Non-Ownership Business Models for Solar Energy

47 Pages Posted: 24 May 2019

See all articles by Vishal Agrawal

Vishal Agrawal

Georgetown University - McDonough School of Business

L. Beril Toktay

Georgia Institute of Technology - Sustainability

Şafak Yücel

Georgetown University - McDonough School of Business

Date Written: April 20, 2019

Abstract

Solar power companies, such as SolarCity and Sunrun, have introduced innovative non-ownership business models – leasing and power purchase agreement (PPA) – in addition to sales. Under these models, the company installs solar panels for a customer, who purchases the electricity generated from the panels. Under leasing, a customer pays a fixed fee, whereas under PPA, a customer pays a per-unit price for the electricity generated. The adoption of solar panels is also promoted by investment and generation subsidies, which are received by customers under sales, but by the solar power company under non-ownership models. In addition, some states currently have restrictions on non-ownership model(s) to protect utility firms' revenues. Motivated by this context, we characterize a solar power company's optimal business model decisions in order to analyze the economic and environmental implications of such subsidies and restrictions. Our results offer several managerial insights and policy implications. We find that a higher investment subsidy makes it more attractive for the company to offer sales, whereas a higher generation subsidy makes it more attractive to offer non-ownership models. Although a higher generation subsidy leads to higher total adoption and generation of renewable energy, interestingly, a higher investment subsidy can backfire by leading to lower total adoption and generation. Consequently, we find that a higher investment subsidy can actually lead to a higher revenue for the utility firm. Finally, contrary to conventional wisdom, we show that restricting the solar power company from offering leasing may be detrimental for the utility firm and beneficial for the environment.

Keywords: business model innovation, sustainable operations, renewable energy

Suggested Citation

Agrawal, Vishal and Toktay, L. Beril and Yücel, Şafak, Non-Ownership Business Models for Solar Energy (April 20, 2019). Georgetown McDonough School of Business Research Paper No. 3375372; Georgia Tech Scheller College of Business Research Paper No. 19-08. Available at SSRN: https://ssrn.com/abstract=3375372 or http://dx.doi.org/10.2139/ssrn.3375372

Vishal Agrawal (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street NW
Washington, DC 20057
United States

L. Beril Toktay

Georgia Institute of Technology - Sustainability ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Şafak Yücel

Georgetown University - McDonough School of Business ( email )

3700 O Street, N.W.
Washington, DC 20057
United States

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