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The New Solar Middlemen by Ehren Goossens and Will Wade Bloomberg Businessweek, March 24, 2011

Startups ease installation hassles for homeowners and contractors

Branden Barber got his first taste of solar energy a decade ago while living in rural Australia, off the power grid. Although he was eager to tap the sun for power when he returned to California in 2006, his green ambitions were stymied by a tangle of regulatory hurdles and high installation costs.

Enter Sungevity. In July the Oakland company arranged to put 16 solar panels on Barber's roof and took care of all the paperwork--for no cash upfront. Instead, Barber pays Sungevity about $55 a month, with about $30 still going to his utility, PG&E. Sungevity says the savings from the combined bill will increase as electricity rates rise. For most people, installing solar panels is as daunting as "putting an addition on your house or getting a pool," says Barber, a development director at a nonprofit foundation. "If someone's going to arrange that for me, yeah, man, I'll do it."

Sungevity is one of a growing group of solar middlemen that want to make going green easier for homeowners by dealing with red tape, negotiating with local power companies, and financing solar installations. "We're trying to build a convenient, Netflix-like experience," says Danny Kennedy, founder of Sungevity, which has helped residents install solar panels on 1,000 roofs and had $24 million in sales last year.

Fewer than 0.1 percent of U.S. houses are topped with solar panels, but that could climb to 2.4 percent by 2020, Bloomberg New Energy Finance estimates. Homeowners who install panels on their roofs qualify for a 30 percent federal tax credit, and 23 states offer some type of rebate or credit. That can reduce the cost of a rooftop project by as much as two-thirds.

The paperwork, though, can be intimidating, and that's one of the attractions of using solar middlemen to sort through the myriad local rules and regulations. Denver homeowners must submit calculations performed by a registered professional engineer verifying that their roofs can support the panels' weight. In Berkeley, zoning authorities want four sets of plans, and sloped roofs require at least 18 inches of clearance on both sides of the ridge. "We do all the homework for the homeowner," says Lynn Jurich, president of SunRun, a San Francisco company that has financed solar installations on more than 9,000 roofs in seven states.

Installing rooftop panels can run from about $10,000 to $50,000 or more for large houses. Solar middlemen typically cover the upfront costs and own both the gear and the electricity it produces. Homeowners sign 10- or 20-year leases. Monthly rates vary widely, but SunRun and Sungevity say they undercut utilities in most areas by about 15 percent.

In California, the biggest U.S. market for solar energy, more than a third of residential installations this year have been financed by third parties, up from 23 percent in 2010 and 12 percent in 2009, according to the California Solar Initiative, a state campaign to promote the use of sun power by consumers. Sungevity began offering financing in March 2010, and more than 98 percent of its installations are now financed by the company.

Most of the capital to cover the up-front project costs comes from banks, which put money into dedicated funds. These investments generate a return immediately from government solar incentives, as well as from the long-term contracts signed by homeowners. SunRun has received more than $400 million to date in this type of project financing, and Jurich says banks like the arrangement because the risk of default is relatively low. Homeowners who are interested in solar energy "are a self-selected demographic who are pretty responsible and are probably going to pay their bills," Jurich says.

The companies hire contractors across the country to clamber up on roofs and install panels. SunRun works with 25 contractors who refer homeowners who need financing. "People know solar is a good idea, but they want to know how they can do it," says David Kaltsas, president of SunWize Systems, a 140-employee panel installer in Kingston, N.Y. He signed up with SunRun in March.

SunRun is developing ways for customers to post their carbon savings on Facebook and helps them pay for "solar parties" to sell their neighbors on the benefits. Sungevity offers customers $1,000 if they refer new clients. "Social incentives are as important as financial ones," says Patrick Crane, a former chief marketing officer at LinkedIn who in February took the same position at Sungevity. "It becomes less an appliance on the roof than a lifestyle."

The bottom line: Solar middlemen typically cover upfront costs and lease equipment to users. Some undercut utilities by 15 percent.