Green Tech

SolarCity said it has the funds to further finance its solar-panel leasing offering.

The Foster City, Calif.-based company on Wednesday said it has secured tax equity funding through U.S. Bancorp Community Development Corporation, the second fund created with the U.S. Bancorp division.

First Solar panels installed by SolarCity in Berkeley Hills, Calif.

(Credit: SolarCity)

SolarCity is one of a handful of companies that offer financing options for homeowners and businesses to install solar electric panels.

Rather than pay the large upfront cost of solar, consumers pay a monthly fee and can anticipate lower monthly electricity bills. In some cases, the solar installer owns the panels and the consumer leases the panels for 20 years.

SolarCity now offers its financing option in California, Oregon, and Arizona. With the fund, the company plans to hire another 100 employees over the next six months.

The solar industry overall has been hit hard by a dearth of tax equity funds to finance solar projects. Because corporate profits have dipped, fewer banks are able to create a fund based on tax credits, which is how renewable energy projects in the U.S. have traditionally been subsidized.

SolarCity said its two tax equity funds were the only ones created this year to finance residential solar.

SolarCity on Wednesday said that high-flier First Solar will invest $25 million in the company and supply it with panels over the next five years.

The supply arrangement will allow SolarCity to offer its solar panel leasing program in more states, in the U.S. East Coast, CEO Lyndon Rive said on Wednesday.

The start-up company is one of a handful of firms tackling the high up-front cost of purchasing solar electric panels by offering a financing option. Instead of paying $25,000 to $35,000 to buy panels, the homeowner or small business pays a monthly fee for 20 years. SolarCity owns and maintains the panels.

SolarCity offers the program in states where a customer will pay less per month on electricity by leasing the panels, explained Rive. Because First Solar's panels, or modules, are the most cost-effective in the industry, SolarCity can expand to more places.

"Let's say that a customer pays $150 a month on electricity. In some cases, leasing would add $10 to their monthly spending," Rive said. "The difference this module will make is that it brings the cost down just so slightly to make it a positive cash flow to the customer."

By owning the panels themselves, solar installers and leasers like SolarCity can take advantage of the tax credits and other renewable energy incentives.

As part of the deal, First Solar will supply 100 megawatts worth of its panels to SolarCity over the next five years, starting in the first quarter of next year. A typical rooftop solar panel installation is between 2 and 5 kilowatts. SolarCity will continue to install panels from other manufacturers Kyocera, Evergreen Solar, and BP Solar.

For First Solar, the deal will allow entry into the residential market. The company, which manufacturers thin-film solar cells from cadmium telluride, has its panels installed at corporations or solar farms for utility-scale generation.

First Solar's $25 million investment is part of a $30 million series D round, which SolarCity closed on Monday. That financing included participation from previous investors Draper Fisher Jurvetson and Double Bottom Line Investors.

SolarCity currently offers its leasing program, which is chosen by 90 percent of new customers, in California, Oregon, and Arizona.

Frustrated with political deadlock, solar energy companies fear a big setback if Congress fails to renew a key federal tax credit set to expire at the end of the year.

The provision would extend a 30 percent break of up to $2,000 to homeowners. Businesses would qualify for the same percentage, without a cap.

Barry Cinnamon, CEO, Akeena Solar

(Credit: Akeena Solar)

While the U.S. House of Representatives has passed a bill to extend the tax credit, the effort so far has failed eight times in the Senate--the latest defeat occurring on July 30.

"The delay in the ITC (investment tax credit) renewal has meant that large commercial jobs are being postponed" because of the risk that they can't be installed by December 31, said Barry Cinnamon, chief executive of Akeena Solar.

Registering concern for the future of their nascent industry, executives like Cinnamon note that the uncertainty over the tax credit's renewal has already contributed to the loss of small and medium commercial jobs. If the current logjam continues, they say the impact will likely hurt the commercial sector more than the residential sector as the residential credit is capped at $2,000--which is rarely a critical factor in a homeowner's decision-making process.

The irony is that industry lobbyists report bipartisan support for the provision in the Senate, where the vote fell nine votes short of the three-fifths supermajority needed. Six members did not vote, including Sens. John McCain and Barack Obama. (The national governor's association has also come out in support of granting a long-term extension of the solar tax credits.)

Josh Green, Mohr Davidow Ventures

(Credit: Mohr Davidow Ventures)

One source tied to the solar industry said that many Republicans were loath to support the extension "because they don't want to give the Democratic Congress any credit" before the election. Previous attempts also were stymied by oil lobbyists, who fought efforts to close a tax loophole on oil companies to pay for the tax credit extension.

As the calendar turns to the fall, the odds increase that the solar tax extension could become hostage to the presidential contest. Several executives involved with the solar industry said that tens of thousands of jobs will be put in jeopardy and more jobs won't be added next year if Congress fails to act.

"Many of these commercial projects are in important planning stages right now, and the overall industry is at the tipping point that will lead to widespread adoption," said venture capitalist Josh Green of Mohr Davidow Ventures, who predicted that the failure to renew the ITC will result in the delay or cancellation of important commercial projects in the United States. "The absence of the ITC will kill most, if not all, of this growing momentum. We need only look to the interruption of tax credits for the wind industry for an example of something that we do not want to repeat. This would be a real shame."

Lyndon Rive, CEO, SolarCity

(Credit: SolarCity)

At the same time, however, he suggested that the absence of an investment tax credit may have relatively little impact on businesses in the short to medium term. That's because the rapidly expanding solar markets in Europe, Asia, and the Middle East will not be affected by the controversy over the ITC and will still create plenty of customers for solar manufacturers.

"Over the longer term, however, the United States commercial market is far too important to be ignored," Green said. "A consistent ITC policy extending over several years that allows industry to grow and flourish is critical to the industry."

Despite the tough slog, though, industry players remain convinced that the U.S. government understands the investment tax credit's role and will press the case for continuing solar's domestic momentum.

Lyndon Rive, the CEO of SolarCity, a residential solar installer in California, said he remains "very optimistic" that the ITC will be renewed by the end of the year.

"The ITC has become a very politicized issue, however, and it's possible that approval could extend into 2009," he added. If the ITC is allowed to lapse, Rive predicted it would cost thousands of solar jobs and severely limit the growth of the solar industry in the U.S.

"The jobs lost in the U.S. would move overseas to more favorable solar markets," he said. "Solar power will eventually reach cost parity with other energy sources, but that will not occur in the next few years without incentives."

The worst-case scenario is painted by industry executives who envision a tremendously down year in 2009 for the solar industry with commercial installations grinding to a halt. To be sure, residential installations will continue to grow--especially in states where there are good rebates, such as in California, New York, and Connecticut. But companies that are most exposed are those that have built the bulk of their business on commercial installations. These companies will have to find some other way to pay their bills if the ITC doesn't win an extension.

If you are a San Francisco resident considering solar panels, now is the time for action, says Lyndon Rive, CEO of SolarCity, a start-up that leases panels to homeowners.

Since the city solar-incentive program came into effect in July, it has become financially viable for even small energy consumers to install solar-power systems.

(Credit: SolarCity)

The San Francisco incentive covers between $3,000 to $6,000 for homeowners to install solar panels, as well as $10,000 for businesses and nonprofits, and $30,000 for nonprofit affordable housing. The program runs for a decade.

This initiative, together with a state rebate program of $1.90 per installed watt and the 30 percent federal investment tax credit (ITC) for solar energy, adds up to be a good deal, even for the city's smaller households.

Most energy customers in San Francisco pay an electricity rate that depends on how much power they use--the higher the usage, the steeper the bill, according to Rive. The rates vary from 12 cents per kilowatt-hour to 36 cents per kilowatt-hour.

Most of SolarCity's customers have paid 23 cents to 31 cents per kilowatt-hour for the electricity, prior to going solar. But with the addition of the city incentive program, even consumers paying 12 cents per kilowatt-hour today can reduce their electricity bill by installing solar cells, Rive claims.

"For as low as $25 per month, you can get a 2.4-kilowatt capacity system," he said.

Doing the math
Chris Clark, a resident of the Inner Sunset, a foggy neighborhood in San Francisco, is just finalizing his leasing deal with SolarCity. "It's going to reduce our bill significantly with the city rebate, probably 40 percent," he said. The roughly $120 that Clark currently pays for electricity per month is predicted to fall to about $70 per month when his system gets installed in August.

John Stubblebine in Cupertino, Calif., had SolarCity panels installed on his roof a month ago. He chose to pay for 8 percent of the $35,000, 6-kilowatt solar panel system up front.

"You can choose to pay zero, 8, or 16 percent of the system. Since I chose to put in a slightly more expensive system, there would be a slightly higher rate without a down payment," he said.

Stubblebine cut his monthly electricity bill from $158 to $116. But he also noted that he still needs to pay a residual bill to Pacific Gas and Electric for meter readings. And his electricity rates have changed from a set rate to being demand-based, with a midday peak price.

"You settle your bill with PG&E by the end of the year. If you've used more electricity than you produced, you pay all that. If you've used less, you don't get money back," he explained.

Stubblebine likes the monitoring program included in the lease with SolarCity, providing service for the initial 15 years for which customers sign up. Thereafter, customers can choose whether they want to renew the lease, buy the system, upgrade it, or take it off the roof.

SolarCity, which started operations in earnest in 2007, has grown from two employees to nearly 300, and it hopes to at least double its $30 million revenue this year. Initially, the company started out by cutting installation costs by 20 percent to 30 percent by persuading communities to do aggregated purchases of solar systems.

"But the largest barrier to adoption was the up-front cost. Even $20,000 was difficult," Rive concluded.

So he started a solar-leasing program, similar to the power purchase agreements that have become popular with larger corporations. SolarCity has expanded to Arizona and Oregon, with plans for the East Coast in 2009.

Competitors include Bay Area start-up Sun Run, Clean Power Finance and GroSolar.

Rive argues that now is a good time to go solar, since the federal ITC incentive will expire by the end of 2008, unless renewed by Congress. And the city incentive program has a limited pot of $3 million, only enough to cover 500 to 1,000 households.

CORONADO, Calif.--Looming energy problems present noteworthy challenges for the world, but big thinkers in science, business, and technology know they have to compete with the status quo without a helping hand.

The Future in Review conference has always been about sketching a picture of the technology and business landscape five years into the future. But this year, attendees and presenters are focused on a more pressing issue: the need for alternative energy sources to replace fossil fuels sooner, rather than later.

Stephen Evans of the BBC, Elon Musk of SpaceX, and Lyndon Rive of SolarCity (left to right) discuss solar power.

(Credit: Tom Krazit/CNET News.com)

As such, the early talk at the Hotel Del Coronado is all about alternative energy, whether that's cellulosic biofuels, photovoltaic panels, and carbon-reduction strategies. Vinod Khosla of Khosla Ventures kicked off the conference Tuesday night with an after-dinner speech urging the technologists, venture capitalists, and entreprenuers in attendance to focus on greener technologies that make economic sense, rather than crowd-pleasers like hybrid cars or Sheryl Crow's toilet-paper reduction strategy.

Khosla is plunging his dollars into technologies like enhanced geothermal, cellulosic ethanol, and efforts to improve the efficiency of products we already use, like engines and light bulbs. The key investment decision, in his mind, is whether these alternative technologies can work at utility-grade levels.

"(Alternative fuels) have to compete with the cost of fossil fuels without subsidies," he said, and they also have to be scalable. Technologies like food-based ethanol, wind power, and regular geothermal aren't scalable to meet the needs of a huge energy provider like PG&E, but if we could perfect ways to create ethanol from non-food sources, effectively store the energy generated by wind power, or drill geothermal plants anywhere on the surface of the planet, that goal of scalability comes into sight.

The other goal is that alternative sources of energy have to be price-competitive with current sources of energy such as oil, coal, and natural gas. The public will embrace cleaner, sustainable energy sources as long as they don't have to pay for it, Khosla said.

Martin Tobias of Ignition Partners, Erik Blachford of TerraPass, and David Morris of EcoVerdance talk about carbon-trading systems.

(Credit: Tom Krazit/CNET News.com)

Khosla is betting on the future, but he thinks that significant changes could arrive in the energy market as soon as five years from now. Other presenters on Wednesday morning discussed their current businesses, such as Lyndon Rive of SolarCity and David Morris of EcoVerdance.

Rive has a thriving business installing solar panels on California homes but is working overtime to try to ramp up the supply of solar technologies to meet demand, which illustrates Khosla's scalability issue: prices are way, way too high.

Morris' company is working on carbon trading by allowing businesses to purchase credits for a chemical called Accele-Gro-M, which is then given away to farmers in developing economies. This "all-natural plant growth enhancer," according to EcoVerdence's site, is used to boost crops yields; 1 gallon can treat 12.5 acres, Morris said. The increased yields not only improve the food supply in those areas, the additional plants take carbon dioxide out of the atmosphere.

Carbon-trading markets have a bad reputation because many people feel they don't work to actually offset carbon production and give carbon producers ways to feel better about their production without really solving the problem. Morris' co-panelist, Erik Blachford of TerraPass, agreed that carbon-trading markets aren't perfect, "but they work."

Morris agreed. "The most costly thing we can do is nothing," he said. The FIRe conference runs through Friday, and several more panels will discuss the energy opportunity from several different points of view.

Joseph Brakohiapa is thrilled to hear about how scientists are making solar cells more efficient at converting light to electricity. But he'd much rather be making a sale of solar panels.

Brakohiapa is the CEO of Clean Power Finance, one of a growing number of young companies that are spending their brain power on software and financing, rather than photovoltaics.

On Friday, his company announced a deal with German solar panel manufacturer Conergy, which will recommend Clean Power Finance's Web-based software tools and financing options to Conergy's network of distributors in the U.S.

Clean Power Finance was started by Gary Kremen, a serial entrepreneur known for having purchased popular domain names including Sex.com.

The founding idea behind Clean Power Finance, SolarCity, Sun Run, and other solar financing upstarts is that purchasing solar panels should be like deciding on a car lease.

That is, the math should be straight-forward: if you can save money on your monthly electric bills, then it makes sense.

Green pitch
Right now, buying solar panels is not an easy financial decision because of the large up-front costs--on the order of $20,000 to $35,000 before tax credits and rebates.

That means that rooftop solar installations are mainly going to "green" consumers, or corporations that can get beneficial long-term financing terms.

The problem is that many of those green consumers already have panels, Brakohiapa said.

"For the industry to continue to grow in the residential space, we have to appeal to the mass market and find ways for the everyman to step into solar and get the benefits," he said. "At some point, it's going to be difficult to convince people to make large investments simply based on the fact that it's green."

SolarCity is taking essentially the same tack with its solar lease program that it introduced to a handful of states earlier this month.

When customers choose to lease the equipment, they can expect the money they spend on energy per month to go down, according to company CEO Lydon Rive. They also have the option of purchasing the equipment at a certain point.

Clean Power Finance's is trying to develop lease program that would appear nearly the same to consumers. Right now, it offers loans to consumers through banks either based on their credit rating or secured by a mortgage.

Another financial product is a residential power purchase agreement, which means that consumers buy the electricity from the panels at a pre-determined rate--the same structure typically used by corporations.

CRM for solar guys
In addition to financing, Clean Power Finance has written what is essentially a version of Salesforce.com tailored for solar installers.

The hosted application keeps a database of state tax incentives, the electrical production information of panels, and utilities' electricity rates. Using it, installers can generate an accurate proposal that includes financing options.

Another start-up using Web-based software to speed up the sales process is Sungevity, which has a program for allowing people to quickly get an estimate on a solar installation using satellite data.

In general, solar installers are more technical and don't have the sales and marketing skills to close deals when they have consumers' attention, Brakohiapa said.

"Solar is still a technical sale. Installers are more comfortable talking about kilowatts but the consumer really isn't there," he said. "Tell me that if my monthly payment to the utility is $500, I can get it to $450. Then I'm in."

Tech to the rescue?
Solar start-ups garnered roughly $1 billion in funding last year to develop more cost-effective solar cells. Experts expect that the economies of scale in manufacturing will bring solar module prices down, too.

Many solar cell manufacturers are targeting utilities first for solar power plants or corporations but expect to eventually sell to consumers. Nanosolar CEO Martin Roscheisen this week said that a "fabulous residential solution" is in the company's near-term plans--in parallel to bringing the cost of solar down to $1 per watt.

That technical progress should aid companies developing software tools and financial products because it brings solar power closer to "grid parity," or the same price as fossil fuel electricity production.

The emergence of in-home displays that show consumers how much electricity they consume--and potentially generate with solar power--can make energy consumption more palpable for consumers than monthly bills.

But companies trying to make solar mainstream through better sales efficiency and financing still have a long way to go.

Solar is still a relatively small market and finding installers in a given region can be a challenge for consumers. The credit crunch--and down economy, in general--has put a damper on matters, making lenders more conservative.

But Brakohiapa expects that Wall Street lenders will eventually get into the solar residential market. They already participate in financing corporate solar installations through companies like SunEdison and SunPower, which signed a deal with Morgan Stanley.

"Some investment banks are realizing that they can reach consumers and they can start investing in energy portfolios," he said. "Over time, we are going to see more players in the financial space."

Clarification April 28 10:30 a.m PT: Clean Power Finance does not yet have a leasing program or residential power purchase program for solar panels. The text has been changed to reflect their current offerings.

Standard Renewable Energy, which wants to build a nationwide chain of dealers that can install solar panels and advise businesses and homeowners on saving energy, got $7 million in a second round of funding.

The company also said that Peter Corsell, CEO of smart grid specialist GridPoint, joined the board.

Standard, Conergy, and Solar City are trying to bring more standardization and brand equity to the energy efficiency field. Back in the '70s, and still today, solar installers were mostly independent dealers and contractors. Some, such as Berkeley's Sun Light and Power, established strong reputations. Others weren't so hot.

Consistency will help make consumers more comfortable with alternative energy. Along with services, these companies also sell, or help facilitate sales of, equipment. Standard and rapidly growing Solar City are start-ups, but Conergy is an established company coming from Germany to the States.

CEO John Berger used to run Enron's East Coast trading desk. The company wasn't involved in the shenanigans that occurred in California, but the old job always is good for a few laughs, he says.

Solar installer SolarCity is doing, in a limited way, what many people contend is the key to wide-scale adoption of solar power: a leasing program.

The Foster City, Calif.-based start-up is offering customers in California, Arizona, and Oregon a financing option that allows them to get solar panels with a relatively small up-front down payment and monthly lease fee, SolarCity CEO Lyndon Rive said on Monday.

Solar panels that generate electricity can cost between $20,000 and $35,000 before tax credits and other clean energy incentives. Those subsidies can bring the cost down significantly, depending on the state or country, but up-front costs remain a significant barrier to adoption.

SolarCity's financing plan will allow people to have solar panels installed for $1,000 to $3,000 up front, depending on the size of the system, and a monthly fee.

The numbers work out so that most consumers, particularly those who pay large electricity bills, will pay less per month with the arrangement, he said. As energy prices go up over time, their savings can go up.

"Historically people who are adopting solar are those who really care about the environment and have disposable income. This will open it up to new clients, the millions of people who want clean power," Rive said. "Why would you not do this?"

The service makes most sense for consumers who pay high electricity bills, particularly in states like California that have a tiered pricing regime in which consumers pay a higher electricity rate the more they consume.

The model also assumes electricity prices will continue to go up, which is likely to be the case, although at an unknown rate.

How it works
What SolarCity is doing is a residential version on a commonly used commercial financing model, called a Power Purchasing Agreement (PPA).

When corporations put solar panels on their rooftops, they often don't actually own those panels.

Instead, a third-party installer or financier owns and maintains the panels and sells the electricity they generate back to the customer.

It's an arrangement that lowers the up-front costs and gives customers a locked-in price for electricity over several years. That acts as a hedge against rising fossil fuel prices, since the price of solar energy is constant.

In SolarCity's residential financing program, the company will maintain ownership of panels and benefit from a commercial tax credit, which is better than the residential rate.

Other companies have tried to apply this model to the residential market.

Another Bay Area start-up called Sun Run has a similar financing and ownership model but appears to require a higher up-front investment.

Another company, Citizenre, has promised the same low-money-down arrangement in the face of deep skepticism but has not launched a product after more than a year of advertising it.

Other installers, such as groSolar, offer to broker financing services for customers.

Rive said that SolarCity hopes to roll out the financing option to other states later this year.