To effectively slow down climate change, renewable energy generation cost reductions must continue rapidly and successfully. But renewable energy equipment supplier startups designing and manufacturing clean energy components face immense hurdles, even beyond the typical hardware startup challenges of significant time and capital.
Barriers to entry occur at every step of creating and eventually deploying a product at scale – especially in the energy industry, which faces slow adoption rates and customers skeptical about unproven technology.
Becoming “bankable” is a difficult and ambiguous hurdle renewable energy equipment suppliers encounter while selling to utility scale energy projects. But deploying equipment in bank-backed projects will prove that equipment functions in large projects and generate sales momentum. No traditionally relied-upon process exists, however applying an incremental, stakeholder-specific framework that mitigates perceived risks makes it easier to achieve bankability.
Wrongs of Bankability: Oversimplification
As nascent technology companies, renewable energy equipment startups offering innovations must actively mitigate customers’ perceived risk in order to successfully sell products within commodity markets.
Many startups tend to underrate the bankability process, instead focusing on selling their virtues in only a few categories: balance sheet, volume of equipment in the field, and 3rd party “bankability reports.” Oversimplification can prevent companies from mitigating the full spectrum of diligence criteria required by banks and investors to participate in projects requiring hundreds of millions of dollars in financing.
Most hardware startups approach bankability too linearly, but this non-comprehensive approach impedes growth.
In fact, becoming bankable is a more complex process requiring stakeholder-specific mitigation of perceived risk across multiple factors at each incrementally-larger project scale. Perceived risk cannot be ignored and requires active mitigation because customers like solar developers, as noted in a Greentech Media profile of a solar tracker hardware company’s 2015 failure, “[are] the most conservative players in a conservative utility power market.”
The utility power market is notoriously intolerant to technical risks and financial exposure, and this trend has grown more severe in response to boom-bust renewable energy market cycles which have driven many equipment manufacturers out of business.
Companies can avoid the oversimplification trap and become bankable by diligently addressing perceived technical risks associated with financial exposure. This framework is essentially a checklist that increases in detail as projects grow larger, reaching full comprehensiveness at the bank-backed level.
The Correct Approach: Bankability is Incremental
Bankability, like commercialization, relies on incremental scaling. Both may be thought of as a funnel: Product deployment first happens in small pilot phases, then larger phases, and eventually fully commercialized phases. Incremental increases in size and number of deployments reduces perceived technology risk among stakeholders with decision-making power, ultimately enabling sale into bank-backed projects.
The Correct Approach: Bankability is Stakeholder-Specific
Innovative equipment supplier startups can ascend each step of project scale by achieving bankability with each discrete project. Understanding how to achieve bankability requires drilling down on what bankability means in practice.
Date: Oct 25, 2018