Cindy also needs to decide whether she will invest her own funds or borrow the money to start the business. The imminent growth of the solar photovoltaic (PA) industry is almost certain. When observing the rising costs of coal and natural gas prices, the decrease of PA system costs, and the government support of solar technology, the PA market looks to have a significant increase in volume over the next few years. According to Solarium, a website dedicated to Solar Power and Energy, The solar PA industry has reached a critical tipping point, with end-market demand hitting record levels almost every ratter.
This growth is being driven by leading module suppliers and project developers that returned to profitability during 2013, and which have now established highly-effective global sales and marketing networks. ” (NYPD Group, Inc. , 2013) The article also states that “demand in IQ’14 will also achieve record-breaking status, as the strongest first-quarter ever seen by the PA industry. ” (NYPD Group, Inc. , 2013) The cost of production for solar panels has decreased significantly. The average cost for tier 1 solar photovoltaic manufacturers is expected to fall 6% during 014, continuing the downward trend set in place since 2008, bringing the overall cost to a record low of $0. 20 per watt, according to the latest research from NYPD. (NYPD Group, Inc. , 2013) Further consumer incentives include lower utility bills, increased tax credits and higher resale values. “Homes with solar-power system using photovoltaic (PA) panels sell for an average of $24,705 more than homes without PA systems, research finds. ” (Tanana, 2014) The government supports the concept of solar power and aims to make it a major energy source. Solar power as heap as coal… That is the holy grail of the solar power industry’ (R. Glenn Hubbard, 2012) Government support includes generous subsidies to the consumer and producers of the PA industry. “Government agencies, utilities and others offer a variety of tax credits, rebates and other incentives to support energy efficiency, encourage the use of renewable energy sources, and support efforts to conserve energy and lessen pollution. ” (Energy, 2014) I see four main factors influencing the price elasticity of demand: Availability of close substitutes.
Are there many available close substitutes tort solar panels? . The demand will tend to be elastic if Cindy and her customer can switch among the various types of Pas for the same desired feature. Are Pas a necessity or a luxury? Currently, Pa’s would be considered an elastic form of energy because there are other forms of electricity (coal/power plants). We once considered personal computers a luxury and they are now a necessity. Perhaps Pas will be viewed the same way in the future. How much of my income will Pas consume? A large portion of consumer’s income equals elasticity.
What portion of income can your client devote to the cost of solar panels? If it is a large share (elastic), what tradeoffs will client need to consider to make it a worthwhile purchase? What is the time horizon when making decisions on Pas? PA systems have productive life cycles of 30-50 years. (Browns, 2014) A longer time horizon is said to be elastic. Recommendations Upon review of various criteria such as elasticity of demand, cost of production, etc, I would encourage Cindy to pursue this business venture. This sector is set to grow exponentially in the future.