Wind vs. Solar Energy: Which Technology Is Disruptive?

Introduction: What Makes a Technology Disruptive?

Disruptive technologies are more than simple technological advances that tweak or optimize an existing product. Disruptive technologies change "the status quo, alter the way people live and work, and rearrange value pools" (Manyika et al., 2013). In other words, disruptive technologies have the power to change the world. Of course, not all potentially disruptive technologies result in paradigm-shifting change. Some fail to become popular despite seeming to have significant advantages, and they may even fall into disuse. The reasons behind disruptive technology failure are complex and may depend upon many factors.

This paper examines two potentially disruptive technologies: wind energy and solar energy. While the applications of solar energy — which utilizes a free, renewable, non-polluting resource to create electricity — seem tremendous, solar technology has not yet become disruptive, and solar energy has not come close to replacing fossil fuels despite its relative advantages. In contrast, wind energy is gaining tremendous acceptance in modern society and appears poised to become a disruptive technology. Given that both wind and solar power represent alternative fuel sources challenging the energy status quo, it is worth examining why wind is poised to be disruptive while solar is not. An examination of these two types of potentially disruptive technologies can help highlight what firms need to do to ensure that technologies achieve disruptive status.

Why Solar Energy Has Failed to Shine

To understand why solar energy has the potential to be incredibly disruptive, it is important to look at its advantages over traditional fossil fuel energy sources. First, solar energy uses a free, renewable resource that is non-polluting and does not otherwise alter the environment. Using solar energy to produce electricity does not create pollution and does not require altering existing terrain in the same way that water or wind energy does. Second, solar energy has significant potential to power entire small homes or businesses, and residential solar panels can even produce enough energy to supply power back to the electric grid (Walsh, 2014). Third, because solar energy installations can be localized, they do not require a grid to transport energy, making it possible to provide electricity in locations not serviced by traditional energy lines. These advantages seem to make solar energy a clear solution.

However, solar power has several disadvantages that have served as barriers to widespread adoption. The first and most significant barrier is the high upfront cost associated with transitioning to solar power. Solar panels are expensive to install, and it can literally take decades before a homeowner sees a return on that initial investment. Although installation costs have declined in recent years, the systems remain expensive. There have been some state and federal efforts aimed at encouraging adoption, but as Eisen (2011) notes, "current initiatives promoting deployment of solar technology to homeowners are insufficient to motivate large numbers of consumers to adopt the technology."

In some ways, these disadvantages can be mitigated. Adopting solar technology can enable homeowners to generate enough energy to eliminate monthly electrical bills and even earn money by selling excess electricity back to the grid. However, this ability is complicated and faces resistance from utility companies. Utility companies are responsible for maintaining power supply lines — what is referred to as the grid. Because they maintain the lines and reap profits from them, they have no incentive to make the process easier for homeowners who want to sell excess electricity back to the grid. In effect, those homeowners become unwanted free-riders.

There is also a frequently overlooked issue with the actual environmental friendliness of solar technology. The manufacturing of solar cells results in a significant amount of pollution, which may be as damaging as the pollution generated by the fossil fuel energy the cells are designed to replace. This can make environmentally conscious consumers hesitant to embrace solar technology. Combined with the high costs, solar energy can appear less appealing despite the undeniable fact that society must develop alternative fuels, since the supply of fossil fuels is finite.

Furthermore, the profit issue has produced additional barriers to adoption that have not been adequately addressed. Not all localities allow their citizens to use solar panels, and some homeowners associations refuse to permit installation in their neighborhoods. While this may appear to be a matter of local aesthetics, significant lobbying pressure by fossil fuel industries makes it more difficult for homeowners to adopt localized power generation. These same companies may be invested in researching alternative fuel resources, but they are not interested in doing so in ways that cut them out of the profit-making process.

Why Wind Energy Is Becoming Viable

In contrast to solar energy, wind energy is growing tremendously and is expected to make up a significant portion of the United States' power supply within the next century. It already constitutes a meaningful portion of the global energy supply and is the primary source of energy in some locations. The World Energy Council (2013) notes that wind is available virtually everywhere on earth, with an estimated total resource of around one million GW for total land coverage. If only 1% of this area were utilized — even accounting for the lower load factors of wind plants (15–40%, compared with 75–90% for thermal plants) — that would still correspond roughly to the total worldwide capacity of all electricity-generating plants in operation today. In short, there is more than enough wind to replace the existing fossil fuel energy supply.

Like sunshine, wind is free — but harvesting it is not. Like solar energy, wind harvesting requires a significant upfront investment. Land for windmills and turbines must be leased or purchased, the turbines must be acquired, and processing plants that convert wind energy to usable electricity must be constructed. The critical difference from solar power, however, is that wind turbine energy production operates at a huge scale, making it far easier to monetize. The initial investment may be large, but it is scalable to an industrial level. This allows utility companies to reap the benefits of energy production while keeping prices sufficiently affordable that consumers continue purchasing energy rather than seeking to generate their own.

To understand how easily this translates into monetization for utility companies, one need only examine the production capabilities of a large onshore or offshore wind farm. One onshore wind farm — the Hadyard Hill project in Scotland — has 52 turbines rated at 2.3 MW each, for a total rating of 120 MW, and produces 320,000 MWh per year. One offshore wind farm — the Alpha Ventus project in Germany — has 12 turbines rated at 5 MW each, for a total rating of 60 MW, and produces 220,000 MWh per year (World Energy Council, 2013). Given these production capabilities, the entire fossil-fuel-supplied component of the United States electric grid could theoretically be replaced with somewhere between 150 and 450 large wind turbines, meaning the lifelong profit potential for each turbine — even accounting for enormous startup costs — is tremendous.

Moreover, while adding significant amounts of wind energy to the current electrical supply would require changes to the electric grid — because wind-generating areas are not necessarily the same as current generating stations — high entry costs mean that energy companies will not face serious competition in commercial-scale wind energy production. This gives them incentive to help build out the electric grid to accommodate more wind resources. Building the transmission lines for green energy sources is projected to cost approximately $100 billion (Joyce, 2009), an investment that industry would be unlikely to support unless it stood to profit from energy transmission. Given the profit available in the U.S. energy market, however, such an investment is not disproportionate relative to overall returns.

Conclusion: Profit as the Driver of Disruption

When one compares the relative trajectories of wind and solar power as alternative energy sources, it becomes clear that wind energy is poised to become a disruptive technology while solar remains an important but ultimately non-disruptive part of the energy supply. Given that both technologies use free resources in a non-polluting manner, it can be difficult to understand how one can be disruptive while the other cannot. However, when the profit motive is examined, the differences become clear.

For solar energy, a tremendous upfront cost must be borne by the consumer. While consumers can recoup some of those costs by selling energy back to the electric grid, doing so requires cooperation from utility companies that have no financial incentive to make the grid accessible to residential energy generators. Furthermore, while companies that manufacture solar cells and panels may profit from sales and installation, there is no ongoing profit stream from the solar market once the panels are in place.

In contrast, wind energy creates long-term, sustainable profit streams for large energy companies. The immense cost of installing large wind turbines creates a natural barrier to entry that prevents small competitors from entering the market, meaning that large energy companies can transition to wind without threat from outsiders. This limitation of competitive threats encourages the kind of financial investment required to transport wind energy to customers. It also means that embracing wind as a disruptive technology expands the companies' customer base rather than eroding it.

When the two profit models are compared, it becomes evident that the potential for long-term sustainable profits helps determine which technologies will become disruptive. It is not sufficient for a technology to have the ability to change the world. Because business is driven by profit, a world-changing technology must generate clear financial returns for someone with the power to push for investment and development — or it will fail to become disruptive.

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