UpStart n. 1. A company or organization with innovative approaches to energy use, carbon pollution, resource consumption, and/or social equity, 2. A company or organization overcoming market barriers to build the new clean energy economy.
by Lisbeth Kaufman
Finally, roof-top solar power is becoming affordable for the broad reach of the middle class. And we can thank the UpStarts with innovative ‘solar service’ business models for making solar photovoltaics (PV) accessible to the average homeowner.
Companies like SolarCity, SunRun Homes, and Sungevity are remaking and retaking financing, installation, and system maintenance – and delivering power often at prices lower than the customer’s current electricity bill.
This sector has become so successful, it recently caught Google’s eye.
As part of its RE<C campaign, Google has made a few high-profile investments in large-scale solar and geothermal technologies since 2008. But the risky nature of those investments means they might not pay off for many more years.
This week, Google switched gears and invested $290 million, its largest investment yet, in SolarCity, one of the pioneering solar services companies. Google’s $290 million will go into a fund that supports the installation of solar systems and the creation of the financial products that make solar services cost-competitive today.
While nothing new to other industries, these financial services are truly groundbreaking for the solar industry. SolarCity and the range of other companies in this space are classic “Upstarts” – innovators that are working from the bottom up and turning the economy upside down.
The Problem: Getting Solar Can Be Difficult and Expensive for the Average Home Owner or Business
Solar has high appeal: zero emissions, low maintenance costs, and, of course, free fuel. However, even for consumers who understand these benefits, access to solar can be difficult. Barriers to solar include:
1. High upfront capital costs: Though solar-generated energy is essentially free, installation for an average 5kw solar system comes with a price tag averaging around $32,000 per house in the U.S.
2. Complex and confusing: Switching to solar can be confusing and difficult. Homeowners and businesses must juggle contractors, building codes, solar design, while also navigating complex federal, state, and local incentives and rebate programs.
The Solution: Integrated Solar Services
Companies like SolarCity, SunRun, and Sungevity have developed smart business models that overcome the barriers above, making it easier for the average energy consumer to use solar. They feature two main products: The solar lease and the solar power purchase agreement. Under a lease, the building owner pays a monthly fee to host the system; under a power purchase agreement, the host pays for every unit of electricity – in many cases less than they pay for grid-electricity today.
Founded in 2006, SolarCity has installed over 15,000 systems in the U.S. so far. Likewise, SunRun has expanded to eight states and has become the leading residential solar installer since it opened in 2007.
As mentioned above, that rapid growth seems to have caught the eye of the folks at Google who have been looking for investments that can help rapidly drive down the cost of renewable energy. It has also grabbed the attention of big box stores like Lowes, which is partnering with Sunvegity, and Home Depot, partnering with SunRun, to bring solar to even more energy consumers. At a time when project financing is tight, these three companies have cumulatively raised hundreds of millions of dollars to support their services.
The solar services approach to overcoming barriers is as follows:
1. Eliminate High upfront capital costs
These companies aren’t just installers; they provide the services that allow a home or business owner to invest in solar without the up-front cost. These UpStarts install solar panels on homes for as low as $0 down – while also sheltering a homeowner from having to spend time and money thinking about tax credits, rebates and utility interconnection requirements.
In the end everyone profits: energy consumers get solar with no upfront costs and lower energy bills, and the solar-services companies benefit from taking advantage of incentives, making solid returns.
2. Take Care of Complexities and confusion
With integrated business models, these solar services companies are one-stop-shops, reducing the confusion and difficulty of switching to solar. They take care of everything including financing the installation, designing the equipment, securing permitting, installing the system, and monitoring to ensure it works flawlessly.
SolarCity has a vertically integrated business model, employing its own installers, while SunRun and Sungevity partner with local independent contractors. They all provide a complete package, managing projects from start to finish.
Companes like SolarCity, SunRun, and Sungevity are showing that solar on a distributed scale can make immediate carbon reduction and provide immediate returns. As true UpStarts, these companies profit by reducing cost barriers and eliminating risk, thus solving the problems that keep small energy consumers away from solar.
That’s how you turn the economy upside down, and then put it back right-side up.
— Lisbeth Kaufman, Center for American Progress