Solar in the Circular Economy: a New Business Model

Solar is great. It is an abundant, free and omnipresent source of energy. We just need to convert it into a form of energy we can use: heat/cool or electricity. The only problem is that in order to convert it, we need to manufacture specific equipment (collectors, panels, inverters, etc.) – and that is costly. This is where our global energy transition is stuck. What we try to do is reduce the cost of this conversion equipment and find clever ways of financing it. But what about changing the industry entirely: into a circular economy, where we just lease the materials we need to convert sunlight into electricity?

  • Solar is a technology, not a fuel: the equipment can be reused
  • The challenge of financing could be entirely avoided in a circular economy approach
  • A community of interest of manufacturers, EPCs and developers/land owners could scale solar up much more rapidly

blog as on 15.5.15

A couple of years ago, I had the opportunity to visit one of the world’s most advanced space observatories, high up in Chile’s Atacama desert. It is an incredible feat of engineering and innovation. One relatively minor aspect of it, however, struck me in particular: The telescope required a very large amount of Platinum. (I don’t remember what for.) The amount was so much that it would have been far too expensive to purchase. So instead, it was just borrowed. Or, more accurately: leased, at a fee. It was molded into the shape needed for this particular purpose and after 30 years or so, when we might have an even better use for it, it can be returned to the owners (there were many) and again leased out for some other use.

This made me think of the solar industry. Take PV panels, for instance. We use them to convert sunlight into electricity. Both are forms of energy. A panel consists mainly of processed silicon sand (the cells) and aluminum (the frame). To make a panel, we need electric energy. Today the industry is set up in a traditional value chain: ingots, wafers, cells, modules. At each stage, there is a manufacturing margin. At the end, the module is sold on the market to a buyer, who uses it to make electricity and through that, earn or save money.

Now, that solar power has become competitive with socket and grid power prices, the market is no longer limited by the amount the government wants to provide in terms of subsidy. The bottleneck is simply the liquidity of the buyers (and the banks). A module lasts for around 30 years, after which time it is disposed of – ideally recycled. The buyer also has to be interested in owning a product that has a long life, longer than your average car, watch or even house.

What, if we looked at a solar module differently: as materials and energy that can be loaned? The user is only interested in the power generation, not in owning the equipment. A solar panel will generate the same amount of energy it used up in the manufacturing process within one year. The aluminum can be reused afterwards in many industries, such as the manufacturing of airplanes or vehicles. The silicon can be used in transistors, rectifiers, and other solid-state devices, which are used extensively in the electronics and space-age industries.

So, instead of selling a solar panel, manufacturers should lease it out and at the end of it, sell or reuse the materials. The price at which it is leased out should be lower than the levelised cost of solar energy, if there is any innovation in terms of reusing materials. A similar approach might work for inverters, cables, mounting structures and batteries, too. Thus, the entire question of financing of solar becomes irrelevant. The EPC company could join this circular economy by offering to set up and maintain a solar plant in return for a share of the power generation revenues. Everyone: the component manufacturer, the EPC and the developer would then come together in a joint business of generating solar power over the lifetime of the equipment.

Then, all that is needed, is good land in a location that receives a lot of sunlight. Land is the only factor determining the energy input and hence solar electricity output. A landowner will just need to assess whether “growing” electricity is the best use of the land – as opposed to other options, such as agriculture or construction.

Such a circular economy approach is not possible for fossil fuels as they consume energy sources (coal, gas, etc.). It is the simple fact, that solar (and some other renewables, such as wind) is a technology, not a fuel, that makes it possible. The world needs a much more rapid global transition to a less polluting and low emissions energy infrastructure. Re-engineering the solar value chain is perhaps our best bet to achieve that.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

11 comments

  • Really appreciate your point on the re-using (maybe recycling too) of solar panels. Am sure that in about 25 years of time, solar panel recycling would add to the e-waste issues unless we find a way to deal with it. No one better than companies to lead the way, like how Dell and HP and other computer firms take back their products.

  • You have a strong point there. We have to see how the leasing costs can be driven down from LCOE of Solar. Recycling of every component in Solar power systems is already done, it just has to be considered while calculating the value in cyclic chain. We are in a steep growth segment of Solar, anything to encourage the end user to go Solar is welcome.

  • I am currently working on a program with the Department of Energy (US) to reduce the cost of residential solar by develloping long term 1st mortgage products which include funding for Solar PV systems. The analyst at DOE believe (and I agree) that using low cost mortgage financing will greatly reduce the cost of distributed solar and should lead to significant growth in adoption by homeowners.

  • Tobias, few questions would still remain
    1. Who will pay the initial bill and own up the assests before they lease out. Considering the target is few 100s of GW, you would still need institutional support in similar scale.
    2. Most importantly, lease model in this circular economy may work as long as you have end of life (25~30 years) value for these assests. What will happen if the Silicon (or any material) isn’t worth a hundredth of its initial value (quite probable scenario with tech improvements and availability of alternatives). This might have worked in Platinum metal scenario where Pt still holds value. One option might be to tweak energy price periodically, but then it will add that element of uncertainity in business models.
    Let me know your thoughts..

    • Its good suggestion , Just like what Jetairways did it , they sold out all their plane and leased it back the same , why would middle class household people willing to spending lakhs of rupees for installing rooftop units while they are getting electricity for few hundreds from grid, its difficult also for govt. to drive them to invest citing the reason as environment,

      Let the Investor with deep pocket own the asset (solar equipment) , whereas consumer lease them and generates electricity on their roof and maintain it and use portion of the electricity for their own use (free ) and rest they pump it back to grid and get paid , with that payment they should be able to meet the lease payment obligation, If this business model is viable then consumer will jump in because they don’t have to pay for electricity anymore ,

      Let say , 5KW unit on the roof generates 1050 units / month, and uses around uses around 300 unit/ month and gets paid for 750 units @ 5 which is 3750 rs / month. If he pays leaser (equipment ) for 20 – 25 years , leaser recovers his money with interest cost with sufficient profit for him. Solar Equipment cost keep falling every year , this model might work at some day (hopefully ) and we get our electricity for absolutely free !!!

  • Wouldn’t it be better if solar panels lasted 50 years instead of 25 years? Unfortunately the manufacturing process used to make solar panels means that they degrade such that their output reduces by 0.7-1% per year. Thus a panel will only produce 80-86% of its original energy in 20 years. This rate of degradation often increases rapidly as the EVA yellows and the cracks in the cells start to grow. We have developed a process that reduces degradation to 0.2-.25% per year, enabling modules that can last much longer than 25 years and produce 96% of its original energy after 20 years. Happy to discuss further.

  • Hi Tobias
    Its an excellent idea. With the institutional support the Module manufacturers may try to implement.
    The consumers in India may not welcome this initiative,I beleive.
    Sam

  • If financiers can fund/lease trucks, buildings, machinery, why not solar, which is less risky, marginally depreciating in performance? It’s high time investors look at long term benefits and longer term assured returns by leasing solar. BOOT works well in many sectors, as it reduces the risk to the owner and transfer can happen when the user ‘feels’ comfortable. The margins are now made by manufacturers, EPC and the funding agency, which in any case has been present (mostly thru non recourse term loan) in the eco-system right now – it’s just a different format of funding that has been suggested.

  • Recycling silicon! Interesting idea. Technology & associate costs issue remain. This silicon is doped for specific purpose of producing electricity. I am not a technology person but would look at this skeptically.

    However, what hits me more is the second last statement of your article, Tobias – “The world needs a much more rapid global transition to a less polluting and low emissions energy infrastructure.” World has invested so much in existing energy technologies that migration to new ones will slow down transition to the existing technologies.

    My question, thus is, isn’t the world better off exercising austerity in using energy. Now that is wishful thinking I know but the increase in energy consumption will demand intensive energy resources (while reminding ourselves that wild natural resources need taming). If that is true then we need new frontiers in technology that looks beyond wind & solar.

    Would love to hear your views.

  • Nice idea Tobias,
    I guess the major difference between leasing platinum and silicon based modules is that the value of platinum goes up in time (as it gets rarer and rarer) while the value of the silicon modules degrades in time. Moreover, silicon is abundant and it isn’t likely that it will be reused (since new silicon is anyways so cheap). The parallel with silicon chips is striking – we rather buy a new mobile phone or a tablet than replace faulty components.

    On the other hand, land is something that can be leased. Its value increases over time and it gets less abundant. Govt. land can be leased to developers to reduce costs and lengthy acquisition timelines. This could be a fast way to accelerate India’s solar program.

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