To help solve the waste problem, Riversimple is moving sale-of-service up the supply chain
It’s well-known fact that there is a serious waste problem in the world today. Microplastics have been found everywhere, from the top of Everest to the bottom of the ocean. The electronic waste that’s discarded each year weighs more than all the commercial aircraft ever built. And it is commonplace for companies to build products that break – and so become waste – sooner than they should. They do this so that their customers buy the products more regularly, which makes the companies more money.
The overall approach that can solve the waste problem is moving to a circular economy, in which products are always reused or recycled. In a circular economy, there is no such thing as trash, because materials cycle endlessly around the economy and never need to be thrown away.
An important strategy for creating a circular economy is to change business models so that companies make more money when they create less waste. This can be done by using the sale-of-service business model.
In this model, customers don’t buy the products. They buy the service the products provide, with ownership of the physical products themselves remaining with the business. If a product breaks, it is the business that has to pay for the repair or replacement. This means the business makes more money the longer its products last, aligning the business’s incentives with the need to decrease environmental impact. This model is recognised as an important strategy and is being applied to a vast range of products, from washing machines to cars. There’s even a company that provides light as a service though a ‘pay-per-lux’ model!
But one company is taking the sale-of-service model further than this, and in doing so, they are creating a system that might turn out to be truly revolutionary.
The company is Riversimple, a hydrogen fuel cell car company based in Wales whose cars will hopefully be commercially available by 2025. Riversimple has a purpose written into its legal documents, which is to ‘build and operate vehicles while systematically pursuing elimination of the environmental impact caused by personal transport’. As part of its quest to fulfil this mission, it is pioneering a new approach to solving the waste problem: it is extending the sale-of-service model through its supply chain.
Rather than selling cars, Riversimple will provide vehicles as a service. Customers will pay a monthly fee plus an amount per mile, which will cover all of the costs of running a car: the car itself, the fuel, the insurance, and the maintenance. This aligns Riversimple’s financial incentives with the interests of the customers and the environment, because as they make the car more fuel-efficient, longer-lasting, and more reliable, they will decrease their own costs and therefore increase their profits.
This is in sharp contrast to the traditional business model of car makers, who make more money by selling more cars. In the old model, car makers have no direct financial incentive to improve fuel efficiency, and sometimes they have a perverse incentive to make unreliable cars so they can make more money by charging for repairs.
This is the usual sale-of-service model applied to a car company. But Riversimple are taking the sale-of-service model and the alignment of incentives it creates further by extending this model up the supply chain. One of the most critical and expensive parts of a hydrogen car is the fuel cell itself (the fuel cell is the hydrogen car equivalent of the engine). Having a more reliable and longer-lasting fuel cell is in the financial interests of Riversimple, as well as being better for the environment. If they buy the fuel cell from the manufacturer, reliability is only in the interests of the manufacturer to the extent that it affects whether Riversimple continue buying their fuel cells. So instead of buying fuel cells, Riversimple is going to pay the manufacturer for the electricity the fuel cells provide, on a sale-of-service model. They will pay a monthly amount, plus an amount per hour of run-time and a bonus for fuel cell efficiency. This means the manufacturer is incentivised to create more reliable and efficient fuel cells, aligning their incentives with the interests of Riversimple’s investors, their customers, and the environment.
This is not the limit of how far the sale-of-service model can go, nor how far Riversimple are taking it. Within the fuel cell, the most critical and expensive part is the membrane. Riversimple are working with the fuel cell manufacturer so that instead of buying the membranes, they pay for their use, again on a sale-of-service model. They use the same cost structure of a monthly amount plus an amount per hour of run-time and a bonus for efficiency, aligning the incentives of the membrane manufacturer as well.
The most expensive part of the membrane itself is made of platinum, which acts as a catalyst, so is not consumed by the fuel cell and can be fully recycled. Precious metals like platinum are not only expensive, mining them is also very environmentally damaging. So Riversimple is also working with the membrane manufacturer so they lease the platinum within the membranes from the mining company, paying an amount per month per gram of platinum used.
This means the mining company will retain ownership of the platinum, so once the fuel cell needs to be recycled, the platinum will either be recycled with it and the lease continue, or be returned to the mining company. They will then be able to lease it back to Riversimple in a new membrane or lease or sell it to someone else. This leasing model effectively incentivises the mining company to recycle the platinum so that they can continue to profit as it is reused over and over again.
Moving the sale-of-service model all the way up the supply chain like this is not easy. On a technical level, they will need to accurately keep track of the usage rates of each individual fuel cell and membrane in order to calculate payments. This will necessitate both sensors in the cars and a tagging system to keep track of the parts, of which blockchain is an essential component. On a business level, they will need to persuade companies all the way up the supply chain to try out an innovative business model despite the technical challenges.
To overcome these challenges and help drive the transition to a circular economy, Riversimple, in partnership with Swansea University and the University of Exeter, has launched Circular Revolution, a circular economy innovation centre. Circular Revolution has six pilot projects to develop the systems needed to make it possible to implement sale-of-service throughout the supply chain. It also has an outreach programme to help businesses in West Wales engage with the circular economy.
Successfully moving to this model would have many positive consequences. One of the immediate consequences is a realignment of design incentives at each level. As soon as Hugo Spowers, the founder of Riversimple, suggested this model to the membrane manufacturer, they said they would make more efficient membranes by using more platinum. This would be better environmentally, as the fuel cells would be more efficient. It didn’t make economic sense when they were selling membranes, because platinum is so expensive; but under the new model of leasing the membranes out with the potential to earn an efficiency bonus, increasing the amount of platinum would also increase their revenue. The new model brought their financial incentives into alignment with the aim of decreasing their environmental impact.
If this model becomes more widespread, it could have deeper consequences that will massively increase uptake of circular economy principles. For instance, while miners of elements such as precious metals and rare earths simply mine, refine, and sell those elements, their incentives are opposed to the circular economy because they need a continual demand for virgin material to be able to keep mining. But if they lease rather than sell the elements they mine and the materials they make from them, they can transition from being miners of valuable substances to being stewards of those substances, ensuring they are always able to be used and are recoverable after use. They might even stop mining altogether.
Right now we are a long way from mining companies choosing to stop mining, just as we are a long way from solving the waste problem. But it is essential that we do if we are to create a truly sustainable society, and innovators such as Riversimple are demonstrating how this might be possible.
This article is adapted from excerpts of Building Tomorrow: Averting Environmental Crisis With a New Economic System. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.