.

Anoth­er huge incent­ive for resorts to adopt renew­able energy is that it increases cred­ib­il­ity with and expos­ure to the sus­tain­able hos­pit­al­ity mar­ket. Eco-resort status can increase top line rev­en­ue gen­er­a­tion through more premi­um rates and access to a new tour­ist demo­graph­ic.

The Glob­al Sus­tain­able Tour­ism Coun­cil (GSTC) helps to for­mu­late sus­tain­ab­il­ity cri­ter­ia for the industry. Today at least 31 sus­tain­able tour­ism cer­ti­fic­a­tions agen­cies base their cer­ti­fic­a­tions on GSTC cri­ter­ia. One of the key cri­ter­ia in attain­ing cer­ti­fic­a­tion is energy con­ser­va­tion (D1.3). All six of the sub-cri­ter­ia (a. — f.) can be addressed by imple­ment­ing a renew­able energy microgrid.

GSTC cri­ter­ia for energy con­ser­va­tion. Image source: Daniel Rye

On top of these there are the incent­ives to alle­vi­ate or elim­in­ate some of the every­day issues that fly in the face of a resort’s para­dise image, such as air pol­lu­tion, noise, power unre­li­ab­il­ity and logist­ic­al pain.

Decision making is mental

Decision mak­ing is a men­tal pro­cess so it makes a lot of sense to under­stand some of the sig­ni­fic­ant tend­en­cies that may affect one’s cli­ents. In this blog post we have looked bey­ond the face-value objec­tions to the adop­tion of renew­able energy, to ana­lyse some of the fun­da­ment­al drivers behind those objec­tions. By har­mon­ising one’s offer­ings to these psy­cho­lo­gic­al tend­en­cies, we can, in the­ory, increase the chances of cli­ents mak­ing the decision to adopt.

Fea­tured image: Misool is a diving resort and con­ser­va­tion centre loc­ated in Raja Ampat, Indone­sia. Misool was foun­ded on the belief that sus­tain­able tour­ism could safe­guard the future of the sur­round­ing reefs. Designed and man­aged by Can­opy Power, a PV-Stor­age Hybrid sys­tem was installed at Misool in March 2018. Imaged sourced from Can­opy Power.

Footnotes

[1] Assum­ing a dies­el price of USD 1 / litre – this var­ies slightly between coun­tries based on taxes and sub­sidies, but in the long run is always trend­ing upwards.

[2] One of the biggest factors affect­ing LCOE is renew­able energy pen­et­ra­tion (the % that RE con­trib­utes to total energy use). This is a design met­ric that the cus­tom­er can decide on them­selves.

About the author

Daniel Rye

Hav­ing trained in elec­tric­al & elec­tron­ic engin­eer­ing in Eng­land, Daniel Rye spent the best part of a dec­ade “engin­eer­ing the Inter­net” before mov­ing to Singa­pore. Here he decided to map his skills onto renew­able energy, ini­tially gain­ing exper­i­ence with a loc­al start-up in 2012. Since then he has been immersed in clean tech­no­logy, even­tu­ally found­ing advis­ory firm Ryn­ergy in 2017. He now spends much of his time help­ing to devel­op remote microgrid pro­jects in Asia with Can­opy Power.