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.

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.

Danny Kennedy may have come up with a way to make solar panels an impulse buy.

Sungevity, Kennedy's company, has come up with a Web-based system for evaluating the solar potential for a given home through satellite data. Customers log onto Sungevity's site and provide an address and some information about their monthly electrical bill.

Within 24 hours, the company sends customers a quote for installing a solar system, an estimate of how much the system will save them over 25 years, the prospective increase in the value of their home, and simulated imagery of what their home might look like after solar panels are installed. Traditionally, the process that provides all that information takes days and a physical examination of the roof.

"We do all that (the calculations for preparing the estimate) in about 10 to 15 minutes," he said.

Your solar system, Sir! Click a few buttons and Sungevity gives you an accurate quote for a solar system. It cuts out a lot of the time and money of putting these in.

(Credit: Sungevity)

And in a few more clicks, customers can schedule an appointment and put a deposit down on a solar system.

I did an estimate on my grandmother's home. The system would provide 25 percent of the home's power and cost $7,511 after rebates. It would save $27,360 in electrical cost over time, according to the quote. They gave the option of paying upfront or through installments. Visa, Mastercard, and American Express are accepted for the deposit. The quote came back two hours after I handed over the address.

Reducing a complex sale into a quick online exchange--the same trick that propelled Dell to the front of the PC world--helps reduce one of the nagging costs of the solar world: the install expenses. Installation costs come to around roughly half of the cost of a solar system. Sharp, Akeena, and other companies have tried to reduce installation costs through prefabricated frames for solar panels. Others have developed roof tiles with solar cells built in. SolarCity, meanwhile, has aggressively used software to coordinate solar panel deliveries and installations to cut down on the number of trips electricians and contractors have to make. SolarCity also leases solar panels.

Sungevity's software essentially eliminates the money and time it takes for an installer to drive out to someone's house, climb on top of it, and take a bunch of measurements to prepare an estimate. Only 10 percent of those visits lead to a sale, Kennedy added.

In all, Sungevity can cut the cost of a solar system by around 10 percent, he said, and cut out 80 percent of the on-site estimates. (Like Solar City, Sungevity also uses software to coordinate installations.)

The company's secret sauce is a trigonometry-heavy application that can take satellite imagery and create a 3D model of a house. From the model, Sungevity calculates the pitch of the roof, the azimuth (for instance, where the house faces in relation to compass points) and the available area.

"You introduce errors when you put a guy on the roof," Kennedy asserted.

Sungevity uses data from Microsoft Virtual Earth rather than Google Earth for its satellite imagery. Google Earth only provides a top-down view of a roof. Virtual Earth gives data from different angles, which lets Sungevity calculate pitch.

The data provides enough information to provide a fairly strong estimate even without customer input, he said. To prove its point, Sungevity is going to mail fliers to all of the homes in Albany, Calif. Each flier will come with a picture of the home that goes with the address on the flier, a picture of the home with simulated solar panels, and the cost savings. (To fine-tune the estimate, customers need to submit their power bills.) The company has largely been operating under the radar since it started in December.

Rather than install custom solar panel systems, Sungevity offers five different systems, ranging in size from 1.4 kilowatts to 5.6 kilowatts. Prices range from $7,500 to $38,500 for everything after rebates are subtracted.

While operating only in California right now, the company will try to expand to other states. It may employ solar installers as subcontractors in other states, or it may sell estimating services for installers in other states.

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.