Green Tech

SunRun, a company that offers solar-electricity financing, announced Tuesday that it has raised $12 million from Foundation Capital.

The San Francisco-based start-up is one of handful of new companies looking to make solar panels an easier purchase for consumers through financing.

Solar electric panels have a hefty up-front cost--between $20,000 and $35,000-- depending on the size, before rebates.

Although buyers will generally recoup the initial outlay in lower electricity bills in about 15 years, the high cost has restricted solar electricity to a niche audience, say solar industry executives.

Rather than buy the panels, SunRun customers buy the electricity the panels generate. This model, called a power purchase agreement (PPA), is commonly used in large corporate renewable energy installations.

Customers pay a "minimal" up-front fee and then lock into an electricity rate that is lower than the retail utility rate. The arrangement makes most sense in places where there are high electricity rates and relatively good incentives, like California.

SunRun owns the panels and provides maintenance. The company benefits from solar rebate incentives, which help finance the contracts.

Meanwhile, as these solar financing options take hold, the cost of solar panels is dropping regularly.

Experts forecast the cost of electricity from home solar panels will be the same as retail electricity rates--called grid parity--in many places in the U.S. within three to five years.

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.

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.