Non-Ownership Business Models for Solar Energy
47 Pages Posted: 24 May 2019
Date Written: April 20, 2019
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
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