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Energy Policy ()

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Business models and nancing options for a rapid scale-up of rooftop


solar power systems in Thailand
Sopitsuda Tongsopit n, Sunee Moungchareon, Apinya Aksornkij, Tanai Potisat
Energy Research Institute, Chulalongkorn University, Thailand

H I G H L I G H T S

 Advances understanding on PV business models in urban developing countries' context.


 Reviews emerging rooftop solar business models in Thailand.
 Thailand has a dynamic solar market despite policy uncertainties.

art ic l e i nf o a b s t r a c t

Article history: Diverse solar PV business models and nancing options exist in the international landscape, helping
Received 29 August 2015 expand and accelerate the adoption of rooftop solar PV systems. The conditions for their emergence are
Received in revised form context specic, depending on the policies, regulations, incentives, and market conditions of each
13 January 2016
country. After a review of the international landscape, this paper compiles and analyzes business models
Accepted 19 January 2016
and nancing options for rooftop solar PV investment in Thailand that have emerged during the period
between 2013 and 2015. Despite policy discontinuity for the support of rooftop solar systems, diverse
Keywords: business models and nancing options are driving market expansion and expanding solar access to more
Business models Thai consumers. Drawing on our policy and regulatory analyses and in-depth interviews with business
Solar PV
representatives, we identify four types of business models and one nancing option. The business models
Thai PV market
include Roof Rental, Solar PPA, Solar Leasing, and Community Solar, and the nancing option is the solar
Solar nancing
loan. We analyze the drivers for their emergence, barriers to their success, and the risks from the
business owners' and consumers' viewpoints. Our policy recommendation is focused on crafting a net-
metering regulation with evidence-based studies on the potential costs and benets to different stake-
holders.
& 2016 Elsevier Ltd. All rights reserved.

1. Introduction institutions previously offered no dedicated programs for rooftop


solar because their past experiences were based mainly on project
Thailand leads Southeast Asia in solar power development, in nancing for solar farms. The lack of stable policy and the rela-
terms of not only capacity growth but also the availability of a tively high cost of solar power further added to this lack of dy-
capable workforce in the solar power sector. As of December 2014, namism in the rooftop solar sector in the past.
the grid-connected solar power capacity reached 1354 MW. Ap- Since 2013, however, a new feed-in tariff (FiT) framework along
proximately 99% of this capacity comes from utility-scale in- with relatively low prices of solar systems and rising costs of grid
stallations whose sizes are greater than 1 MW. electricity have made it possible for businesses to incorporate new,
For this reason, business models for solar power prior to 2014 diverse models, including those that have succeeded in other
were based on joint ventures for utility-scale solar power plants countries. Our research is conducted at a time when a new eco-
(solar farms) and the buying model for rooftop solar systems. In system for the rooftop solar market is emerging, in which existing
the buying model, the consumer purchases the solar PV system businesses and new entrepreneurs are forming new partnerships
with cash or takes out a loan to pay for the system. Financial and generating value-added solutions. It is not yet clear which
business models will succeed in expanding the rooftop solar
n
Corresponding author. market in Thailand, especially in light of current policy un-
E-mail address: tongsopit@gmail.com (S. Tongsopit). certainties. Therefore, this research helps build the academic

http://dx.doi.org/10.1016/j.enpol.2016.01.023
0301-4215/& 2016 Elsevier Ltd. All rights reserved.

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
2 S. Tongsopit et al. / Energy Policy ()

Fig. 1. The timeline of Thailand's solar power policy.

foundation by identifying diverse and emerging business models In 2007, power producers using solar energy received power
in the Thai rooftop solar market during the period between 2013 purchase agreements (PPA) from Thailand's electric utilities at an
and 2015 and describing the conditions that have enabled their adder rate of 8 THB per kWh. The PPAs have a contract term of 10
emergence. years. Two years after the implementation, Thailand announced its
This paper is structured as follows. After the introduction of rst 15-Year Renewable Energy Development Plan (REDP 2008
Thailand's solar power policy in Section 2, this paper discusses 2022). The target for solar energy was 500 MW of installed capa-
insights from a literature review on solar business models in city to be achieved by 2022 (NEPC, 2009). Shortly after the an-
Section 3. Section 4 discusses the methodologies for our inter- nouncement of the REDP, in 2009, a large number of requests were
views. Research results are discussed in Section 5, followed by a made by investors for PPAs for solar energy. In conjunction with
discussion and policy recommendations in Sections 6 and 7, falling market prices of solar PV systems, the situation led to a
respectively. dramatic change of rates and regulations in 2010. The rate was
reduced to 6.5 THB per kWh, and strict regulations were im-
plemented. By 2011, a large number of PPAs were given to in-
2. Solar power policy in Thailand vestors, amounting to a total solar capacity of approximately
2000 MW. Interestingly, by the end of 2011, the REDP was replaced
Thailand's policy to support solar photovoltaic (solar PV) ap- by the Alternative Energy Development Plan (AEDP 20122021)
plications has evolved over time with the aim to increase solar (NEPC, 2011), which aimed to increase solar capacity to 2000 MW
capacity through long-term renewable energy plans. Table 1 by 2021 (DEDE, 2012); this target was recently updated to
shows the target for installed solar capacity in each of the various 6000 MW by 2036.
plans since 2008, which has been increasing. According to the Because of concerns regarding the impacts to ratepayers, the
current Alternative Energy Development Plan, Thailand aims to adder scheme was discontinued in 2010 and replaced by the feed-
achieve 6 gigawatts of solar power (installed capacity) by 2036. in-tariff (FiT) scheme. The FiT scheme changed the structure of the
The major mechanism implemented to drive the growth of incentives from a premium FiT' to a xed-price FiT'. The rst solar
solar power in Thailand has been the feed-in tariff (FiT) measure. FiT scheme was launched in 2013 to specically support rooftop
The Thai government implemented FiT in 2007 and has since solar installations with a quota of 200 MW of PPA available. Within
modied the scheme and the FiT rate for solar power to adjust to the 200 MW quota, 100 MW was allocated to residential roofs
changing market conditions. As shown in Fig. 1, the rst incentive (r10 kWp), and the remaining 100 MW was allocated to com-
to support the growth of solar power was called the adder mercial roofs (10 kWp to 1 MWp). The 100 MW quota for com-
scheme', which was implemented in 20071. The adder scheme mercial roofs was completely lled within minutes of the appli-
provides incentives to power producers that sell electricity pro- cation process commencement in 2013. The pace of subscription to
duced by RE at a certain tariff for a specied period of time the 100 MW residential quota lagged behind. The residential
(Tongsopit and Greacen, 2013). For every kWh of electricity pro- subscription to the feed-in tariff quota reached approximately
duced, the power producer received an adder rate on top of the 30 MW during the rst round of the application process and was
utility electricity price; this is also termed as premium-price feed- completely lled to 100 MW after the government launched a
in-tariff (FiT) (Cory et al., 2009). second round of applications in 2015. With all the quotas fully
lled, the government has not expressed any further support for
Table 1 rooftop solar PV as of August 2015, which is approximately two
Target of solar installed capacity in various plans. years after the rst feed-in tariff support was launched.
Despite the lack of FiT support in the near future, there exists
Solar targets REDP AEDP 2012 AEDP 2012 AEDP
20082022 2021 2021 (updated) 2015 on the horizon a policy framework yet to be implemented. In
2036 January 2015, the National Reform Council (NRC) approved A

Target (MW) 500 2000 3000 6000


1
Date of approval January December July 2013 May 2015 The rst scheme to support solar PV was the Very Small Power Producers
by the NEPC 2009 2011 (VSPP) Program, which started in 2001 but paid only avoided cost (bulk supply
tariff) and no adder. For the rst time, customer-owned PV could interconnect with
Note: NEPC is the National Energy Policy Commission. the grid under this program.

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
S. Tongsopit et al. / Energy Policy () 3

Project to Support a Free Market for Solar Roof, otherwise known solar system investment, as shown in Fig. 2. The structuring of
as the solar Quick Win project. The main idea of the proposal business models includes solar service models and others. Finan-
was to eliminate solar rooftop quotas and establish a new support cing options include conventional self-nancing, localized muni-
scheme, net-metering. With net-metering, the electricity must cipal nancing, utility nancing, a more complex structure such as
rst be consumed by the building, and then excess electricity will third-party nancing, and a new and innovative nancing me-
be exported to the grid. The approved proposal focuses only on chanism called crowdfunding. The section below summarizes the
rooftop solar power for households (o10 kWp systems) and concepts of these business models and nancing options.
commercial buildings ( o500 kWp systems). As an initial step,
involved government agencies are tasked with dening a pilot 3.2.1. Business models
area for initial installations. Currently, there is still no common
perception among government agencies and private companies on 1) Solar service models
the meaning and detailed design of the net-metering regulation. In solar service models, solar power is offered as a service by a
solar service rm that builds, owns, and maintains solar panels
on the premises of end-customers (Overholm, 2015). Custo-
3. Literature review mers receive values from the service in the form of cheaper
electricity (compared to electricity purchased from power
3.1. Denitions of business model utilities), guaranteed performance, and O&M service. Solar
service models have been a major driving force for rooftop
Since the mid-1990s, the concept of the business model has solar market expansion in the U.S. The electricity generated
gained increasing interest among business practitioners and aca- from the PV system is either used by the customer (Solar
demics (Zott et al., 2010; Huijben and Verbong, 2013). Business Leasing model) or sold to the customer (Solar PPA model) (Bo-
models serve many functions, including bringing new technolo- linger, 2009). The structuring of the solar service model in the U.
gies such as renewables to the market (Huijben and Verbong, S. also enables developers or investors to reap the benets of tax
2013) and serving as management tools to design, implement, incentives.
operate, change, and control a business (Johnson (2010) and Wirtz 2) Other models
et al. (2010), cited in Richter (2013)). Innovative business models There are various other business models offered by both private
help spread solar technology swiftly by reducing or removing and public enterprises. The Sacramento Municipal Utility Dis-
adoption barriersfor example, for new demographics to adopt PV trict (SMUD)'s SolarShares Program enables its customers to pay
(Drury et al. (2012, p. 69) cited by Overholm (2015)). a monthly xed fee for shares in a local solar farm in exchange
There is no common denition of the business model' concept for credits that can be used to offset their electricity bills
(Burkhart et al., 2011; Klang et al., 2010; all cited by Huijben and (Coughlin and Cory, 2009). Private companies have also started
Verbong (2013)). However, numerous studies on solar business offering a similar business model under the term community-
models are coalescing around the denition of the business model shared solar. Roof rental is also a popular model in countries
provided by Osterwalder and Pigneur (2009) (e.g., Richter, 2013; with FiT incentives. The developer company rents a roof to
Huijben and Verbong, 2013; IIED, 2013; GVEP International, 2013). install and operate a solar system and sells the electricity for the
Their business model canvas concept has been widely used by FiT. The roof owner will receive benets through either prot
many authors in the literature on renewable energy and energy sharing or roof rental payments.
efciency (e.g., Okkonen and Suhonen, 2010, cited by Richter
(2013) and Paiho (2015)). The need for a canvas-like framework 3.2.2. Financing options
arose because it is simple, high level and easy to construct' for
people with little prior business knowledge (Leschke, 2013). The
business model canvas framework denes a business model in 1) Self-nancing
terms of the nine building blocks as listed in Table 2. Self-nancing is used all over the world as the conventional
This study uses the business model canvas to decompose the nancing method, in which purchasers acquires an asset with
elements of the emerging rooftop solar PV business in Thailand their own money. Homeowners or building owners take full
and design the interview questions. liability of the cost of installing and maintaining the solar PV
systems, resulting in high upfront costs that have prohibited
3.2. PV business models and nancing options that exist widespread adoption of PV rooftop installations, especially in
internationally developing countries.
2) Utility and public nancing
A review of the international landscape revealed 2 categories of Local governments and municipalities have played a key role in
business models and 4 categories of nancing options for rooftop accelerating the adoption of distributed solar power. Several

Table 2
The nine business model building blocks.Source: Osterwalder and Pignuer (2009) cited in Leschke (2013).

Business model canvas building blocks Description

Value propositions The goods and services offered and their distinguishing advantage
Key activities The most important activities in executing the value proposition
Key resources The resources necessary to create value for the customer
Partner network Relationships considered essential to accomplishing the value proposition
Customer segments The specic target market(s) intended to be served
Channels The proposed channels of distribution
Customer relationship The type of relationship the rm wants with its customers
Cost structure Characteristics of the cost and expense structure
Revenue streams The way the rm will make money, how it is paid, and pricing

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
4 S. Tongsopit et al. / Energy Policy ()

context, solar leasing offers nancing for customers to own or


have access to solar systems requiring monthly installments and
no upfront cost. However, it can be considered as a business
model at the same time because it is structured to provide value
to customers through a combination of access to nancing,
O&M service, and performance guarantee.
4) Solar crowdfunding
Solar crowdfunding is a new nancing mechanism in which
investment funds in solar systems are raised from individual
investors through the Internet. The companies that run solar
crowdfunding platforms pool small investments from many
individual investors, and the individual investors receive inter-
est and are paid back in full over a specied number of years.
The invested solar projects are commercial-scale rooftop sys-
tems on the properties of the customers, who pay for the
electricity through solar PPAs or solar leases.

Fig. 2. Categorization of business models and nancing options for rooftop solar
power development; blue color indicates business models; pink color indicates the
3.3. Solar business models in the literature
types of nancing. (For interpretation of the references to color in this gure le-
gend, the reader is referred to the web version of this article.)
Much of the literature on solar PV business models has been
focused in the United States, perhaps because it is one of the lar-
municipalities have initiated programs to increase the afford- gest solar PV markets in the world (REN 21, 2015). Frantzis et al.
ability of rooftop solar projects through the provision of - (2008) conceptualize three generations of PV business models in
nancial incentives such as low-interest loans, rebates, and the U.S. They argue that PV business models are moving away from
subsidies. To make such programs possible, municipalities may the Zero Generation, in which the customer nances, owns, and
need to initially raise capital through the issuance of bonds or manages the system, to the First Generation, in which third parties
matching funds. The low-cost capital is then passed either di- develop, install, and own the PV systems on behalf of the custo-
rectly to the customer or to a developer to install systems on the mer. The role of the utility in these two models evolves from being
customer's roof. An example of a successful municipal nancing passive to being facilitative. In the Second Generation PV Business
is the Property-Assessed Clean Energy Program (PACE) in the U. Models, there will be more variations in terms of ownership, op-
S. However, these options are subject to the policies initiated by eration, and control of the PV systems as utilities become active
the local government. players in the market. Indeed, recent literature on solar business
In addition to local governments, power utilities have begun to models in industrialized countries has drawn attention to the
offer their customers options for owning solar power systems. solar service models, also termed third-party nancing (NREL,
In this model, utilities would nd a source of nancing on behalf 2010) and third-party ownership (Frantzis et al., 2008). Solar
of its customers. The nancing will be used either to install a service rms are believed to have been originated in the U.S. circa
large-scale solar farm in which customers can have a share or to 2005 (Drury et al. (2012), cited in Overholm (2015)) and have since
lend directly to customers. This source of nancing has several grown to serve new geographical locations and customer groups
advantages including low-cost capital access by the utility, (Cather (2010) and Woody (2010), cited in Overholm (2015)). Two
lower transaction costs of billing because the payments can be examples of solar service models include solar leasing and solar
included in customers' monthly bills (on-bill nancing), and PPAs.
guaranteed grid integration because utilities are able to assess Solar service models or third-party ownership account for
good grid integration locations for solar power. This nancial more than seventy percent of all residential installations in three
scheme is offered in the U.S. by Southern California Edison, San major U.S. solar markets: California, Arizona, and Colorado (GTM
Diego Gas & Electric, SoCalGas, and Hawaiian Electric Co. research, 2014). However, because of declining system costs and
3) Third-party nancing increasing availability of solar loans, a recent market study expects
The third-party nancing or third-party ownership model has a declining share of the third-party ownership model in U.S.
been responsible for the rapid scale-up of the residential solar market (GTM research, 2014).
market in the U.S. since 2008. In this model, a third-party In addition to solar leasing and solar PPAs, another model that
company installs, owns, and operates the solar PV system on the is emerging in the U.S. is community solar. A Community-Owned
customer's site and either leases the PV system or sells the PV Solar System is dened by Asmus (2008) as a business model with
electricity to the building (Drury et al., 2012). Third-party the ability of multiple usersoften lacking the proper on-site
Ownership (TPO) includes solar leasing and solar PPA (SEIA, solar resources or scal capacity or building ownership rightsto
2015). According to Litvak (2014), TPO represents 66% of the U.S. purchase a portion of their electricity from a solar facility located
residential solar market and a considerable portion of the off-site (Asmus, 2008, p. 63). It leverages volume purchasing by
commercial market (Litvak, 2014, cited in Feldman and Low- collective participation of locals and internalizes the market seg-
der, 2014: 11). ments, such as tenants or vacant community space, which used to
The solar leasing model in the U.S. is nanced by private or be excluded from the commercialized activities (Huijben and
equity funds. Existing tax incentives in the U.S. incentivized this Verbong, 2013).
type of nancing by allowing the transfer of tax benets from a In the context of developing countries, the majority of research
portfolio of projects to the investors. Large players such as on solar business models and nancing options has been focused
Google, CitiBank, and Bank of America are nancing rooftop on off-grid applications for the low-income market. The literature
solar through solar leasing and solar PPA companies. focuses on the design elements of off-grid models, such as the
Whereas solar leasing may be considered as a form of nancing, requirement of a down payment and after-sale service. Friebe et al.
it can also be considered as a business model. In the U.S. (2013) conducted quantitative research on Solar Home System

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
S. Tongsopit et al. / Energy Policy () 5

(SHS) markets in Africa and Asia and found that entrepreneurs


prefer a 30% down payment instead of no down payment for credit
sales and service models (leasing and Fee-for-Service). A 30%
down payment or 100% cash payments are evaluated to be equally
reasonable for businesses. Business owners highlighted that down
payments are necessary to show the end user's commitment to the
solar systems. The results also revealed that businesses prefer to
provide only 1 year of maintenance service (Friebe et al., 2013)
contrary to longer offers in the U.S. of 20 years. This preference for
1-year service contracts in developing countries compared to 20
years in developed countries is due to different nature of systems
most in developing countries are off-grid systems with batteries.
In the long run, the maintenance and replacement of batteries is
very expensive (Greacen, 2015). Furthermore, for the rural popu-
lation in developing countries, Pode (2013) concluded that fee-for- Fig. 3. Share of interviewees.
service models are popular in sub-Saharan Africa owing to un-
affordable nance and the requirements for collateral. The study
further suggested that rural customers are different than urban business plans, including expected IRRs and payback periods. Fi-
customers, so businesses with strong after-sale services would be nally, we asked the interviewees to identify policy and regulatory
more successful than those employing the sale-and-forget method issues that are supporting or constraining their business model
(Pode, 2013). expansion. We then described the results of the business models
All business models reviewed above remain relatively new in that were identied in Section 5.
the urban context of developing countries, and hence we have
found no published papers on this topic. Our research nds that
different models of solar services are being studied and experi- 5. Results
mented upon in Thailand. Whereas some models help address
many barriers that exist in the market, other models' widespread Our interviews revealed 4 types of emerging rooftop solar
adoption depends upon setting clear regulations and receiving business models and one type of nancing option in Thailand. The
clarication on their legality. four business models include Roof Rental, Solar PPA (or Solar
Shared Saving), Solar Leasing, and Community Solar, and the -
nancing option is the solar loan.
4. Methodology
It should be noted that Solar Leasing can be considered as a
business model and a nancing option. It is a business model in
After an extensive literature review of academic and non-aca-
the sense that it is structured to enable value creation for the
demic sources, we compiled a list of solar business models that
business owner and the customer. It is also a nancing option
exist in Thailand for rooftop solar PV systems and the active
because it provides the capital needed for the customers to own a
players in the Thai market associated with the identied models.
solar system.
We then used Osterwalder and Pignuer's (2009) blocks in the
Because these business models and nancing options have
business model canvas to decompose the business models into
been recently launched, it remains to be seen which model will
major elements, which we used as a basis to develop interview
become widespread and dominate the rooftop PV market in
questions. We conducted semi-structured interviews with the
Thailand. Many of them rely upon further policy clarication or
business model pioneers to verify the elements of the business
models that are emerging in Thailand. The informants included support. The components, barriers, and risks are discussed below.
CEOs and management-level staff from banks, solar manu-
facturers, solar power developers, leasing companies, and gov- 5.1. Roof rental business model
ernment agencies. We conducted a total of 30 interviews with 28
organizations. The informants included 5 manufacturers, 6 devel- 5.1.1. Components and structure
opers, 4 EPC contractors, 4 banks, 2 leasing companies, 2 govern- After the government announced the FiT program for rooftop
ment ofcials, 1 industry group representative, 1 representative of solar systems in 2013, a new business model emergedthe roof
the Energy Regulatory Commission, 2 international consulting rental model. Developer companies saw an opportunity to rent
companies, and 1 community member. Fig. 3 shows the compo- existing roofs, install and own the solar system, and sell electricity
sition of the informants. to the grid to receive a constant FiT income stream. The model
The interviews comprised 5 parts. First, we asked the inter- consists of 3 key players 1) The roof owner, 2) The developer
viewees to describe their company's role in the solar value chain company, and 3) The utility. As shown in Fig. 4:
whether they were manufacturers, developers, equipment sup-
pliers, EPC contactors, or a combination of these rolesand how 1. The roof owner agrees on a 25-year roof rental contract with the
different roles complement one another in their businesses. We developer company.
then referred to the changing policy context for rooftop solar 2. The developer company acquires a 25-year power purchase
power development in Thailand and asked them to describe their agreement (PPA) from the utility.
current rooftop solar business activities and plans. During this 3. The developer then installs and operates the solar system on the
process, we also sought understanding of the elements of the rented roof.
models as categorized by Osterwalder and Pigneur (2009). Inter- 4. Every kilowatt-hour produce by the system will be exported to
viewees described current and planned business models, and we the grid.
asked them to identify the drivers, barriers, and risks of their 5. Revenue from the sales of electricity will go to the developer.
emerging or planned business models. We also asked them to 6. The roof owner will receive a rental fee as agreed in the
provide key nancial parameters essential for the companies' contract.

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
6 S. Tongsopit et al. / Energy Policy ()

Fig. 4. The structure of roof rental business model. Fig. 5. The structure of solar PPA Model.

In this model, the roof owner does not have a liability in the 5.2. Solar Shared saving or solar PPA business model
rooftop solar system; therefore, all costs, including the investment
cost, insurance cost and O&M cost, are born by the developer. This 5.2.1. Components and structure
is benecial to roof owners who want a solar system on their roof Because of policy uncertainties regarding the continuation of
but do not want to take liability for the system. Another benet of FiT and a lack of clear regulation on selling electricity to the end
this model is that the roof owners do not consider solar PV part of user by the third party, some Thai developers have devised an
their core business and therefore would not like to invest in it. innovative business model that ts the current investment cli-
mate. The shared-saving model (Solar Shared-saving model) is
The developer company looks for the following criteria:
proposed for energy-intensive buildings and factories to reduce
electricity costs. Based on time-of-use (TOU) electricity rate, these
1. A credible roof owner that will be able rent out the roof for 25
years. consumers pay for peak/off peak electricity rates and a demand
charge every month, which constitutes a substantial share of their
2. Large roof area: an installation capacity of 1 MW requires ap-
proximately 8000 m2. yearly expenses. As a result, the Solar Shared-saving business
model is expected to provide a winwin solution for developers
3. Strong roof structure that can withstand the additional load
from the solar panels. and energy-intensive consumers. The structure of this model is
shown in Fig. 5.
5.1.2. Drivers The main players in this model consist of the customer (roof
owner), the developer, and the utility company. The roof owner,
In Thailand, rooftops that meet the criteria are mostly com-
who wants to reduce electricity costs, agrees on a shared-saving
mercial rooftops including warehouse roofs, industrial/factory
contract with the developer. The contract typically lasts 2025
roofs, and shopping mall roofs. The roof owners benet from the
years. The developer installs, owns, and operates the commercial-
rental fee and the reduction of heat absorption to the roof, thereby
scale solar PV system on the site. PV electricity units are then sold
reducing power consumption.
at a discount, typically 510% lower than the grid electricity tariffs.
In more recent developments, the Roof Rental model emerged
In this sense, it appeared as if the roof owner could lower his
in the residential sector after the government announced the
consumption by 5 to 10%, which is the reason for the term shared
second round of the application process for FiTs. Two housing
saving.
developers took this opportunity to earn the FiT income while
The Solar Shared-saving model can be interpreted as a variation
increasing the value of the houses for their customers. The de-
of the Solar PPA model, which is now common in the U.S. Under
velopers invest in the solar system and install and own the sys-
the Solar PPA model, the developer also installs, owns, and oper-
tems on the houses in new housing projects and earn FiT income
ates the solar system on the customer's site. The difference lies in
from the utility. Part of the FiT income is paid to the households. the contract. Under the Solar PPA model, the customer agrees to
The installation of the solar PV systems on the rooftop not only purchase electricity from the developer at a certain tariff (THB/
provides additional income for the housing developers but can kWh) for a specied number of years. In Thailand, there are two
potentially increase the sale of new houses. forms of tariff structures. The rst type of tariff offers a discount of
510% of the retail tariff rate. Another tariff structure xes the
5.1.3. Barriers tariff rate with built-in escalation over the contract term. The latter
The main barrier limiting the widespread use of this model is tariff structure is similar to the PPA model in the U.S., in which the
the quota of PPA given. Developer companies have suggested that PPA tariff is set by the developer with a built-in escalation rate. For
even with a reduction of FiT rates from 6.16 THB/kWh to 6.01 THB/ example, in the case of SolarCity's residential solar PPA contract (as
kWh, roof rental will still be attractive. of June 2015), the price per kWh increases by 2.9% per year after
the rst year's rate of 0.15 USD per kWh (SolarCity, 2015).
5.1.4. Risks Another difference lies in the legal precedent of the Solar PPA
From the developer's perspective, risks are associated with the model. Because the developer owns the solar system and sells
use of the building, including cases in which the buildings are power to the customers, it essentially acts as a retail utility. Be-
taken over, retrotted for other purposes, or demolished. These cause Thailand's electric power industry structure remains par-
anticipated risks are covered in the contract between the devel- tially deregulated, the retail utilities (PEA and MEA) have con-
oper and the roof owner. From the roof owner's perspective, they ventionally been the only parties that sell power in their service
are concerned about the risk of roof damage that may affect assets territories. Though not stated in the law that no party other than
under the roofe.g., roof leaks, building structural damage, or roof the utilities can sell power to customers, the legality of a model in
collapse. These risks are covered by the developer company which a third party provides power to customers in competition
through all-risk insurance, which insures against all damages re- with utilities remains unclear to many developers. This lack of
sulting from installing the solar system. clarity was conrmed by our conversation with two developers

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
S. Tongsopit et al. / Energy Policy () 7

who are pursuing a Solar PPA model. One developer sought a


formal letter from the regulator to conrm that the model is legal.
However, an ERC senior staff member stated in the interview with
us that the model could be pursued legally. The Solar PPA model
developers are regulated by the ERC and would be required to
obtain only permits that are associated with the sizing of the solar
system.
For both the Solar Shared-saving model and Solar PPA model,
proper system sizing is important to ensure that all PV electricity
is consumed and not fed to the grid. The excessive amount of
power that is not used and fed to the grid is not compensated
owing to the lack of net-metering regulation.
Fig. 6. The structure of solar leasing business model.
5.2.2. Drivers
There are two major drivers for the Solar Shared-saving model
and Solar PPA model: policy uncertainties and economics. Un- uses the solar electricity or sells it to receive FiT. Therefore, the
certain prospects of continuous FiT for commercial-scale installa- customer receives benets from the solar PV system in the form of
tions urge businesses to adopt a model that is shielded from energy savings or FiT income. The leasing model that thrives in the
government policies. Solar PPA is a model that has succeeded in U.S. and was pioneered by Solar City has a leasing term of 1520
the U.S. and Australia and has thus undergone a subsequent years and is driven by the presence of a federal investment tax
knowledge transfer through multinational corporations. Further- credit. However, the leasing model in Thailand is emerging in the
more, solar economics in Thailand is beginning to become feasible context of transitioning away from FiT. Given that the customer
for large electricity users with high energy consumption and would not have FiT income, the customer's monthly payment
daytime peak. Solar Shared-saving and Solar PPA companies thus should not be higher than the benet that the customer earns
can market their plans based upon expectation of rising electricity from the leased systemi.e., energy savings. Currently, the leasing
costs. Another driver is common of solar service modelsthe fact terms being offered or planned by the interviewed stakeholders
that the O&M burden is born by the service provider who owns range from 68% with a leasing term not exceeding 7 years. Some
the PV system and has more prociency at managing the risks potential leasing companies are of the view that the leasing term
associated with ownership. cannot exceed 5 years in Thailand. These stated leasing terms will
affect the economics of leasing, which can then be compared
5.2.3. Barriers against other types of models such as buying or solar PPA.
The only barrier identied by the interviewees includes the
uncertainty surrounding the legality of this model as discussed 5.3.2. Drivers
earlier. Furthermore, in our research study period, we have not yet In Thailand, there are interests in the leasing model from both
identied a Solar Shared-saving model/Solar PPA model for the the supply and demand sides. From the supply side, the major
residential sector. The high investment cost and high transaction driver for the Solar Leasing Model is the interest from nancial
cost may be the main barriers preventing developers' interest at institutions and existing leasing companies that have already of-
the residential scale. fered leasing services for other kinds of products, such as cars,
factory machinery, and ofce equipment. They already have the
5.2.4. Risks business infrastructure to offer leasing services, including custo-
The risks from the Solar PPA model developer's standpoint are mer acquisition, marketing, logistics, and payment collection. Solar
few because most of them, if materialized, can be remedied in the leasing presents market expansion opportunities and allows the
contract between the developer and the roof owner. However, a companies to provide green investment options to their custo-
risk that remains inherent in the Solar PPA model is the rate of mers. When the rst solar leasing product was marketed to
electricity price increase. If the price of grid electricity does not commercial-scale customers in 2014, there was still an availability
rise as fast as was predicted in the assumption, the lower income of FiTs for rooftop solar PV investment. Therefore, the company's
stream will affect protability. solar leasing package could be designed to receive FiT income or
From the roof owner's standpoint, there are a few risks to for self-consumption.
consider. For example, the load pattern may change owing to a Another driver for this model from the demand side is that
change in activities in the buildings or factory. The change in load there is a huge, untapped group of potential customers that typi-
pattern along with a lack of a net-metering regulation can result in cally would not be able to afford solar PV upfront. According to the
PV electricity that exceeds consumption and ows back to the grid Chairman of Thailand's Solar PV Industries Association, 99% of the
without being credited. The roof area may be required in the fu- households that joined the feed-in tariff program are from the
ture for other purposesthis is especially true for at roofs on high-income segment (Sano and Tongsopit, 2014). Our interviews
university campuses. also revealed that the rural farming population has a strong in-
terest in leasing solar technologies. If the solar leasing model be-
5.3. Solar leasing comes available, it can potentially make solar power more wide-
spread among building owners and households.
5.3.1. Components and structure
Solar leasing is a structure that allows the customer to pay for 5.3.3. Barriers
the solar system over time and avoid the high upfront cost as The rst barrier to solar leasing is its lack of feasibility in small-
shown in Fig. 6. The leasing company (or solar lessor) enters into a scale systems. Given that the solar leasing model is currently
leasing contract with the customer (solar lessee), allowing the emerging in a non-subsidized (no FiT) environment, a major bar-
lessor to own, install, and operate a rooftop solar system on the rier is the economics of the leasing scheme, especially for smaller-
customer's roof. The solar lessee pays for the solar system through scale systems. Based on our nancial analysis, the savings from
a combination of a down payment and monthly installments and leasing a residential system are not enough to pay the monthly

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
8 S. Tongsopit et al. / Energy Policy ()

leasing fee. Using the assumptions based on current market con-


ditions, the net present value is negative, and the levelized cost of
electricity (LCOE) from leasing a system is higher than the LCOE of
buying the system. For residential-scale leasing especially, the
terms currently discussed by potential leasing companies will not
be attractive to customers unless additional incentive is given,
such as in the form of tax incentives or subsidized interest rates.
Another major concern raised by some potential leasing com-
panies and nancial institutions is the lack of a third-party regis-
tration system for solar system components. A third-party regis-
tration system would give each set of equipment (modules and
Fig. 7. Proposed solar cooperative business model (CODI).
inverters) serial numbers that would allow the lenders/lessors to
track its history and evaluate resale values. In the case of default,
such a system can help the companies take over the system and
resell it in a secondary market just like that of vehicles. Such a
 14.5% to investor/EPC as a return on investment;
registration system would result in an active secondary market for
 4.5% is kept by the roof owner.
solar systems, a missing element in the Thai market.
This structure enables the community to acquire and manage
5.3.4. Risks the residential rooftop system as a combined portfolio, sharing the
The risk to the solar lessor is mainly the risk of default or capital cost and O&M cost. The participation of the EPC company
nonpayment, which is then associated with the lack of a third- as an investor ensures that systems of high quality are chosen and
party equipment registration system about which some of the installed at the highest standard. At the same time, combining
potential lessors are concerned. Nonpayment results in the re- many households together into one community allows economies
possession of the solar system, for which a secondary market is of scale that can help bring down the cost of the PV system. In
still not extensive. One interviewed leasing company said that they addition, the agreement also includes training community mem-
would prevent the risk of default by choosing only credible com- bers to install solar systems.
mercial-scale customers. Another respondent whose company
aims to focus on individual customers would prefer to see a third- 5.4.2. Drivers
party registration system and an active secondary market before Urban and rural residents that have a strong local network of
the company can launch a leasing product. These limitations result neighbors can adopt this model. Moreover, it is possible that one
in predetermination of leasing terms on the part of potential les- successful community model could inspire other communities to
sors that mitigate the lessor's risks but are quite unattractive from adopt the model, as demonstrated in the peer effect of solar
the customers' perspective. power adoption (Bollinger and Gillingham, 2012). This particular
From the lessee's perspective, if the leased system does not model was developed by ve communities of housing co-
perform well, then the lessee suffers from low savings or low FiT operatives, and many more communities expressed interest in the
income. Whereas the released commercial leasing product offers a investment in solar power. The current government also has pro-
form of performance guarantee that can help mitigate this risk for posed a policy framework that in principle favors the development
the customer, it remains to be seen what type of performance of community solar cooperatives because a main driving force for
guarantee the Thai residential leasing schemes will offer. the policy design is to distribute solar access and income to a
wider population.
5.4. Community solar
5.4.3. Barriers
5.4.1. Components and structure The structuring of business models for a group of households
Since the launch of rooftop FiT in 2013, there has been a group faces the challenge of nancing. What would be the potential
of saving cooperatives that were interested in producing solar source of low-cost capital, considering that the returns also must
electricity and selling it to the grid. The group comprises ap- be shared with many households? In this unique case, we nd that
proximately 40 households with a total installed capacity of membership in CODI enables access to very low-cost capital,
120 kW (3 kW per household). However, delays caused by the which is not available elsewhere. Therefore, scalability of this
interpretation of cooperative objectives resulted in the failure to model is applicable only to CODI communities. Elsewhere, we have
pursue the business model that they had previously planned on a also found efforts to structure community business models for
large scale. Nevertheless, this model is worth reviewing because it large-scale solar farms in Thailand, but until 2014, the projects
represents the rst attempt at designing a community solar failed to secure nancing even with the presence of FiT (Thanse-
scheme to benet from FiT. It can potentially be adapted for future takit, 2014).
self-consumption schemes.
The proposed business model resembles project nancing. The 5.4.4. Risks
project represents a community that receives nancing from the From the investor's perspective, there is a risk of non-sharing of
Community Organization Development Institute (CODI) (loan) and income because the FiT income ows directly into the account of
the EPC contractor (equity). The loan offers low interest (2%) and a individual rooftop owners who are contractual partners with the
long loan term of 15 years. The equity investor provide 14.5% of the utility. This risk is mitigated by adding a three-way contract
total investment cost, and the other 85.5% is lent by CODI. The FiT among the roof owners, the community (which is a housing co-op
income is therefore used to pay back to the investor, the lender, in this case), and the investor. From the community members'
and kept in the community for O&M cost and prot. The monthly perspective, poor products can reduce their incomes, which would
FiT income is split as follows, as shown in Fig. 7: then have to be shared with the community and the investor.
These risks may not make the scheme attractive because the
 43% to CODI, as a loan payment; transaction costs of banding together and jointly managing the
 38% to Co-op common fund; system are already high.

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
S. Tongsopit et al. / Energy Policy () 9

Table 3
Existing solar loans in Thailand (as of September 30, 2015).

K-Energy Saving Guarantee Program KTB TMB

Launch Date December 2014 April 2015 September 2015


Customer Segments Commercial buildings, factories Households (with minimum income Commercial buildings, factories
of 50,000 THB) (minimum size 100 kW)
Financial Programs Loan Personal Loan Loan
Range of interest rate MLR (6.63%) 89% Year 13: 66.5% From year 4:
MLR
Maximum Credit Line 100% of Investment Cost 7080% 100% of Investment Cost
Down Payment to N/A 2030% N/A
Contractor
Maximum Term 12 years (maximum) 8 years 12 years (maximum)
Partners Solventia Yingli Huawei SPCG HomePro Solartron
Role of Partners Solventia EPC and Performance Guarantee SPCG EPC N/A
Yingli, Huawei Suppliers
Collateral Yes (may be less than conventional loan due to deduction from No collateral but must meet the fol- Yes (e.g., factories, houses and
energy saving benet and performance guarantee by the EPC lowing criteria: land)
contractor) Income 450,000 THB
Good credit history
Must have PPA

5.5. Solar loans must be shared between the developer and its customers.

5.5.1. Components and structure 5.5.3. Barriers


As of the date of this writing, two solar loans are available in A major barrier to the use of solar loans to nance solar systems
Thailand as shown in Table 3. is its limited target groups. Two existing solar loan packages in
The K-Energy Saving Guarantee Program is designed for com- Thailand aim for commercial-scale borrowers, whereas another
mercial-scale solar installations. The uniqueness of this loan is that loan package is designed for residential borrowers. All of them
it can offer up to 100% nancing at a term that can be extended up impose certain limitations that screen borrowers to reduce the risk
to 12 years. The reason why the bank is able to offer these at- of default. For example, for the two loan packages that require
tractive terms is because the EPC contractor is able to guarantee collateral, the likely borrowers may most likely be existing bor-
performance of the system through the loan term, thereby redu- rowers who already pledged collateral to the bank, including
cing the risk to the lender. companies that take out commercial property loans. If the bor-
For the residential sector, the only available loan is through rower is approved, the solar loan is added to the existing com-
Krung Thai Bank. The loan is offered at an effective interest rate of mercial property loans, and the same property can be used as
89% for up to 8 years. There is a specic target group of clients, collateral. For the only existing residential home loan, the mini-
including those who have incomes greater than 50,000 THB per mum income requirement limits the target group to the 1.2 per-
month and have never had bad credit history. The Thai Military cent of the Thai population2 with the highest income, ironically a
Bank (TMB) recently signed an agreement with Solartron to pro- subset that likely could afford to buy solar electric systems with
vide loans for solar rooftops. However, the details are yet to be cash and do not need to take out a loan.
released as of the date of this writing.
5.5.4. Risks
5.5.2. Drivers The risks to the bank in the form of defaults on payment are
A major driver of the launch of solar loan programs is in- already managed through the terms of the loane.g., the collateral
creasing interest from consumers, especially commercial-scale requirement. This means that if the customer fails to pay back the
rooftop owners, in investing in rooftop solar systems. As described loan, the bank can take over properties that sometimes have
in Section 2, the 100 MW quota for the rst phase of the com- higher value than the solar PV system. The risks are higher from
mercial roofs program was completely lled minutes after the the customer's viewpoint. A major risk on the customer's part is
application process began in 2013. Interest continues even without the increase in electricity tariffs. Electricity tariffs that do not rise
a FiT. Without the FiT, consumers invest in rooftop solar systems to as fast as predicted will result in lower savings, lowering the
reduce the demand for grid electricity, whose cost is projected to benets of solar energy compared to buying the same power from
increase. Based on an analysis of a commercial-scale rooftop in- the grid. Furthermore, if the loan does not come with a perfor-
stallation whose owner takes out a loan to cover 70% of the sys- mance guarantee that covers the loan term, the customer would
tem's cost at an interest rate of 6.5% with a loan term of 10 years, be exposed to a number of risks associated with electricity pro-
the investment is attractive. The investment results in a positive duction, including poor equipment quality, poor workmanship,
net present value, an equity IRR of 12%, and a payback period of 12 equipment damages, and theft.
years. Such investments enable system owners to achieve sub- To summarize, the features of each business model and the
stantial savingsa main factor that drives continuous market ex- nancing option discussed above are shown in Table 4. The models
pansion for the commercial-scale rooftop solar market for self- are also compared against the conventional buying model. It
consumption. should be noted that these features are specic to the identied
Another driver that may increase the popularity for solar loans models found in Thailand and cannot be taken as general features
is that some roof owners may be more interested in owning the of the models.
system than receiving the service of the system through solar
service options such as the Solar PPA option. Solar system own- 2
According to the National Statistical Ofce, approximately 1.2% of the Thai
ership allows the owner to reap all monetary benets from energy population have per capita income greater than 50,000 Thai Bath (NSO, 2015). This
savings. However, under the service models, the monetary benet represents the highest-income group of the population.

Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i
10 S. Tongsopit et al. / Energy Policy ()

Table 4
Features of solar PV business models and nancing options in Thailand.Sources: SPR (2015) and K-Bank (2014).

Features Buying Roof rental PPA Leasing Community solar Solar loan

Scale All Commercial Commercial All Residential All


System Ownership Customer Developer Developer Customer Customer Customer
Presence of FiT Either Yes No Either Yes Either
Benet to Customer (FiT/Saving) Either FiT or Savings Rental Fee Savings Either FiT or Savings FIT Either FiT or Savings
Cost to Customer Investment cost None Price per kWh Principal Interest Principal Interest Principal Interest
Risks to site host Yield/performance Roof damage Roof damage Yield/performance Yield/performance Yield/performance

6. Discussions interesting business developments have occurred between 2013


and 2015. The rooftop PV market in Thailand continues to be dy-
Although it is too early to document the evolution of business namic with new players and new business partnership an-
models and nancing options in Thailand, the identied models nouncements. With declining PV system costs and more compe-
show that the third-party-owned models previously identied as tition, the market can potentially take off and expand on its own in
First Generation PV models by Frantzis et al. (2008) have begun to the context of generating solar power for self-consumption.
emerge in Thailand. These business models include Roof Rental, However, it remains to be seen what business models and nan-
Solar Leasing, and Solar PPA. In addition, we document the cing options will take hold and/or dominate the market, and
emergence of a community solar model and solar loans. The third- government actions can inuence the development paths. All
party-owned business models have two common value proposi- business models reviewed require various degrees of government
tions: they help eliminate or reduce the upfront installation costs involvement, whether in the form of nancial support for smaller-
and place the burden on operation and maintenance in the hands scale solar leasing, hosting an equipment registration system, and
of the third party. However, whether these business models will more legal clarity on the sale of PV power by a third party. Most
succeed in Thailand's context remain to be seen. The rst model, important of all, we recommend that net-metering regulation be
the Roof Rental business model, depends largely on the continued implemented with the balancing goal of promoting market ex-
presence of FiTs, and currently there is a dim prospect of the pansion and moderating the utilities' revenue impacts. Currently,
government continuing FiT support for solar PV. The other two aside from the confusion, there is no consensus on the denition
business models, Solar Leasing and Solar PPA, can potentially occur and details of net-metering. The government should play a role in
without policy support but can be encouraged through other facilitating stakeholders' participation in the process of drafting
forms of government actions. In the case of solar leasing, a dedi- net-metering regulation. It is also important for the stakeholders
cated agency for solar system registration can help increase li- to understand the impact of different net-metering schemes on
quidity in the secondary market for solar PV-related equipment. In the economics of solar system adoption among different customer
the case of Solar PPA, some clarication from the government groups and the cost and benets of net-metering to the utility
regarding the legality of this model can help encourage more system. Such understanding would enable policymakers to better
players to participate in business design. Solar loans, which re- design a net-metering scheme that not only helps expand the solar
present the only nancing option that we identied, appear to be PV market but also prepares the distribution utilities for potential
viable without any kind of government support, and more banks business model adjustments in the future.
are expected to offer solar loans in the near future.
The recently announced net-metering policy framework will
provide a context for the success of these reviewed business Acknowledgments
models and the design of future business models. However, the
policy is not yet implemented, and the progress toward its im- The authors would like to thank the Economic Research In-
plementation has been slow. Net-metering is a practice in which stitute for ASEAN and East Asia for supporting this research (Grant
owners of PV units may offset electricity consumed against their Number ERIA-RD/RE-001-001-411/06/FY2014) and the inter-
production during a certain period of time (Eid et al., 2014). Unlike viewed solar PV business and government experts who provided
FiT, net-metering is a milder incentive that gradually changes inputs into our study.
power consumers' behavior to use less energy and enjoy the
benets of PV production. However, the details of net-metering
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Please cite this article as: Tongsopit, S., et al., Business models and nancing options for a rapid scale-up of rooftop solar power systems
in Thailand. Energy Policy (2016), http://dx.doi.org/10.1016/j.enpol.2016.01.023i