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Good morning! It's Friday, January 12th. Today’s post looks at Arcadia, an energy company that’s pioneered the concept of “community solar,” which lets consumers use solar energy without having to install solar panels!

THE FEATURE

Ditching Rooftop Solar— Arcadia’s $1.5B Community Solar Model

Last year, a survey from Forbes showed that a stunning 75% of Americans want to power their homes with solar panels within the next five years. 

Despite homeowner desires, only 3.7% of single-family homes in the US have solar panels, and two-thirds of Americans live in areas unsuitable for cost-effective solar power generation— think apartment complexes and homes incompatible with rooftop solar. 

To bridge the gap between consumer desires and energy realities, Arcadia introduced “community solar” to the market in 2014, allowing Americans to buy renewable energy without installing a single solar panel. 

After a $200M funding round in 2022, Arcadia was valued at $1.5B, and the company has processed over $500M in renewable energy billing transactions!

Let’s figure out how Arcadia pulled it off!

The Founding Story

Before founding Arcadia, Kiran Bhatraju worked on Capitol Hill, where he acquired an in-depth understanding of the US energy sector at the federal level.

What he observed didn’t make him optimistic about any sort of “green energy future.” Each state has its own unique energy distribution methods and renewable energy incentive programs, making it nearly impossible for the federal government to create nationwide regulations to promote green energy without aggressively overstepping constitutional boundaries.

If the federal government was incapable of making the transition to clean energy easy for consumers, Bhatraju decided he would do it himself in the private sector.

In 2010, he founded American Efficient, a company that sold energy management software to utilities, leading them towards renewable energy options. While American Efficient is still operating, his second company, Arcadia, has proven far more impactful.

Rather than convincing utility companies to switch to clean energy, Arcadia goes straight to consumers.

The Business

Arcadia’s primary product is Community Solar, its network of renewable energy producers, mainly solar farms, that supplies the company’s 1.6+ GW under management. 

To access Arcadia’s grid, users pay a $5/month fee and process all their utility bills through Arcadia’s interface. Compared to the average $20k cost to install solar panels on a single home, Arcadia makes going green far easier and more affordable.

Outside of the $5 monthly fee, all utility payments go directly back to the solar farms. However, Arcadia does charge its clean energy partners a fee for connecting them to its user base, but the company has not disclosed what that fee is. 

The average Arcadia user saves 5-10% on their energy bill with the added clear conscience of using solar. Subscribers can save even more money by purchasing a Renewable Energy Certificate (REC) from Arcadia to claim partial ownership of solar energy production. REC owners often get state government-subsidized credit on their energy bills, further reducing costs. 

Key Observation:

Arcadia’s success lies in correctly identifying and meeting an unmet consumer desire in a way no other business has.

With 75% of Americans wanting to switch to solar and only 3.7% having done so, there was an obvious hole in the market to fill: renewable energy accessibility. By supplying accessibility and bringing energy costs down, Arcadia’s billion-dollar valuation is no surprise.

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