Brazil
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The ‘clean fintech’ that wants to become a one-stop solar shop

Bnamericas Published: Friday, June 04, 2021
The ‘clean fintech’ that wants to become a one-stop solar shop

With a proposal that mixes financing, solar energy and technology, Insole, founded in 2013 and restructured in 2015, has seen its business grow in recent years in the wake of the expansion of renewable energy generation sources in Brazil.

The company actually benefits from high electricity costs because, when porting energy bills to Insole, the consumer receives a discount on their energy bills. The longer the contract with Insole, the greater the discount. 

The calculation is done with analytics and the company carries out the installation and maintenance of the solar panels.

This model has gained momentum due to the fluctuation in energy costs in recent times. Over the last few months Insole has seen "exponential" growth in sales with the news of a possible water crisis and rationing in the country and the implementation of the red tariff flag 2 by power regulator Aneel, which raises end prices.

BNamericas spoke with Ananias Gomes, founder and CEO of Insole, about the company's business model and the outlook for the market.

BNamericas: Insole markets itself as a "clean fintech". What does that entail?

Gomes: We began our story in 2013, but at the time we were still focused on engineering. In 2015 I went to France and, when I returned, after learning about various business models related to the solar market, we decided to change our business.

The idea was to adapt the contracting model for this type of energy [solar] to the Brazilian power regulatory environment, which was and is pretty much financial, and with a technological footprint. 

Initially we were selling the hardware [photovoltaic panels] and not the service, and we saw that was a strategic error. The financial part was also important for the sale of solar energy, and we also realized that we had to adapt our go-to-market communication, focusing on the concept of savings and benefits for the client, discounts. And the technology, having lean and agile service delivery, as contracts last for many years, was also key. 

In this sense, the adoption of BIM [Building Information Modeling, 3D software developed by Autodesk for the architecture, engineering and construction sectors] helped us because we found the launch pad for our business, for the engineering part of the project, as we were able to reduce project design from three days to five hours and make it more precise.

BNamericas: How does the business model work? Can you explain about the savings and benefits?

Gomes: The “clean” pillar comes from transforming the energy bill into a stable environment with a clean matrix; the "fin" (financial) pillar, refers to having the solar panel as a guarantee of this financial operation; and "tech", relates to having a quick and straightforward relationship with the customer and with analytics to assess energy consumption and behavior.

I often say that energy bills have become a new currency. We have the concept of home equity, which is buying a house and refinancing it, or buying a car and refinancing it. We entered a dynamic in which the energy bill is also based on financing. We started offering a model in which we finance the discount in the customer’s power bill, having the consumption itself as a guarantee.

What the customer contracts from us is a payment plan: the longer the contract term [for the migration to solar energy], the greater the discount we offer [on the energy bill]. There are different variables at stake. 

Depending on the region of São Paulo, for example, we offer a discount of up to 40% on the current energy bill. In Minas Gerais, it’s up to 50%. The customer doesn’t need to pay anything; there’s no installation cost. Simply by porting their electric power bill to us they get a discount.

The model worked and at the end of 2019 we built the first FIDC [a Credit Right Investment Fund], with around 100mn reais [US$20mn]. 

BNamericas: So you offer financing to clients who want to migrate to a solar matrix. What kind of customers are they – residential or large industrial consumers?

Gomes: Our focus is B2C. Our proposal is retail, the residential. Why? Because this consumer is very sensitive to energy prices, which fluctuate more frequently in the retail market.

And it’s a one-for-one deal: one plant for one client. 

BNamericas: Have you seen an increase in demand due to the risks of a hydro power crisis in the country?

Gomes: A lot. It's almost automatic: whenever there’s news or rumors about the possibility of an increase in the cost of energy, of rationing, my sales grow. The solar market is growing naturally, but with any news that involves the macroenvironment related to energy costs our growth is even greater. We even had to hire a consultant to help us with the sales support plan. 

We focus on the residential customer for this reason, because the portability of energy bills gives them the possibility of protecting their income. And our proposal doesn’t imply costs. We do everything.

We seek to align two very strong interests: one is that of the client, for whom we offer discounted bills with the portability, and the other is that of the investor, who wants to have guaranteed profitability. 

For this we have a well-structured financial model within the structure of our fund, which guarantees they’re remunerated. We have several major ESG [environmental, social, and governance] investors in our FIDC.

BNamericas: Do you also handle the supply, installation and maintenance of the solar panels for customers?

Gomes: Yes. Our model is what I call ‘one-stop solar shop’. Origination, financing and installation. End to end.

BNamericas: Are the panels manufactured in Brazil or imported?

Gomes: Imported. Everything comes from China.

BNamericas: I assume that the depreciation of the real against the dollar has had an impact on your costs?

Gomes: Yes, this has ended up pressuring our margins.

BNamericas: And how do you minimize that? With hedging?

Gomes: Yes, we have deals with suppliers to freeze the FX variation with hedging.

BNamericas: How big is your customer base?

Gomes: We now have more than 5,000 customers. We’ve grown more than 300% organically per year on average in terms of sales. In the first wave of the pandemic, over a five-month period in 2020, we gained 500 customers. It was crazy.

BNamericas: Did you have problems with supplies from China because of the pandemic?

Gomes: We did. In the second stage of the pandemic, in the second wave, we had a very marked impact. That was when the higher FX rate and supply chain disruptions had the greatest impact. 

But our contract with the customer for the installation of the panels is up to six months, which gives us a margin to manage our inventory better. But in normal periods we can do the installation in up to 90 days. In addition, the FIDC allows a two-month grace period for the client. That is, they only start paying the contract two months after installation.

BNamericas: What are the contracts like?

Gomes: Our contracts are long term, from 5 to 10 years. The longer the contractual term, the greater the discount on the energy bill. We call it a “payment account”. This portability process is basically a bill replacement process.

BNamericas: Does the client maintain the relationship they had with their original electric power company?

Gomes: They do. They port to us and receive two bills. Ours, offering a discount, cheaper energy, and one from their distributor, for which they only pay the minimum required fee.

BNamericas: Going back to the technological aspect, is it possible for the client to create a self-service contract, to choose the plan through an app, for example?

Gomes: Not yet. We have a platform that does the simulation. But soon, by August, we’ll launch an application through which the customer can add a photo of their energy bill, the system will generate a payment plan for them, and they can choose whatever they prefer.

BNamericas: What supports the financing you offer? Is it only the fund or do you work with banks too?

Gomes: We also work with banks, the main retail banks, in addition to the FIDC. And we’re responsible for this relationship, not the client. The customer doesn't know who he's dealing with. He contracts us, selects the payment model and we do the rest.

BNamericas: What’s the revenue target for this year?

Gomes: In business generation [resources handled], not in revenue terms, we’re targeting 500mn reais.

BNamericas: How about your own funding? Are you involved in any talks regarding a funding round with investors?

Gomes: We have a few Series B rounds going on, but for now this process is still confidential.

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