A comprehensive market intelligence report analyzing circular business models in renewable energy, covering product-service systems, revenue frameworks, CAPEX/OPEX economics, and implementation roadmaps for solar, wind, batteries, and grid infrastructure.
December 22, 2025 | 38 min read
The transition from linear "take-make-dispose" models to circular economy frameworks is reshaping value creation in the renewable energy sector. By extending product lifespans, enabling component reuse, and recovering materials at end-of-life, circular business models reduce resource dependency, lower lifecycle costs, and unlock new revenue streams—while aligning with increasingly stringent regulatory mandates and investor ESG expectations.
A circular economy is an economic system designed to eliminate waste and maximize resource use through strategies that keep products, components, and materials in circulation at their highest utility and value for as long as possible. In the energy sector, this contrasts sharply with the traditional linear model where renewable energy equipment is manufactured, deployed, and eventually landfilled or downcycled with minimal material recovery.
The most successful circular models in energy do not simply add recycling at the end—they re-architect the entire value chain from product design through business model to end-of-life recovery. Companies that treat circularity as a "bolt-on" rather than a strategic redesign typically capture less than 30% of the available value and struggle with cost competitiveness versus linear incumbents.
Academic literature and industry practice identify five dominant circular business model archetypes that are being adapted and combined across the renewable energy sector. Each archetype addresses different value creation mechanisms and requires distinct operational capabilities.
| Archetype | Core Mechanism | Energy Sector Application | Revenue Logic | Key Success Factors |
|---|---|---|---|---|
| 1. Product-as-a-Service (PaaS) | Sell outcomes (kWh, uptime) not hardware; provider retains ownership | Solar-as-a-Service, Energy Storage-as-a-Service, Lighting-as-a-Service | Recurring subscription or performance-based fees; residual value at end-of-contract | Strong balance sheet, predictive maintenance, asset recovery capabilities |
| 2. Product Life Extension | Maximize lifespan through maintenance, repair, refurbishment, remanufacturing | Inverter refurbishment, blade repair, battery remanufacturing | Service contracts, warranty extensions, spare parts sales | Reverse logistics network, certified technicians, spare parts inventory |
| 3. Sharing Platforms | Enable multiple users to access the same asset, increasing utilization | Community solar, peer-to-peer energy trading, aggregated battery storage | Platform fees, transaction commissions, utilization-based charges | Digital infrastructure, regulatory approval, trust mechanisms |
| 4. Circular Supply Chains | Recover materials/components from EOL products; use recycled content in new production | Solar panel recycling into new cells, wind turbine blade reprocessing, battery material recovery | Avoided virgin material costs, green premiums for recycled content, EPR compliance credits | Collection infrastructure, advanced recycling technology, offtake agreements |
| 5. Performance Economy | Charge for guaranteed performance (availability, output) rather than hardware sale | Power Purchase Agreements (PPAs) with performance guarantees, grid stability contracts | $/MWh delivered, capacity payments, ancillary service revenues | Real-time monitoring, risk management, long-term contractual relationships |
Archetypes synthesized from circular economy literature, renewable energy industry practices, and product-service system frameworks.
Most successful circular implementations in energy combine multiple archetypes. For example, a solar-as-a-service provider (PaaS) will also implement predictive maintenance (life extension), source recycled silicon and aluminum (circular supply), and aggregate distributed systems into virtual power plants (sharing platform). This hybridization maximizes value capture but increases operational complexity and requires cross-functional capabilities.
Product-Service Systems represent the most transformative circular business model in energy, fundamentally shifting the value proposition from selling equipment to delivering energy outcomes. In a PSS model, the provider retains ownership of assets (solar panels, batteries, inverters) and charges customers based on delivered services (kWh generated, peak demand reduction, grid services) or usage time.
| PSS Type | Customer Offering | Example Applications | Circularity Advantages |
|---|---|---|---|
| Product-Oriented PSS | Product sale + value-added services (maintenance, warranties, training) | Solar panels with 20-year O&M contracts, wind turbines with remote diagnostics | Extends lifespan via professional maintenance; enables component tracking for EOL recovery |
| Use-Oriented PSS | Customer pays for product access/use, not ownership (lease, rent, pool) | Battery Energy Storage System (BESS) leasing, community solar subscriptions | Provider optimizes utilization and recovery; customer avoids CAPEX and disposal risk |
| Result-Oriented PSS | Customer pays for defined outcomes; provider determines solution | Energy-as-a-Service ($/kWh generated), guaranteed peak demand reduction, carbon offset contracts | Maximum incentive alignment for durability, efficiency, and material recovery; provider captures all residual value |
PSS classification adapted from servitization and circular economy literature applied to renewable energy context.
Under a traditional sales model, the manufacturer's revenue stops at point-of-sale, and the customer bears all operational, maintenance, and disposal costs. This incentivizes manufacturers to maximize volume and planned obsolescence, not durability. Under PSS, the provider's profit depends on asset longevity, uptime, and end-of-life value recovery—aligning economic incentives with circular principles.
However, PSS requires the provider to carry assets on balance sheet, absorb upfront CAPEX, and manage operational risk—creating financing and risk management challenges explored in later sections.
Choosing the right revenue model is critical to capturing circular economy value in energy equipment. Each model has distinct cash flow profiles, risk allocations, and circularity enablement characteristics that affect both provider and customer economics.
| Revenue Model | Upfront Cost to Customer | Ongoing Payments | Ownership & EOL Risk | Provider IRR (Illustrative) | Circularity Enablement |
|---|---|---|---|---|---|
| Traditional Sale | $100,000–$140,000 | None (customer pays for O&M separately) | Customer owns; bears degradation, disposal costs | 15–22% | Low – manufacturer has no visibility or incentive for EOL recovery; customer may landfill |
| Operating Lease (10 years) | $0–$5,000 (installation fee) | $1,200–$1,600/month | Provider owns; controls maintenance, upgrades, and end-of-contract disposition | 12–18% | High – provider optimizes lifespan, captures residual value via second-life lease or component recovery |
| Power Purchase Agreement (PPA) – 20 years | $0 | $0.09–$0.13/kWh generated | Provider owns; absorbs all performance, maintenance, and regulatory risk | 9–14% | Very High – provider maximized to extend output over contract life; captures panels for remanufacturing/recycling at EOL |
| Energy-as-a-Service (EaaS) – Performance Guarantee | $0 | $1,400–$1,800/month for guaranteed kWh delivery | Provider owns; guarantees minimum annual generation with penalties for underperformance | 10–16% | Very High – provider incentivized for efficiency, predictive maintenance, and component recovery |
Illustrative economics for commercial rooftop solar in North America; IRRs vary by location, incentives, and financing terms.
From a circular economy perspective, PPA and EaaS models are structurally superior because they keep ownership with the party best positioned to optimize asset lifecycle, even though they require more sophisticated financial engineering and risk management capabilities.
Cascading use—repurposing components that no longer meet primary application requirements for less demanding secondary applications—is a cornerstone of circular business models. Second-life strategies extend total asset value and defer material recycling, which is typically more energy-intensive and value-destructive.
EV batteries typically reach end-of-first-life when State of Health (SoH) degrades to 70–80% of original capacity—insufficient for vehicle performance but suitable for stationary storage where energy density and fast charging are less critical. The second-life battery market is projected to reach $4–7 billion by 2030, driven by declining primary use costs and growing demand for grid flexibility.
| Application | SoH Requirement | Typical Residual Value ($/kWh) | Second-Life Duration | Key Players |
|---|---|---|---|---|
| Grid-Scale Storage (Frequency Regulation) | 70–85% | $50–$90 | 5–8 years | Repurposed EV packs aggregated into MW-scale systems; requires battery management system (BMS) validation |
| Commercial & Industrial Backup Power | 65–80% | $40–$70 | 6–10 years | Low cycle-count applications; value depends on reliability and warranty terms |
| Residential Solar + Storage | 70–85% | $60–$100 | 5–8 years | Distributed installations; customer acceptance driven by certification and warranty |
| Off-Grid & Microgrids | 60–75% | $30–$60 | 4–7 years | Emerging markets, remote communities; less stringent performance requirements |
Residual value ranges reflect tested, certified second-life packs; uncertified or untested packs may trade at 40–60% discounts.
Successful battery second-life programs require robust testing and certification protocols to assess remaining capacity, internal resistance, and safety—costs that can range from $5–$15/kWh depending on automation and throughput. Without certification, customer acceptance and insurance coverage are severely constrained.
Solar panels typically retain 85–95% of nameplate capacity after 25 years, enabling extended use in less demanding applications or geographical markets. However, physical damage (cracks, delamination), outdated technology (lower efficiency), and lack of warranty coverage limit second-life market development compared to batteries.
Emerging second-life pathways include:
The main barrier is logistics and testing costs—transporting, cleaning, testing, and certifying used panels often exceeds $10–$20 per panel, which can approach or exceed second-hand market value for older, lower-efficiency units.
Wind turbine blades pose unique circularity challenges due to composite fiberglass construction that resists recycling. Emerging second-life applications include:
Advanced recycling technologies targeting fiber recovery and resin depolymerization are at pilot scale (TRL 5–7) but face economic headwinds due to high energy requirements and limited market for recovered fibers.
Business Model: Result-oriented PSS—commercial customers pay per kWh delivered over 15-year contracts; provider owns and maintains rooftop and ground-mount systems
Circularity Integration:
Financial Performance: Achieved 13.5% levered IRR on portfolio basis; second-life panel redeployment and material recovery added 2–3 percentage points to returns versus traditional sale model
Key Success Factor: Vertical integration of O&M, refurbishment, and recycling capabilities avoided third-party margins and improved reverse logistics efficiency
Business Model: OEM and utility partner to collect, test, and repurpose retired EV batteries for grid-scale storage
Circularity Integration:
Financial Performance: Achieved residual value realization of $65–$85/kWh for qualifying packs (75–85% SoH); uncertified packs sent directly to recycling at $8–$12/kWh
Lessons Learned: Certification and warranty costs were initially underestimated at $12–$18/kWh; economies of scale and process automation reduced costs to $7–$10/kWh by 2025, improving unit economics
Business Model: Independent service provider offers gearbox, generator, and bearing remanufacturing for aging wind farms
Circularity Integration:
Financial Performance: Gross margins of 25–35% on remanufactured components versus 18–25% for new part distribution; customer lifecycle cost savings of $150,000–$300,000 per turbine over 20-year period
Market Barrier: OEM warranty exclusions for non-OEM parts limit addressable market to out-of-warranty turbines (typically >10 years old), representing ~30% of installed base in 2024
Circular business models typically require higher upfront CAPEX (design-for-disassembly, reverse logistics infrastructure, refurbishment facilities) but deliver lower lifecycle OPEX and higher terminal value through material recovery and extended use. Understanding this trade-off is critical for financial structuring and investor communication.
| Cost/Revenue Component | Linear Model (Traditional Sale + Recycle) | Circular Model (PSS + Second-Life + Recovery) | Delta |
|---|---|---|---|
| Initial CAPEX | $10.5M | $11.2M (+7%) | Higher due to modular design, IoT monitoring, standardized connectors |
| Annual OPEX (Years 1–25) | $180,000 | $210,000 (+17%) | Predictive maintenance, data analytics, customer service overhead |
| Component Replacement (Years 10–20) | $1.2M | $850,000 (-29%) | Proactive maintenance and refurbishment extends component life |
| EOL Disposition Cost (Year 25) | $120,000 (decommissioning + landfill fees) | -$95,000 (net revenue from material recovery) | High-efficiency recycling + resale of aluminum, glass, copper |
| Extended Revenue (Years 26–35) | $0 | $2.8M (second-life lease or repowering) | Residual capacity sold to lower-criticality markets |
| Lifecycle NPV (8% discount rate) | $18.4M | $22.1M (+20%) | Circular model NPV advantage driven by extended revenue and material recovery |
| Unlevered IRR | 11.2% | 13.8% (+260 bps) | Higher returns despite higher upfront costs due to extended cash flows |
Illustrative analysis for utility-scale solar in North America; actual economics vary by location, incentives, and execution capability.
Despite compelling lifecycle economics and strong policy tailwinds, circular business models in energy face persistent structural, financial, and operational barriers that can derail implementation and erode returns. Investors and operators should confront these challenges transparently rather than assume smooth adoption.
In practice, successful circular transitions in energy are gradual and selective—starting with high-value asset classes (utility-scale batteries, commercial solar), geographies with favorable regulation (EU, California), and customer segments open to service models (municipalities, ESG-focused corporates)—rather than attempting overnight transformation of entire product portfolios.
The next decade will determine whether circular business models in energy transition from niche experiments to mainstream practice. Three scenarios illustrate plausible trajectories based on policy ambition, technology maturation, and market acceptance.
| Scenario | Share of New Deployments via Circular Models (2030) | Share of New Deployments via Circular Models (2035) | Key Drivers & Assumptions |
|---|---|---|---|
| Conservative | 15–25% | 25–35% | Weak enforcement of EU circularity mandates, limited customer acceptance of PSS models outside large corporates, high cost of capital constrains balance sheet expansion, second-life battery market underperforms due to certification costs and performance concerns |
| Base Case | 30–45% | 50–65% | EU Ecodesign and Digital Product Passport regulations fully enforced by 2027–2028, major OEMs adopt PSS for commercial/utility segments, battery second-life market reaches $5–7B annually, recycling infrastructure scales with subsidies and EPR mandates, green finance proliferates |
| Accelerated | 45–60% | 65–80% | Global harmonization of circularity standards (US, EU, China), carbon pricing internalized across supply chains, PSS models achieve cost parity with traditional sales through scale and technology, direct reuse and remanufacturing technologies mature (TRL 8–9), institutional investors mandate circular models for ESG portfolios |
Penetration estimates reflect share of new solar, wind, and battery storage capacity deployed under circular business models (PSS, leasing, performance contracts with take-back provisions).
Several regulatory milestones will shape the adoption trajectory:
By 2035, the energy sector is likely to see:
For PSS and second-life programs, economic viability typically requires a portfolio of at least 50–100 MW of installed capacity or 5,000–10,000 battery packs under management to amortize fixed costs (testing facilities, logistics network, data systems) and achieve utilization rates above 60–70%. Below this threshold, per-unit costs remain prohibitively high unless operations are outsourced to specialized circular economy service providers.
Successful transitions typically follow a "dual-track" strategy:
Circular models require patient, low-cost capital willing to accept longer payback periods (12–20 years) in exchange for stable, inflation-protected cash flows. Optimal structures include:
Circular models with contracted revenue (PPAs, long-term leases) are relatively recession-resistant due to essential-service nature of energy and long contract durations. However, models dependent on spot market prices for second-life equipment or recovered materials face significant downside risk during economic downturns when scrap prices and discretionary spending collapse. Prudent operators hedge this risk through fixed-price offtake agreements or conservative residual value assumptions.
Industry and regulators are converging on standards including:
Certification costs typically range $5–$15/kWh but are essential for obtaining insurance coverage, grid interconnection approval, and customer acceptance.
Yes, but through different mechanisms. In regions with limited EPR enforcement or recycling infrastructure, circular value is often captured through:
Grid assets have naturally long lifespans (40–60 years), so circular strategies focus on:
This market intelligence report synthesizes academic literature on circular economy business models, product-service systems in energy, and sustainable product design, alongside industry case studies, policy analyses, and techno-economic assessments from organizations including the Ellen MacArthur Foundation, World Economic Forum, International Energy Agency, and peer-reviewed journals.
Quantitative benchmarks for CAPEX, OPEX, residual values, and financial returns are derived from published techno-economic models, pilot project disclosures, and comparative case studies, normalized to real 2024 USD where possible. Scenario projections for 2030 and 2035 reflect combinations of regulatory enforcement trajectories, technology maturation timelines, customer adoption curves, and financing availability, and should be interpreted as illustrative rather than deterministic.
The report focuses on solar photovoltaics, battery energy storage, and wind turbines as the most material asset classes for circular economy implementation in renewable energy, with cross-references to grid infrastructure and other equipment where relevant. All forward-looking statements are subject to uncertainty from policy changes, technology disruption, macroeconomic conditions, and evolving customer preferences. Data sources accessed December 2024–January 2025.
Limitations: Most published circular business model analyses focus on European markets with strong regulatory drivers; applicability to other regions (North America, Asia, emerging markets) may differ materially due to regulatory, cultural, and infrastructure differences. Financial performance data for circular models remains limited as many programs are in early commercial phases—case study results should be validated with multi-year operational track records as they become available.
All sources accessed December 2025. Quantitative data normalized to 2024-2025 timeframe where applicable.
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