Business Model of Renewable Energy

Business models

Business models were first invented in the 1990s when the electronic commerce industries and other internet-based firms were established. In the current world, a business model is used as the concept of management theory and practice. A business model is therefore used to describe the strategy and the structure of a business case (Boonekamp & Vethman, 2010, p.4). A business model is defined as a way of doing business for a company to sustain itself by generating revenues. This paper seeks to describe the revenue models of renewable energy (Boland, 2010, p.6).

Bleyl (2011, p.4) argues that the business models which are based on new and innovative revenue models are the main drivers of newly invented business models in the traditional industries. In addition, Bleyl & Eikmeier (2009, p.8) and Bertoldi & Rezessy (2009, p.4) argue that in the deployment of renewable energy technology the business models are categorized according to the main drivers for value creation. The models are categorized as product-service systems or business models based on new financial schemes and innovative revenue models.

Business models based on revenue models

Boza-Kiss & Rezessy (2007, p.2) and Bleyl, & Suer (2006, p.4) conclude that Feed-in schemes are considered the most common and successful incentive schemes. This is because they cover higher costs of renewable energy technology as opposed to conventional technology which compensates the owner of the RET installation with high costs for the renewable energy. Rickerson (2011, p.6) adds that a feed-in remuneration scheme provides opportunities for business cases since it covers the financial gap between renewable energy technology and conventional technologies

Bleyl (2009, p.8) says that the development of properties that are certified with a green building label is another policy of getting incentives if the building is sold at a higher price. Bertoldi (2009, p.12) argues that another way of getting incentives using the new and innovative revenue model is to create profits from rent increases after implementing the energy efficiency measures. Bleyl (2008, p.6) says that this happens when the housing corporation allows owners of the buildings not to occupy the buildings themselves, but to charge a higher rent from the tenants after the building has been renovated. This is therefore the only way housing corporations use to raise revenue opportunities from investments in the renewable energy sector.

A business model based on new financing schemes

In the deployment of renewable energy technology, high up-front costs are considered as the major barrier. New financing schemes are employed to mitigate the barrier of high up-front costs. New and innovative financing schemes have emerged in order to reduce the burden on the government budgets (CalCEF, 2009, p.12).

Property Assessed Clean Energy (PACE) financing is a concept under which the government issues bonds for renewable energy technology projects. The owner of the building is compelled to repay the loan through an additional payment of the property tax bill within the agreed period. In case of the property changes ownership, the new owner has to pay the remaining debt since the debt is transferred with the property (Bleyl, 2011, p.8).

CalCEF (2009, p.12) and Brown & Conover (2009, p.10), argue that on-bill financing programs are used to address the barrier of high up-front costs since the utility provides capital to the owner of the building for the installation of the renewable energy technology. An innovative financing option is therefore considered as a utility under the energy savings obligations. The utility has the potential to offer investment incentives for energy efficiency investments that are financed by higher energy prices. The incentives are therefore meant to create opportunities for the owners of the buildings (Bleyl & Schinnerl, 2008, p.6).

The leasing of renewable energy technology provides an opportunity for building owners to use RET without making an up-front investment. This makes it possible for both large-scale and small-scale commercial buildings as well as private homeowners to lease renewable energy technology (Clear Support, 2008, p.5).

Product-service-system business models

COWI (2008, p.11) says that the energy service companies are considered as major examples of product-service-system business models which sustain energy. Brown (2009, p.2) and Energieagentur (2006, p.8) conclude that based on the energy service company, it is easy to differentiate the fundamental business models which provide useful energy through energy supply contracts and the models which provide energy savings through performance contracts to the end-user. Under the energy supply contracting model, an energy service company is capable of supplying useful energy such as heat, electricity, or steam under long-term contact with a building user. The energy performance model is based on delivering energy savings in relation to the predefined baseline (Rickerson, 2011, p.6).

In practice, there are considerable differences between the two models based on the range of services delivered as well as how the investments in question are financed. In addition to the two basic models, the integrated energy contracting model which is methodologically based on the energy service company model as well as complemented by a deemed savings approach is developed (Franklin, 2011, p.4). Allister & Fuerst (2011, p.8) comment that the integrated energy contracting model has a wider range of services as compared to the energy service company model since it has the potential to supply energy and emission savings to the whole building.


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