Using Business Model Innovation to Sell Solar Energy
Solar energy is great.Sunlight is free, plentiful and clean.The problem is the cost of solar panels.It costs between $25,000 and $35,000 to install a solar photovoltaic system on the average house.This upfront cost is simply too high for most homeowners.
To solve this problem several companies have started “solar as a service” programs that effectively lease solar power systems to consumers.In addition to helping the environment, these programs save most homeowners 10% – 20% or more on their monthly electric bills.
SunRun, for example, charges their customers a one-time upfront fee (around $1,000) plus a monthly fee for the electricity.SunRun designs the solar energy system for your home, works with a local installer to construct and install the system and maintains it over the life of the contract.
SunRun’s customers pay for the power their system generates via a power purchase agreement, but not directly for the equipment or maintenance.And if the system fails, customers pay SunRun nothing.
SolarCity is another company offering homeowners a solar as service program.SolarCity’s customers pay nothing up front and don’t pay for equipment or maintenance. Like with SunRun, SolarCity customers pay only for electricity though their solar lease arrangement.
The use of energy leases and power purchase agreements are common in industrial markets.These financing options effectively turn products into services by eliminating high upfront costs and instead charging a low monthly fee.
By adapting and bringing these business models to residential customers, SunRun and SolarCity greatly expanded the residential market for solar energy. And with each house they add, the environment is a bit better off.