PROJECT EASY GREEN

SunRun, a residential solar power service firm, just received a tax equity commitment from U.S. Bancorp (NYSE: USB) to support the purchase of $200 million in residential solar systems. This tax equity commitment, SunRun's fifth and largest transaction with U.S. Bancorp ($311 billion in assets), is supported by the 1603 Treasury Grant Program.

It's U.S. Bancorp's largest renewable energy tax equity fund to date, according to SunRun. SunRun has raised financing for more than $600 million in solar systems from utility PG&E and U.S. Bancorp, as well as $85 million in venture capital from Accel Partners, Foundation Capital, and Sequoia Capital.

SunRun installs over $1 million in residential solar every day — owning, installing, and maintaining the solar panels for the homeowners, who pay a monthly rate for power while locking in an electric rate for 20 years.

I spoke with SunRun CEO and co-founder Edward Fenster. "The $200 million shows how much scale you're going to need," said Fenster.  Residential solar companies will need to buy $1 billion in systems a year to achieve minimum scale, according to Fenster, adding, "This is the year we'll see a breakout in the residential market."

U.S. Bancorp has provided tax equity commitments to SolarCity and Sungevity, as well as SunRun. According to Fenster, this year we'll see other banks entering the residential solar financing fray.

But it's taken some time for banks to be comfortable with the idea, according to Fenster.  "Project finance groups at banks are not used to working with the 5,000 homeowners who might comprise a finance fund — they're used to one big power plant with an investment grade utility," said the CEO.

Fenster cited some statistics from the California Solar Initiative program: as of the first quarter of 2011, 28 percent of residential solar installs to date were financed by SunRun, 14 percent by SolarCity, and 1.8 percent by Sungevity. (We've covered other companies in the solar leasing business here.) SunRun has completed 11,000 customer transactions.

Although surveys indicate that cost is the primary obstacle to residential solar installation, the story is a little more nuanced than that. According to Fenster, it's also very much a matter of convenience and security. People don't want to be burdened with the maintenance of the system; upfront cost is also a significant issue.

The average installed cost for residential solar in the U.S. is $5.50 per watt, compared to Germany at $3.50 per watt. Germany has lower customer acquisition, an industry at greater scale, and solar installers willing to work at a lower percentage margin, according to Fenster. But the price of modules will continue to fall, as will the soft costs in the U.S. And Americans are starting to realize the value in solar rooftops for their real estate. The "falling price of solar is great for us but there is so much more work to be done on that front, such as eliminating inconsistencies in local permitting.  The goal is to get to a subsidy-free solar industry as soon as possible, but until then we need the support of state rebates and federal incentives as we continue to work on reducing costs," according to Fenster.

SunRun's typical customers are dual wage-earning couples in their mid-fifties who have owned their homes an average of ten years.

We've covered the perception challenges faced by the solar industry when it comes to consumers installing PV on their rooftops — many think it's too expensive. 

We've also covered the steps the industry is taking to lower the "soft costs" of residential solar installation.

Companies offerring residential leases:

SolarCity (with their own installers)

Sungevity  (working with a network of installers)

SunRun (working with a network of installers)

As well as:

SunPower has started their Solar Lease for residential customers in New Jersey and parts of California.

Solar Universe has owner-operators in California, Texas, New Jersey, and other states.   

SunEdison also works in residential.

One more if you count Citizenrē.

It's a list that can afford to be longer in order to get solar on the roofs of homeowners.

There's now another name on that list: Centrosolar. The firm just announced the launch of a new residential solar leasing program, developed in collaboration with BrightGrid, a renewable energy finance company. 

This program has its own unique approach.

While the incumbent solar leasers are brand-agnostic, Centrosolar's leasing program is designed to support the installation of Centrosolar’s own warrantied ‘solar-in-a-box’ system, as well as providing a service support network across the U.S. It's initially available in the leading solar states — Arizona, California and New Jersey.

BrightGrid, a firm we've covered before, provides the financing platforms for installers. The process includes point-of-sale financing, something the solar industry has spoken of but has not initiated until now.

Centrosolar is publicly traded in Europe, with 2010 revenues of $540 million and over 1,000 employees at its German production facilities.      

BrightGrid comes out of New York and was founded in late 2009 with funding from a group called PanAsia Solar. BrightGrid's "technology platform" is meant to escort the residential solar project from origination of the customer through making a proposal, booking the sale, and finding the right solar system and installer, as well as servicing the account. 

BrightGrid provides a good definition of the solar lease: In a lease arrangement, the leasing company covers the cost of installing solar panels, typically on the rooftop of the customer’s home. In this model, the leasing company owns the system, rather than the homeowner. Solar leasing companies receive any state and federal tax credits and other incentives available for alternative-energy installations. The homeowner agrees to pay the leasing company a predetermined monthly payment over the term of the lease, and receives the financial and environmental benefits from all of the power produced by the solar energy system. Solar customers buy additional power as needed from their local utility at the going rate. They may also sell excess energy back to the local utility.

Solar leases typically run between 15 and 20 years. BrightGrid’s lease has an 18-year term.  If the customer sells the home within that time, the lease agreement transfers to the new homeowner, pending credit approval.  Alternately, the customer may buy the lease from BrightGrid. 

According to the company, a BrightGrid lease will drop the homeowner's electric bill by 10 percent to 20 percent.

SunRun is similar to BrightGrid but not a direct competitor — SunRun is investing in branding and in the origination of business, positioning itself as a brand for consumers. Meanwhile, BrightGrid sees itself as the "Intel Inside" of home solar installation.