The market for renewable energy can be divided into segments, each with its own needs and wants. The key to successful marketing is understanding these different segments and targeting them with the right products and incentives.
As the need for renewable energy grows, the market is evolving in response. At the same time, government policies including investments in renewables on the one hand and tax and other incentives for consumers on the other are likely to change the landscape of this crucial industry.
With renewable energy market segmentation, we can identify these different types of renewable energy consumers and make more informed decisions about targeting our marketing efforts.
In this article, we’ll segment the market for renewable energy using the following 7 variables: availability of renewable energy sources, geographic location, energy transmission infrastructure, government policy, economics, social factors, and environmental factors.
Let’s now study each of these variables in detail.
What is Renewable Energy?
Renewable energy is defined as a source of energy that can be replenished or replaced in a relatively short time frame.
Renewable energy sources include solar, wind, water (hydro), biomass, and geothermal. This type of energy is sustainable because it comes from natural resources that are not depleted by human use.
Renewable energy is often contrasted with non-renewable energy sources such as fossil fuels (coal, oil, and natural gas), which are finite and will eventually run out.
Some of the biggest challenges with renewable energy lie in its:
- Intermittency: it is not always available when needed
- Efficient conversion: turning it into a usable form without losing most of it
- Storage: keeping it until needed and
- Transmission: getting it from where it is generated to where it is needed
Why is Renewable Energy Important?
There are many reasons why renewable energy is important.
For one, renewable energy is a cleaner and more sustainable alternative to fossil fuels. It emits far less pollution and greenhouse gases, which are responsible for climate change.
In addition, renewable energy is becoming increasingly cost-competitive with traditional forms of energy. As technology improves and more investments are made, renewable energy costs are expected to continue to decline.
Finally, renewable energy is an important part of a diversified energy mix. By having different types of energy sources, we can reduce our reliance on any one type and make our power supply more resilient to disruptions and reliance on geo-political hotspots.
Variables Used in Renewable Energy Market Segmentation
While renewable energy market segmentation can be conducted in many different ways, in this article we will segment this market along the following variables:
- Availability of Renewable Energy Sources
- Geographic Location
- Energy Transmission Infrastructure
- Government Policy
- Economics
- Social & Geopolitical Factors
- Environmental Factors
Let’s now look at each of these.
#1. Availability of Renewable Energy Sources
A primary requirement for renewable energy is, of course, the availability of renewable energy sources.
Solar and wind energy are more readily available in sunny and windy locations respectively.
Hydroelectricity requires a ready supply of moving water (rivers, waves, waterfalls), while biomass can be sourced from forest or agricultural waste.
Geothermal energy is only available in areas with geothermal activity, which is typically found near plate boundaries and this usually is far away from urban populations or deep below the earth’s surface.
The availability of renewable energy sources, therefore, plays a big role in determining the potential for renewable energy development in a particular area.
It also affects a region’s ability to benefit from renewable energy. For instance, areas with plenty of sun can have houses with solar panels reducing the pressure on the local electricity grid and maybe even providing power back to it.
#2. Geographic Location
One aspect of the geographic location of the market for renewable energy is one that we have just reviewed – the availability of renewable energy sources.
The other aspects of geographic location that are important for renewable energy market segmentation are:
- the population density of an area,
- the climate, and
- the proximity to renewable energy markets.
- land availability
Population density is important because it affects the demand for renewable energy. More people in an area generally mean more demand for energy (for heating, cooling, transportation, industry, etc.)
Climate is important because it affects the potential for renewable energy development. For instance, a sunny climate is more conducive to solar power while a windy climate is better for wind power.
Proximity to renewable energy markets refers to the distance from areas where renewable energy is generated to areas where it is consumed. The further the distance, the more difficult and costly it becomes to transport renewable energy.
Therefore, proximity to renewable markets can be a major barrier to entry for renewable energy developers.
Another important factor related to geographic location is land availability. Developing renewable energy projects often requires large tracts of land, which can be difficult to find in densely populated areas.
This is especially true for solar and wind power, which require large amounts of space for the installation of solar panels and wind turbines.
#3. Energy Transmission Infrastructure
Converting renewable energy into usable form like electricity is only part of the challenge – this electricity then needs to be transported to where it will be used.
This requires a well-developed energy transmission infrastructure, which isn’t always available at the location where renewable energy is found.
One prime example of this is the development of offshore wind farms in Europe. To connect these farms to the onshore electricity grid, significant investment is required in building new transmission lines.
To develop renewable energy markets, it is often necessary to first build or upgrade this infrastructure, which can be a costly and time-consuming proposition.
The lack of energy transmission infrastructure, therefore, can be a major barrier to renewable energy development and needs to be taken into account when segmenting the renewable energy market.
In addition, the type of renewable energy being considered also affects the need for transmission infrastructure.
For instance, biomass energy can be used directly on-site (for example, to power a factory), without the need for transmission lines.
In contrast, solar and wind energy need to be converted into electricity before it can be used, which requires transmission infrastructure.
#4. Government Energy Policy
Government energy policy plays a significant role in renewable energy market segmentation. This is because government policy can have a major impact on the development of renewable energy markets, through things like subsidies and regulations.
Governments can also influence renewable energy market segmentation indirectly, through their effect on other factors like transmission infrastructure (as discussed above).
For instance, a government may provide subsidies for the development of renewable energy transmission infrastructure, which would make it easier for renewable energy developers to connect to the grid and reach consumers.
Government policy is, therefore, an important consideration during renewable energy market segmentation.
#5. Economics of Renewable Energy
The economics of renewable energy is another important factor to consider during renewable energy market segmentation.
This is because the cost of renewable energy development and deployment can vary significantly depending on the technology being used and the location where it will be deployed.
For instance, solar power tends to be more expensive than wind power, due largely to the higher costs associated with the installation of solar panels.
Similarly, offshore wind farms are generally more expensive to develop than onshore wind farms, due to the higher costs associated with building in the ocean.
It is important to consider these cost differences when segmenting the renewable energy market, as they can have a major impact on which projects are economically viable and which are not.
In addition, the economics of renewable energy can also affect the willingness of companies and consumers to invest in renewable energy projects.
For instance, if renewable energy is significantly more expensive than traditional forms of energy, companies, and consumers may be less likely to invest in it.
This brings us to social factors and how they affect decisions related to the use of renewable energy.
#6. Social & Geopolitical Factors
Social Factors like public opinion and awareness can also play a role in renewable energy market segmentation. This is because public opinion can affect the willingness of the government and therefore of companies and consumers to invest in renewable energy projects.
For instance, would the public support a tax increase to subsidize the development of renewable energy? Or would they be more likely to support renewable energy if it were less expensive than traditional forms of energy?
Closely linked to Social Factors are Geo-political factors. For instance, would people be willing to pay more for energy that comes from renewable sources if they knew that it would help reduce dependence on oil from politically unstable countries?
The recent war in Ukraine has raised this exact question. Are countries in Europe willing to invest in renewable energy even though it will cost more, in exchange for less reliance on Russian oil and gas?
As you can see, social factors can have a significant impact on public policy related to renewable energy and therefore cannot be divorced from renewable energy market segmentation.
#7. Environmental Factors
Finally, renewable energy market segmentation must also take into account environmental factors.
Environmental Factors are important because renewable energy development often has a positive impact on the environment, through things like reduced emissions of greenhouse gases.
Having said that not all renewable energy projects are welcomed by environmentalists. For instance, the construction of large dams for hydroelectric power can have a negative impact on local ecosystems.
Similarly, the ruction of wind turbines can have a detrimental impact on local wildlife, particularly birds.
Therefore, when considering renewable energy market segmentation it is important to consider the potential environmental impacts of different renewable energy projects and to weigh these against the economic and social benefits.
So, when segmenting the renewable energy market it is important to consider both the positive and negative environmental impacts of different renewable energy projects.
Conclusion
This concludes our article on renewable energy market segmentation. We hope that you found it informative and that it has given you some ideas on how to segment the renewable energy market.
Renewable energy is the future and market segmentation will be a key tool in ensuring that the renewable energy industry grows sustainably. Thank you for reading!
