The firm doing this research also sell insurance that covers solar panel under performance. So while there might be truth in what they are saying, just keep in mind there is conflict of interest here.
If you are financing a project and the degradation occurs faster but not at a rate of which it gets swapped out on warranty - you want something to cover that financial difference. Also swapping out the asset has costs that aren't covered - so it isn't as simple as it would seem.
It's the same as all insurance products - might need it, might not. At least in this case they put forward some real statistical data. And their comment that residential performs worse than commercial completely resonates given the LOE difference.
Insurance companies are well suited to study this EXACT thing and to come to a very correct answer. Also, if there were an independent expert who arrived at this same conslclusion, wouldn't you expect him/her to monetize their knowledge?
Now, what they communicate to customers is another thing. I bet they know very well what they are getting into... but I agree they aren't likely to be transparent with you about it.
https://www.kwhanalytics.com/solarrevenueput
It’s frustrating to see nonsense like this associated with seemingly every industry.
There's a reason why this "nonsense" is widespread across (usually capital intensive, commodity producing) industries, and it's usually not because of speculation.
I’ve never seen anyone claim a solar panel would last 40 years. Something is fishy.
This puts the entire study in a poor light.
Pricing insurance is a balancing act.
If you overestimate then your rates will not be competitive.
If you underestimate then you pay out more in claims then you collect in premiums.
If they do, then spreading viral stories about the need for their kind of insurance is probably a valid strategy too.
How is it a conflict of interest?
As a consumer, I only want insurance if I think they've assessed the value to be lower than what I'd pay out of pocket to 'self insure.' As an insurance company, I want people the opposite, that reality of risk lies lower than what you think it is, so I can make money. I want a bunch of worried low risk people to pay overhead and marginal fees so my margins are frothier.
Also, if an insurance company had perfect knowledge of future claims by being clairvoyant, they could charge a suitable risk premium to write policies where they wouldn’t lose any money, since they would also know how many policies they would be writing.
I don’t think that’s entirely right — the main value add of insurance is to the rare, mind numbingly expensive events — ER visits, crashing into a RR, house burning down, etc. You’re paying to minimize tail risk, including risk you couldn’t possibly self-insure against in reasonable time (my payments to insurance is not going to reach the value of my home — the bet is whether my home will ever burn down).
Regardless, it’s still a conflict of interest in this case
However you want to interpret insurance, there's clearly a conflict of interest that the business based entirely around assessing and managing risk publishes information that risk is higher than people thought and they are therefor more relevant as a business than people thought.
Consider a risk of losing $200 with probability 5% on an asset of $2000. The expected value of the loss is $10. So under your argument, if the insurance company charges over $10, it's worth it to self-insure. But what does self-insure actually mean? I assume it means keep $200 lying around. If you only keep $10 around then you won't have the money to actually fix the problem, and convert a loss of $200 (say, repair costs) to a loss of $2000. Under my values here it would take over 20 years' of premiums to build up what you would need to save to self-insure!
As a consumer, I pay a premium (literally) to get rid of the risk and cap my expenditures. So in my example, there is some price between $10 and $200 where the insurance company can profit and I still come out ahead because I can take $200-P and do something else with it.
Of course, you are still correct that within the $10 to $200 do have an interest in making you believe that the value of the insurance is on the higher end of the range than the lower.
In this specific case where the firm is publishing research they have funded, there are essentially two interests or activities at play:
A. research to determine the extent of solar panel installation performance or lack thereof B. selling financial products based on performance
Since interest B would be negatively impacted by a certain outcome from interest A (a finding that solar installation performance is optimal, in this case), that implies the firm's performance of activity A may have been affected in order to reduce negative impact to the firm overall.
We see this a lot in industry-funded research. Its not unusual. For example, recently a lot of airlines have funded studies about Covid19 spread in airplane cabins. To be published in a reputable journal, researchers are compelled to declare these interests in the cover page of their papers. Also, a good journalist will state this somewhere in their piece (normally at the top or the bottom, conventionally in italics).
To your point about competition and rates, that is really not any part of conventions on declaring interest conflicts in academic research but I'll entertain an argument about it here because I don't think the market forces are as strong as you imply.
The idea that a product will be priced perfectly simply does not apply in a niche market such as this. When you are selling a niche product, the market will not be deep enough to force firms into the behaviour you are describing. This already applies to things as widely held as flood insurance where the market is so shallow, that the federal government has to intervene to make it viable. Solar PV Installation performance insurance (not to mention options) is extremely niche.
I think "conflict of interest" is frequently misused. I was taught it describes situations where one's professional/ethical/legal obligations are opposed, such as an attorney representing competing clients, or a board member approving a contract with a company he is an investor in. I realize this is a semantic point.
In this case, I don't think kWh Analytics has any professional obligation to a standard of science or journalism, so there's no conflict.
In this case the authors probably have the latter but not the former (they're not doing anything wrong legally). "Conflict of interest" is definitely the kind of phrase which has a context-specific definition, so I think semantics is probably more important here than it might normally be.
FWIW, I re-read my above comment and I think came off more hostile than I intended. Your point about pricing insurance is a really interesting one and I think a lot of other commentators had good takes. Specifically, someone mentioned how information asymmetry benefits insurers which is worth considering too.
All that gets thrown out the window when an insurance company funds research. Because insurance companies don't profit from consumers being informed...they profit from information asymmetry. Deliberate exaggeration of risks is pure profit for them.
I'm not sure I understand why that should be the case?
After all, plenty of research gets handed over to the company that paid for it, who get to decide whether to release it publicly it or not - so negative reports never see the light of day.
* If the research points in the opposite direction of the desires of the research funders it will likely get squashed. Researchers aren't typically keen on putting their name on publications that are pointing to the opposite direction of the truth.
* If the research points in the same direction as the desires of research funders, it gets published. It may be exaggerated, but research that has the correct direction but exaggerated scale isn't quite the black and white ethical dilemma that the former scenario is.
So asbestos companies might publish research saying that the risk of cancer is low, but they won't publish research that says that it is an excellent antioxidant.
This same observation also extends to insurance companies, but with insurance companies, the conflict of interest isn't the direction of research, it is the magnitude of the exaggeration. Because the gap between real risk and the fake published risk is their entire profit margin.