Two former CloudKitchens execs are tackling Mexico’s solar power lag
Reading Time: 3 minutesFor a country with some very sunny regions, Mexico has strikingly little solar power. At just over 10 gigawatts of solar capacity, it has one-eighth that of Germany, a country with less sunlight and 40% fewer people.
German government incentives have helped, but there’s more to the story than that. In Mexico, the solar market is still nascent, which means customers are not very familiar with the technology and the market remains highly fragmented.
For two entrepreneurs, that spelled opportunity.
A couple years ago, Edoardo Dellepaine and Raffaele Sertorio were looking to start a new business. The Italians had been on something of a world tour, landing in Colombia shortly after the government and FARC signed a peace agreement. There, they founded a ghost kitchen startup, Cocinas Ocultas and quickly sold it to Travis Kalanick’s CloudKitchens. Then they went to South Korea to revamp CloudKitchens’ operations there before moving to Mexico for another CloudKitchens project.
In March 2022, the two left CloudKitchens for a brief reprieve before launching into something new. Dellepaine had always wanted to get into climate tech, and he and Sertorio eventually zeroed in on solar where they lived, in Mexico.
The intense Mexican sun certainly helped their thinking, but so too did the country’s high electricity rates. ‘Tariffs here, for at least a portion of the population, it’s higher than California,’ said Sertorio. To top it off, permitting was easier and installation costs were lower. Solar power seemed like a no-brainer.
And yet solar adoption was lagging, especially among residential and small commercial customers.
Dellepaine and Sertorio discovered that small installers handled a large fraction of the jobs, creating uneven results. Some had little experience with solar, and some of their installs were barely functional. Others were skilled, but between quoting and installs, they were overwhelmed with work. They would provide a quote and then do little to follow up. In other words, there was plenty of room for improvement.
Niko is initially focusing on sales and installation of solar panels for residential and small commercial companies. Their pitch and process attempts to assuage customer concerns: People don’t have to put any money down, they’re guaranteed savings on their utility bills, and if they’re not happy with the panels, Niko will remove them for free.
If being a solar installer in Mexico seems like an unrealistic foundation on which to base a venture-backed startup, Niko’s investors point to Enpal, a German solar installer that has raised $957 million and is worth $2.6 billion, according to PitchBook. Indeed, Picus was an early Enpal backer.
Still, Niko isn’t guaranteed smooth sailing. Sales cycles in solar tend to be long in Mexico, Dellepaine said. Once people receive a quote, they frequently spend the next several weeks mulling it over and talking with friends and family. To maintain the relationship, Niko follows up via email, SMS, or WhatsApp, ‘nurturing the clients through the entire decision process,’ Dellepaine said. ‘When they are ready, we have been there for the whole time, and that, we have realized, improves the conversion rate.’
When it comes time to sign the paperwork, Niko currently does all the financing in-house. Only a few banks in Mexico will loan money for small-scale solar installations, Sertorio said. Approval times are long and interest rates are high.
Niko says that its residential customers will save between 20–40% on their monthly utility bills, while small commercial customers will save up to 20%. The startup makes money by keeping a portion of the utility bill savings, similar to how power purchase agreements work in the U.S. and elsewhere. The systems will pay for themselves in about two years, Sertorio said, and after seven years, the customers will own the panels.
Once the company gets a foothold in the solar market, it envisions capturing more home electrification projects, including batteries, EV chargers, and water heaters.
To find customers, Niko is courting large corporations to offer their service as an employee benefit, and banks that might want to improve the environmental sustainability of their mortgage portfolios. It’s also approaching property managers that oversee gated communities.
Ultimately, Niko is attempting to address the challenges that solar has faced in Mexico, from underwhelming installations to uncertain customers to the high cost of financing. That’s a lot for one startup to overcome, but if the company can tackle them, it has plenty of room to run.
Reference: https://techcrunch.com/2024/03/08/niko-seed-fundraise/
Ref: techcrunch
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