Green Tech

SunRun has secured financing from U.S. Bancorp to expand its solar power purchasing program to 2,000 more homes in the next year, the San Francisco start-up said Thursday.

U.S. Bancorp, the parent of U.S. Bank, has committed $105 million in tax equity, a fund that will allow the bank and SunRun to take advantage of the federal solar subsidy, which is a tax credit.

SunRun's business model--one being pursued by a handful of new solar installers--is to provide financing to homeowners and small businesses interested in installing solar panels.

Rather than pay the up-front cost of buying and installing panels, the consumer pays a smaller initial fee and then monthly electricity usage at a rate lower than the utility. SunRun and its financial backers own the panels and maintain them.

This sort of contract, called a power purchase agreement, has fueled rapid growth of solar electric installations at corporations in the past few years.

These types of investments--which are difficult to secure amid the slumping economy--are structured to offset tax bills for businesses and generate steady cash for investors.

So far, SunRun has more than 300 customers, all of which are in California, said President and Chief Operating Officer Nat Kreamer. He added that the company hopes to expand in the East Coast.

In addition, SunRun said Thursday that it has added David Buzby to its board. Buzby is the chairman of SunEdison, a company that handles purchase power agreements for corporations and utilities.

Update at 9:30 a.m. PT with correction to clarify SunRun's business model.

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.