Germany: New PV leasing startup aims to "make solar simple"

Having worked for such companies as Conergy, BP Solar and, most recently, Deutsche Bank’s renewable energies department, Tobias Schütt, along with co-founder Florian Berghausen, has stepped away from the relative safety of fulltime employment to venture out into the renewable energy world alone.

Speaking to pv magazine, he says that, ironically, it was the weak solar market conditions and falling prices of 2011, which helped to make his business idea – distributed utility company, DZ-4 – viable. "[These conditions] were the driver for me to start DZ-4 and to quit at Deutsche Bank, because this [business] model is … only possible by prices coming down."

Storage technologies

He adds that technological advancements have also played a key role in allowing him to realize his goals. Specifically, when asked why this type of solar leasing model, so prevalent in the U.S., has not been applied to the German market before, he answers that the appropriate storage technologies were simply not available.

"In Germany, we do not have net metering like in the U.S. [Therefore] you need storage in order to make this model work economically and the storage systems were just not available on the market a year ago. They have just started to appear … now."

Another reason why solar leasing has not been introduced in Germany, until now, is economical. "When you talk about California, you have about twice as much sunshine there as in Germany. Obviously when you get twice as much sunshine, you generate twice as much electricity, and with the same cost for a solar PV system. It is just much more economical than it is in Germany."

Furthermore, he explains that the levelized cost of electricity from a photovoltaic system in California is lower than in Germany, while the energy prices from the grid are higher. This, as Schütt says, means that grid parity already exists there.

Pilot systems

In order to realize DZ-4’s initial aims, Schütt is in the process of fundraising for DZ-4. He is currently in advanced discussions with potential investors; negotiations should be concluded in the second quarter of this year. He expands, "I’m talking to financial investors that have already invested in the industry, so they somehow understand the potential of the concept."

Once the funds have been secured, Schütt’s next step will be to install pilot photovoltaic systems on 10 residential homes in the second half of this year. He has engaged the help of the Fraunhofer Institute, which will carry out a technology assessment of the systems.

Unlike other solar leasing programs, like those offered by SunRun or Solar City, DZ-4 will purchase the necessary photovoltaic equipment from manufacturers and then utilize local or national solar installers to carry out the construction work. "SolarCity is building up a large workforce of installers. We don’t need that here in Germany, as there are so many highly qualified installers in the market," he explains.

While the idea is to have local value creation, he adds that the photovoltaic systems and storage solutions used will not necessarily be German. In terms of storage technologies, Schütt expands, "We will start by deploying 10 systems with different storage technologies in 2012 and monitor their performance under real circumstances. Those will be predominantly different types of lithium-based cells as well as lead-based batteries."

Also key to making DZ-4 work successfully is the creation of set of standardized customer agreements. Schütt hopes to have created a standard agreement and financing structure, with the help of legal counsel, by the second quarter of 2012, which can then be replicated in the future.

Like the other solar leasing programs, DZ-4 intends to act as a "one-stop shop" for customers, meaning that in addition to the procurement and installation of the system, the company will take care of such details as operations and maintenance.

Meanwhile, when the contract – expected to last for 10 years – runs out, Schütt says that customers will then have three options: (i) the client and DZ4 will sign a new agreement, which will last for, for example, two or five years, with new rates. "I can imagine after 10 years that I could offer a client a new contract with a five year term, and the costs being significantly lower than the initial prices, i.e. in the range of 15 to 20 euro cents," says Schütt; (ii) the customer buys the system at a reduced rate based on what the customer has paid over the term; or (iii) the system will be returned to DZ-4.

If the customer moves home during the contract period, the contract would need to be taken over by the new owner. If they decide not to take the system on, says Schütt, DZ-4 would still operate the system and supply another customer close by.

Future potential

Once the pilot phase has been completed, DZ-4 will then be looking to enter into a further financing round in 2013, in order to roll out the scheme on a wider scale. It is expected that "hundreds" of systems will be installed on homeowners’ rooftops during 2013 and 2014. If successful, Schütt says he would then consider capturing business customers and apartment blocks.

Responding to how big he believes the market potential for DZ-4 is, Schütt states, "Every person in Germany is using electricity and the majority of the households have an energy bill, so the market potential for the concept like the one I’m currently developing is huge. We only need some space to put our panels – this is making solar so simple. This is not a question of return on investment, this is just a new utility company that is selling pure, good, green solar PV electricity. In that context, market potential is very, very high."

The DZ-4 business model is also interesting, he believes, since it is independent from feed-in tariffs and, thus, sustainable. A major hurdle Schütt must overcome, however, is that until the system costs have been covered, consumers using his service will initially have to pay higher rates for their electricity and must, therefore, have "green motivation" and "some money".

In terms of pricing, he goes on to say that the company is currently working on different strategies. "The bottom line is that we will enter into long-term agreements with our customers, i.e. 10 years. The customer locks in the electricity price (or puts a cap on the electricity price) over that term, and based on the customer’s perception of future electricity price development ‘from the grid’, the customer will realize that over the term it will be economically more attractive to buy from DZ-4 than buying from a different supplier."

He continues, "DZ-4’s first customers will start by paying a certain premium over current electricity prices from competitors, but again, it is assumed that the electricity prices will rise further – average annual increase over the last 10 years was five percent – … and during that term the electricity prices from the grid will get higher, and presumably much higher than the DZ-4 electricity price."

Out to win

Just recently, DZ-4 was chosen as one of 12 startups, from 900, to participate in the Financial Times Deutschland’s competition, enable2start. "We feel very … honored by the fact that the business plan has convinced very reputable entrepreneurs and successful business people," comments Schütt.

"Conversations with the Jury and other participants helped in further shaping the concept and tweaking the model – and it was a great inspiration. Besides, it was a unique networking opportunity for us and in fact we are currently following up on some of the options that have come during the event.

"However," he concluded, "the goal of DZ-4 is not to win competitions, but to develop and introduce sound, green and economically attractive service products to its customers and overall to establish a sustainable, green, and also economically attractive … distributed utility company."