Options
Understanding the Value of Business Models: Empirical Evidence from Choice Experiments with Renewable Energy Investors
Type
fundamental research project
Start Date
01 April 2009
End Date
31 March 2010
Status
completed
Keywords
business models
renewable energy
investments
decision-making in finance
conjoint analysis
Description
Business models and discussions about business models are deeply anchored in practice and day-to-day business. Latterly, this echoes in publications within top-ranked scientific journals (e.g. within SMJ, OS, a forthcoming special issue in LRP). Those publications witness the importance and practical relevance research on business models actually has. Business models assess the logic of how firms interwove strategy and operations for economic value creation. But literature focuses on theory building and conceptual work mainly and contributes only limited empirical-based evidence. An exceptional case is the work of Zott and Amit (Zott & Amit, 2007, 2008). They conduct an empirical approach but their understanding of business models is highly abstract which makes it difficult to derive concrete practical implications. We intend to contribute to those shortcomings by merging business model research with research on decision-making in finance. For evaluating decision-making in finance business models have not been applied yet. But in preliminary in-depth interviews we conducted with individual investors, financial experts and managers throughout various industries we found high relevance for contributing to that shortcoming: our interview partners reported on the importance of business models for firms and their investor relationships. In this regard managers and the financial community seem to use business models to evaluate the future potential of a firm to create, capture or increase cash-flows. Given those insights, research on the intersection of business models and decision-making in finance appears to be a suitable analytical framework to proceed further. We use this analytic raster to elaborate on a highly relevant field of interest: investment choices for renewable energy. On the one hand investment activities in renewable energy are growing. On the other hand the industry for renewable energy is an emerging industry. In emerging industries traditional financial approaches to evaluate investments are only of limited use. Those rely on historic financial data mostly (consider for instance multiples). But renewable energies are too young and the future of that industry is too uncertain to use past performance indicators to back investment decisions (e.g. consider technology development, market needs or political aspects). Rather we assume the business model concept to be suitable. We argue it would better account for future business potential. Following questions should guide our research: What is the value of different business model components for renewable energy from an investors' perspective? What impact has the investors' personal background on the evaluation of business models for renewable energy? In general we intend to understand how investors evaluate their investment decisions in emerging industries with only limited historic data. In particular we intend to contribute to financial relations in the era of renewable energy to improve fundraising success and with that the diffusion of renewable energy. In this regard we ask investors within an adaptive conjoint experiment (ACA) whether business models are relevant for their investment decisions and in what business models for renewable energy they would invest. Based on investors' choices, the conjoint experiment thus provides the possibility to display the value of different business model components. With that our research contributes to several directions: On the theory side, we merge literature on business models and literature on decision-making in finance. We enhance business model research by contributing empirical-based evidence on the value of different business model components. We further contribute to research on decision-making in finance and enhance it towards the concept of business models. Moreover we establish an evaluation tool that is suitable to assess future performance without to rely on historic and backward oriented financial figures. For practice, we provide recommendations and adjustment levers of how business models for renewable energy should be designed to meet future needs and succeed in future competition. Inter alia this is valuable as managers could fine-tune their business model to improve financial relations and with that improve fundraising success.
Leader contributor(s)
Member contributor(s)
Funder(s)
Topic(s)
business models
renewable energy
investments
decision-making in finance
conjoint analysis
Method(s)
interviews
conjoint analysis
Range
Institute/School
Range (De)
Institut/School
Division(s)
Eprints ID
52699
5 results
Now showing
1 - 5 of 5
-
PublicationWhat Kinds of PV Projects Do Debt Capital Providers Prefer to Finance?(GRONEN Group on Organizations and the Natural Environment, 2010-06-23)
;Lüdeke-Freund, FlorianType: conference paper -
PublicationType: book section
-
PublicationUnderstanding the Value of Business Models for Renewable Energy : Empirical Evidence from Choice Experiments with InvestorsThe diffusion of renewable energy requires capital. But it is difficult to evaluate renewable energy investments as the renewable energy sector is an entrepreneurial industry (e.g. coined by technological, political and market uncertainty). Thus, traditional evaluation of investment choices is difficult to apply. From preliminary research and interviews with practitioners we assume business models would help to evaluate investment decisions. The business model approach provides a robust qualitative framework and is suitable to evaluate firm potential. To contribute to only limited research in that area we ask: In what business models do top investment managers for renewable energy prefer to invest? We report from choice experiments with top investment managers for renewable energy with important implications for renewable energy managers and research.Type: conference paper
-
PublicationDebt For Brands: Tracking Down A Bias In Financing Photovoltaic Projects In GermanyWhat kinds of PV project configurations do lenders prefer to finance? Recent developments in the field of renewable energy project finance have reinforced the need for investigation, as fundraising has become more challenging and project evaluation by banks more demanding. To contribute to the limited research in this field, we focus on photovoltaic projects and report from an Adaptive Choice-Based Conjoint experiment with German experts in project finance. We find a bias which we call "debt for brands". Simulations reveal that debt investors prefer projects with premium brand technology (modules, inverters) to low-cost technology. Although we assumed that lenders prefer projects with the highest Debt Service Cover Ratio (DSCR), they favour projects with lower DSCR, as long as those projects include premium brand technology. We find that, if premium brands were engaged, lenders would also choose projects with higher risk. Our findings have implications for renewable energy project finance in practice and researchType: journal articleJournal: Journal of Cleaner ProductionVolume: 19Issue: 12
Scopus© Citations 21 -
PublicationGoing Beyond Best Technology and Lowest Price : On Renewable Energy Investors' Preference for Service-driven Business ModelsRenewable energy is becoming increasingly important for economies in many countries. But still in an emerging industry, renewable energy requires supportive energy policy helping firms to develop and protect competitive advantages in global competition. As a guideline for designing such policy, we consult well-informed stakeholders within the renewable energy industry: investors. Their preferences serve as explorative indicator for assessing which business models might succeed in competition. To contribute to only limited research on renewable energy investors' preferences, we ask, which business models investment managers for renewable energy prefer to invest in. We report from an explorative study of 380 choices of renewable energy investment managers. Based on the stated preferences, we modelled three generic business models to calculate the share of investors' preferences. We find exiting evidence: a "customer intimacy" business model that proposes best services is much more preferred by investors than business models that propose lowest price or best technology. Policy-makers can use those insights for designing policy that supports service-driven business models for renewable energy with a scope on customer needs rather than technology or price. Additionally, we state important implications for renewable energy entrepreneurs, managers and research.Type: journal articleJournal: Energy PolicyVolume: 40Issue: 3
Scopus© Citations 78