Software for Mass Solar AdoptionWed, 02/24/2016 - 09:27
One of the conundrums of solar is that it is mature in some countries like the US, but it is relatively immature in markets where solar would make the most sense, like countries with sunny climates, high electricity tariffs, and low labor costs. Mexico is a great example, since it is close to the US, it has much higher irradiation rates, often twice the electricity rates, and a fifth of the labor costs. These conditions led Jonah Greenberger, CoFounder of Bright, to choose Mexico as the laboratory for a business model intended to spread the use of solar technology. “Something interesting about lending credit to a solar installation versus lending credit to a consumer for an unsecured loan is that the default rates look much more like default rates on paying a utility bill versus default rates on paying a credit card bill or a loan, which in Mexico is much higher. However, people pay their CFE bills because they need electricity.”
Greenberger found that there was a recurring belief among Mexican investors about the importance of being a firstmover, while US investors were skeptical about Mexico’s political and regulatory risks, even though the business model made sense to them. Fortunately, Bright was accepted into Y Combinator’s program, the incubator responsible for Dropbox and Airbnb. “Y Combinator saw risks in our proposal, but thought if we could figure out how to address them, we could replicate the model in other countries with similar trends,” Greenberger tells. The company’s new traction generated investment from both Mexico and the US.
Bright’s goal is to enable mass solar adoption in the residential sector in the developing world, and it wants to do so in a scalable way. The real delay in the market is how to reliably install solar in a viable way that makes financers comfortable. “We are hoping to target millions of consumers, so that is millions of underwriting processes that we have to perform. We need a reliable and repeatable process that is controlled through software.” The software component is not easy to replicate, and a lot of that goes back to sourcing talent. Much of the best software talent is in Silicon Valley, so the company’s software and finance teams are in Silicon Valley, working on taking friction out of the process of billing, underwriting, and partnering with installers. The sales and operations teams are located in Mexico, along with the projects.
The company’s main target is DAC consumers, the highest tariff, but Bright is also creating a solution for the mass population. “DAC customers paying the highest tariff are the primary market, but we want millions of homes to adopt solar. If we want to address the mass market in Mexico, we have waive upfront cost because a home that has US$20,000 available would rather spend this amount on their children’s education or a car.” In Bright’s model, clients’ pay a monthly fee with no upfront costs, equating to less than their CFE bill. The contract is for ten years, so Bright becomes these clients’ solar energy provider.
In order to expand its business, the company created a partnership model with installers and sales companies to sell solar subscriptions as well. Greenberger quickly noticed Mexico’s entrepreneurial ecosystem, where there are thousands of family-run companies. In his perspective, many people want to start companies, but once they do, they often lack access to financing and experienced software talent. Bright is working to link the entrepreneurial spirit of Mexico to financing and software talent found in other areas of the world. However, a challenge Bright ran into is the lack of high quality installers in Mexico. “The ecosystem is also new, so there are a lot of solar installers but not many have decades of expertise,” Greenberger explains.
Another issue relates to consumer awareness, since solar is still a relatively new asset from a consumer perspective. According to Greenberger, homeowners believe solar technology advances like that of cellphones, are in need of constant replacement, so they are reluctant to adopt a system that could become obsolete in a few years. “A solar system supplying 100% of your electricity today will also supply 100% of your electricity next year. You can replace it with a newer, smaller installation, but that will not add much value for consumers,” he tells, highlighting his company’s challenge in educating consumers.
Greenberger is aware of CFE’s renewable energy targets and the fact that more power is needed in Mexico, two elements with which his company is attempting to align itself. “Since most of the population receives subsidized electricity, it would be interesting if we could also partner with CFE to lower electricity tariffs by providing solar to the segments that are most subsidized.” In doing so, the amount of funding CFE would need to provide for the solar installation would be much less than what it currently pays. “We are intrigued by this idea but have not been able to find the right connection to CFE. Hopefully this will happen soon,” he shares.