Non-ownership Business Models for Solar Energy

Vishal V. Agrawal (), L. Beril Toktay () and Şafak Yücel ()
Additional contact information
Vishal V. Agrawal: McDonough School of Business, Georgetown University, Washington, District of Columbia 20057
L. Beril Toktay: Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30332
Şafak Yücel: McDonough School of Business, Georgetown University, Washington, District of Columbia 20057

Manufacturing & Service Operations Management, 2022, vol. 24, issue 4, 2048-2063

Abstract: Problem definition : Solar power companies 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’ profits. Motivated by this context, we analyze the economic and environmental implications of such subsidies and restrictions. Academic/practical relevance : The share of non-ownership business models of the residential solar installations is approximately 40%, and we contribute to the operations management literature by being the first to endogenize a solar power company’s business model decisions to inform policymakers regarding the ongoing discussion on subsidies and restrictions. Methodology : We develop a sequential game between a profit-maximizing solar power company and utility-maximizing residential customers to characterize a solar power company’s optimal business model decisions. Results : 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. Contrary to conventional wisdom, we show that restricting the solar power company from offering leasing can actually lead to higher total adoption and generation of renewable energy. Managerial implications : We show that, 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, a higher investment subsidy can actually lead to a higher profit for the utility firm. Finally, we find that restricting leasing can be detrimental for the utility firm and beneficial for the environment.

Keywords: business model innovation; sustainable operations; renewable energy (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/msom.2021.1049 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:24:y:2022:i:4:p:2048-2063

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().