Steve McBee is the founder and CEO of energy transition investment firm Huck Capital and the former CEO of residential electrification company NRG Home.
As the climate industry escalates plans to defend the Inflation Reduction Act against a certain assault from the incoming Trump administration, a larger threat is being missed. The incumbent residential energy model — built on pushing a single product rather than building broad demand — is badly failing both investors and customers and is in structural decline.
The IRA was expected to be a breakthrough, driving mass adoption of green home energy products. But the market could not meet the moment. Instead, billions in value have been destroyed and once-promising incumbents like SunPower have gone bankrupt altogether. Investors are fleeing the category and customer trust is deeply fractured.
For a decade I’ve fought to break the status quo with a business model that better serves customers and investors. Most everyone recognizes the market is broken. But the industry is stuck in a rut of its own making.
Now the situation is urgent. Certainly, the climate sector must preserve the IRA at all costs. But if it cannot earn back customer trust with a modern and sensible service model, any victory will be hollow.
A strong start
The clues to a better path forward lie in the wisdom of the early residential solar disruptors leading the charge on home electrification. Residential solar entered the scene in the mid-2000s with a genuinely cool new green product — one that excited homeowners and empowered them to take control of their energy.
Early success was due not only to the product, but the experience. Companies promised to revolutionize not just how homes were powered, but how homeowners were treated by power providers. New companies placed customers at the center, offering an antidote to the antiquated utilities that barely acknowledged them.
A missed opportunity
But when the market had a golden opportunity to build an exciting new consumer category, it flinched. Instead, markets gave us solar fintech models chasing low-risk cash flows from long-term power agreements attached to installed panels. Pushing a single product on customers — panels on roofs no matter the cost or customer fit — replaced strategies that placed customers at the center.
“One-and-done” single product models quickly followed for batteries, smart panels and heat pumps that still dominate markets today. All are similarly flawed: siloed product strategies, generic product offerings, outdated and expensive customer acquisition strategies, and brutal customer engagement.
After two decades of trying and billions in deployed capital, the industry has failed to make an effective and compelling case for customers to make the green energy leap. Even as electrification prices now beat utility prices in nearly half of U.S. homes, fewer than 10% of homes are even partially electrified.
A thriving residential electrification sector is essential. But it’s not inevitable. Until the fundamental problems of flagging market demand and excessive sales costs are solved, markets will continue to underperform.
A new path forward: The energy marketplace
The move must be toward marketplace models like those thriving in adjacent consumer segments. Green home power is admittedly more complex than renting a spare bedroom, but the underlying principles are exactly the same.
A marketplace gives people what they want: trusted information; a simple and easy purchasing experience; and a single destination for products and services. Most importantly, a marketplace provides comprehensive solutions matched to individual customer needs, instead of single products in constant search of a problem.
The marketplace is a capital lite product aggregator — product agnostic and customer-led. Marketplace structures are vertically integrated instead of siloed — rationalizing sales, financing, installation and grid services to tame runaway costs and assert control of the end-to-end customer experience.
Models of this type open up new ways to reduce selling costs and expand customer pools. For example, marketplace models enable trusted non-energy brands to leverage their efficient channels to connect millions of customers with green home products. In designing strategies to achieve customer scale, fishing where the fish are is a good place to start.
The pieces exist, but assembly required
A new approach does not mean starting from scratch. Marketplace platforms can be built around promising existing businesses being held back by siloed strategies that trap them in a single part of the customer experience. Combining the best of these businesses on a unified platform that controls the end-to-end customer value chain unlocks meaningful shareholder value and sets the market up for success.
Certain leaders are already showing the way. Schneider Electric has acquired and platformed a collection of high-quality software and services businesses electrifying customers via utility partners. Octopus Energy has built a U.K.-based platform through organic growth and consolidation strategies that leverages green retail energy to unlock whole home electrification. Both businesses lead with the customer, matching products to individual homeowners with simple and clear propositions, while also controlling and monetizing each step of the residential value chain.
Schneider Electric and Octopus Energy are a good start, but much more is possible. Strategically-minded operators, teamed with innovative capital partners that togethe can identify and assemble “better-together” platforms are likely to win big as markets inevitably reorganize.
The imperative to change
Certainly not all the blame lies with the business model. External pressures like regulatory instability and excessive red tape for permitting and approvals make it difficult for anyone to do business in the sector on a day-to-day basis irrespective of the business model.
But getting the business model right is on the industry and something fully in its control. The playbook is proven. Markets are ready. Customers want this. All that’s needed is the collective will to act.
Defending the IRA is crucial. But fixing the residential business model is just as urgent. Both must be done to build a profitable and vibrant residential electrification sector that equally delivers on its potential as a force for good in the fight against global warming.
