Business Model Innovation and new financing will pave  solar's next wave of growth

Rosie Bosworth

Forget technology, business model innovation will fuel solar’s next wave of growth

Business model innovation is the new black for solar. As we transition to the new clean energy paradigm talk on the global solar juggernaut is peppering practically every headline in town. And unsurprisingly so. Today the total cumulative capacity of solar globally  is a whopping 100 times year 2000 levels. It’s never been easier, faster or cheaper to power homes, cars and industries using the sun’s free and blazing rays. Deutsche Bank Analyst, Vishal Shah, predicts that by 2017, solar will be at price parity with the price of  grid-based electricity throughout most of the world. Clean energy for the masses anyone?

However, usually when we talk about how solar PV is disrupting the energy paradigm the default conversation always reverts back to technology. How next gen advancements in solar PV technology have driven skyrocketing efficiency gains and plummeting costs. The old <disruption through technology > chestnut. But let’s not forget how new business model innovation and financing models can massively disrupt markets just as much has technology can. Especially when you put them together. Doubly so if the new business model also drives down price. Air Bnb or Uber anyone?

Recently at Intersolar North America, 2015, Entrepreneur and Stanford Lecturer on clean disruption, Tony Seba, got the scoop from a panel of global solar movers and shakers on how financial innovation and new business models have also been instrumental in driving the growth of solar in recent years. Why? Because the associated costs of solar essentially determine the level and speed of it uptake on the market. In short, technology – no matter how disruptive – is useless without a market that can afford to use it.

Business Model Innovation and new financing will pave  solar's next wave of growth

Business Model Innovation and new financing will pave solar’s next wave of growth

In solar PV’s case, costs typically fall into three areas:  Hardware, customer acquisition  (sales and marketing costs) and the cost of capital (finance). And as the market has matured and become more educated around this asset class, companies are finally wising up to business models that best reduce the rent’s one pays on the money. Tick.  According to Danny Kennedy, Co-Founder of Sungevity, the industry has seen all sorts of business model innovation around the streamlining of customer acquisition to make solar uptake easier, simpler and faster. For example, a swag of financial innovations that reduce the cost of capital are also turbocharging solar’s exponential uptake globally. Kennedy says these range from better customer finance solutions and to greater securitisation of assets through to larger scaling of capital pools and better cheaper finance models linking industry players and end users. California based Mosaic, a software company that offers energy as a financial service by connecting clean energy investors to borrowers, is one example that springs to mind. This in turn, has had positive spin offs in terms of improved cost of capital for end users and/or investors since the quicker you get off the grid with solar PV the quicker you reap the energy savings.

IT has also made a big impact in terms of business model innovation and driving solars growth.  According to Minh Le, Director of the U.S. Department of Energy’s SunShot Initiative, new productivity tools making solar companies leaner, smaller, more efficient  and faster are changing the landscape – for the better. “Customers have too much deal friction. Whoever can deliver the lowest cost starter and bring the lowest cost to capital will win the war.” Further, while solar technology has democratised energy, the democratisation of finance is crucial if solar is to become truly widespread. “The US is still stuck in tax equity” laments Kennedy who says almost all innovative debt financing (with the exception of Mosaic) is done outside of overseas.  Dan Rosen, Mosiac’s President and Founder says the current financial system is not yet designed for distributed energy and new sources of financing are still required. “We’re not good at financing things that are heterogenous. The energy revolution is everywhere – and we need to come up with new financing to match this”.

What’s more, innovative business models and financing solutions that provide accessible clean energy solutions for the developing world is also key.  While it is incumbent upon as global citizens to ensure that different social segments are not left behind in the solar race, powering the developing world is also a highly lucrative untapped market.  “How do you innovate for people and counties that don’t have roofs? Who don’t have roads? How do you finance that?” The answers again, often present with software and cellphone based subscription solutions says Haresh Patel, CEO of Mercatus.  “Solar electricity subscription models enabling people to subscribe to solar will be enormous”.

So what needs to happen as solar attempts to scale to 100%?  The democratization of money – namely through business model innovation. “We need a million entrepreneurs throughout the world testing things out with software and new ideas to finance to spread solar”. And when they do, the force will be insurmountable.

3 replies
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  1. […] most important factor determining its uptake Seba says a key driver of solar’s growth has been financial and business model innovation.  New concept business models involving zero money down and third party finance have seen […]

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