Turning Rooftops into Renminbi

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Alex Shoer

Seeder Co-founder and CEO Alex Shoer tells Insight about his ambition to bring solar power to the factory rooftops of China and savings to their domestic and MNC owners

The key is moving fast, sticking to your value proposition and being collaborative. Our goal isn’t to compete with people doing this good stuff already, but to work with them.

Forget about those massive solar farms in remote places like Gansu and Qinghai provinces, sometimes costing hundreds of millions of yuan to build.

American entrepreneur Alex Shoer is trying to build his own lucrative business on a much smaller scale by helping businesses in Shanghai and nearby cities lower their energy costs and become more environmentally friendly one megawatt at a time. The evolving recipe is simple in principle, with building owners generating their own green energy using rooftop solar power systems.

But nothing in China is ever simple, as Shoer has discovered more than three years after setting up his company, Seeder Clean Energy. Like many people doing business in China, Shoer learned early that most companies and building owners don’t want to invest their own money for something eccentric like becoming more environmentally friendly, even as Beijing pushes for such moves to lessen dependence on far dirtier coal-burning power.

So Seeder has positioned itself as a middle man in the small but fast-growing market for micro-projects aimed at promoting green energy one rooftop at a time. The business model sees Seeder finding companies who agree to have solar energy systems installed on their building rooftops at no cost to them. Seeder then finds third-party investors to pay for system design and installation.

The client company’s power bill automatically drops after the new systems come on stream. But it has to give some of that savings back to Seeder, which collects a fee and then passes the rest to the investor as a form of return. Seeder itself is still very much a seedling and is constantly discovering new challenges to implementing its model.

But the business does look highly scalable due to China’s focus on green energy development that should ultimately push thousands of companies to generate more power from non-polluting, renewable sources. What’s more, Seeder’s growing experience will ultimately help it to lower the costs of going green, and to even someday group dozens of small projects into larger packages that would be of interest to big institutional investors.

“Seeder fulfills an important role of not only raising awareness of energy management opportunities for multinational corporations operating in China, but also finding practical ways to get the job done,” said Tienyu Sieh, CEO of Blue Sky Energy Asia, one of Seeder’s funding partners that looks for energy management projects throughout Asia.

China’s degrading environment

While many entrepreneurs set their sights on China from early in their careers, Shoer’s decision to come to Shanghai was a bit more the product of happenstance. After working at a big U.S. investment house for two years in structured finance, he decided he wanted to channel his skills into the budding field of green energy generation. His interests in microfinance and poverty alleviation, and desire to work abroad, led him to China in 2011. The country’s advanced state of environmental degradation left a strong impression and prompted him to decide to stay in China and cancel his return ticket to America.

After two years as a consultant, he set up Seeder in late 2012 and has currently built up a team of 12, including eight full-time employees, working out of the naked Hub, a trendy warehouse-style shared office space for entrepreneurs in the former French Concession area. Reflecting Shanghai’s own international flavor, Shoer’s team is quite multinational, with employees from the U.S., Belgium, Sweden and Taiwan, in addition to five local Chinese.

Shoer said setting up a company like Seeder in China poses a number of unique challenges for foreigners. “The key factor is finding a local co-founder,” says Shoer, an Atlanta native whose challenges over the last two years show up just slightly over his youthful looks at the age of 29. “Setting up your corporate structures early is important, and so is using the resources available.”

After trying a few different models, Seeder finally settled on its current approach of designing rooftop solar power generating systems, mostly for multinational corporations in China and local Chinese factories that sell to the big MNCs.

Doubles as a power station

Going green

China has embarked on an ambitious program to build up its green energy sector in a bid to clean up the nation’s polluted air and foster high-tech industries that can someday become global leaders. Much of those efforts have been focused on clean energy cars and construction of massive solar and wind power plants, many supplied by local turbine makers and a domestic solar panel manufacturing sector that now makes more than half of the world’s output.

Most green power plants cover large areas in remote parts of interior China that get lots of sun or wind. Many of those typically generate dozens of megawatts of power each year, with one megawatt typically enough to power 1,000 homes and costing millions of dollars to build. By comparison, Seeder is eyeing a much more urban market in China’s biggest population centers, where an average project is more likely to generate about one megawatt of energy each year and cost around RMB8 million ($1.2 million).

In a typical project, Seeder first identifies a client and works out the structure of a deal, including the costs of installing a solar system and subsequent energy savings. Projects also generate income from government subsidies derived from selling excess power they generate to the national grid. Companies must agree to 20-year contracts, and can typically lower their energy bills by 10 to 15 percent.

After all the numbers are crunched, Seeder finds an investor to finance the project and brings in the actual contractor to supply and install the equipment. Most investors so far are based offshore, though interest from locally based financiers is growing. The whole process typically takes around six months, though Seeder hopes to reduce that time as it becomes more experienced.

Suning deck

Pilot project complete

Seeder has completed its first pilot project in Beijing, giving it the experience to embark on others using a similar model. “The first pilot took a lot of time,” Shoer said. “We had to figure out the subsidies, apply for approval from the state grid and so forth. But now that we’ve finished the first pilot in Beijing, we’re moving forward with some other clients.”

Seeder currently has about 10 megawatts of projects in the pipeline, about half of those in Shanghai and surrounding Jiangsu and Zhejiang provinces, where costs tend to be highest and clients are therefore most eager to look for ways to save money.

One of Seeder’s early obstacles was simply finding financing, since it was working with a largely unproven business model and the company itself was new. What’s more, the relatively small size of its projects at around US$1 million apiece was unattractive to many investors who often look for much bigger targets. To bridge the gap, the company has raised about $500,000 in venture capital since its inception. One of its earliest investors was SOS Ventures of Ireland, while one of its largest backers has been Skywood Capital, a U.S. fund backed by Chinese capital.

Funding is less of a problem these days as Seeder gains more experience and meets more potential investors for its projects. Its growing momentum owes in no small part to the relatively generous returns it can offer investors. Shoer said his current projects can generate returns of around 10 to 12 percent, versus client requirements of around 8 to 10 percent. He added the high risks associated with China make the required rate of return in China quite a bit higher than more mature markets like Singapore, where a six percent rate might be considered acceptable.

Shoer hopes to generate even more money for Seeder and its investors by lowering the costs of installing new systems, which should be possible as he gets more experience and can get better deals from his various designers, suppliers and construction partners.

“At the end of the day, one of the key areas for a foreign company to succeed is finding a specialty area where it can provide benefits that clients might otherwise be unable to get,” Shoer says. “Look at what the government is supporting and what the market needs. The key is moving fast, sticking to your value proposition and being collaborative. Our goal isn’t to compete with people doing this good stuff already, but to work with them.”

From Consumer to Generator

Most businesses would consider themselves power consumers rather than generators, but playing the role of the latter is a key component of Seeder’s business model.

Selling excess power to China’s national grid operator, a massive state-owned company, is a bureaucratic process, especially in smaller cities that don’t have much experience dealing with small private firms like Seeder. But power sales to the grid are critical to making Seeder’s financial model work, since such sales generate more than twice as much revenue as traditional power sales after government incentives are added in.

Within the broader process of setting up a roof-top solar system, getting the necessary connections to the grid can take big chunks of time. The process is relatively fast in big cities like Shanghai, where the government is more experienced and can complete the process in around a week. But it can take up to two months in some smaller cities with less experience. Those times are expected to come down as grid operators throughout China become more familiar with the process, says Shoer.

“Selling back to the grid is a lot of paperwork, but you have to do it to get the subsidy,” he says. “They have to come onsite to approve everything.”

Dealing with such bureaucracy is necessary because the rewards are also big. Seeder and its clients get 0.4 yuan for each kilowatt hour they sell back to the grid, which is what traditional power typically costs, plus another 0.42 yuan as a government subsidy. Of the total power generated through a rooftop solar system, a typical company would consume about 80 percent for its own needs and sell the remaining 20 percent to the grid.

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