Can the Service Model Boost Cleantech?

Your cell phone company offers you a phone for free, but sells you wireless minutes each month. Similarly the cleantech industry is starting to realize it can benefit from the same type of service model, which can ease the transition to more expensive cleaner technologies by spreading out the fees over time.

Solar installers are already capitalizing on the ability of power purchase agreements (PPAs) to help make solar more affordable, but all sorts of consumer-facing clean technologies could tweak the model to fit their industries. And electric vehicle entrepreneur Shai Agassi will be experimenting with a new business model to get electric vehicles into Israeli and Danish homes through a subscription model for his startup Project Better Place.

The service-based economic model has lots to offer the cleantech industry, especially as it could help new adopters avoid the high, upfront capital cost of going green. USA Today lauded the financial deftness of solar PPAs on Monday, highlighting how startups, utilities, and municipalities are all now working to help finance residential and commercial solar installations.

Agassi’s use of the service model is particularly well suited to the electric vehicle industry. The customer will still purchase the car, but they will receive a discount based upon the length of an accompanying service contract. The contract will charge them per mile driven and cover the cost of the swappable battery, which Project Better Place will own and maintain.

Customers are already familiar with car rental programs and by charging customers for the distance they drive, Project Better Place doesn’t need to worry about billing at the outlet. Additionally, because Project Better Place will maintain ownership of all the batteries, it makes it that much easier and cost effective for the customer.

While Agassi’s service-based model won’t likely work as well in countries where gas and cars aren’t heavily taxed, the switch to a clean economy could work synergistically with a switch to a service-based economy. Providing goods as services puts the responsibility of making quality, long-lasting and easily recyclable products on the manufacturer, aligning the powers of market economics with the goals of sustainable business.