SolarCity, which claims to be the largest residential solar installer in the United States, on Wednesday announced a new financing program that it said will cut homeowners’ upfront solar-installation costs from about $25,000 to about $2,000.
The SolarLease program, backed by Morgan Stanley, is not the first to tap into the idea of paying the upfront costs of solar-power installations in exchange for tax credits and an agreement that the customers buy the resulting power.
While solar-power installations can pay for themselves over time, upfront costs have been a barrier that has kept solar power from the mainstream in the United States. In California, fewer than 1 percent of homeowners have solar power, according to the SolarCity press release.
Companies such as SunEdison and MMA Renewable Ventures, which on Tuesday announced a deal to finance solar power at Macy’s stores, have been using the model for larger commercial installations.
But the idea of using the same model for residential installations has taken longer to catch on. After all, commercial tax credits aren’t capped at a maximum of $2,000, as residential tax credits are, and larger installations generally deliver lower costs per watt than smaller ones.
All the same, several companies have sprung up to try to tap into the potentially larger residential market, including Akeena Solar (NSDQ: AKNS), groSolar, Sun Run and Open Energy Corp.
And they each have different approaches to try to meet the residential challenges.
For example, Open Energy, which announced its first agreement to finance and install 1.2-kilowatt solar-power systems on 47 town homes in California on Tuesday, is only pursuing new developments with homeowners associations so that it can own the roofs and take advantage of the commercial tax credits (see Solar Roundup: Another Tax-Credit Proposal, Big Deals for Solar-Thermal and Thin-Film). The company, which also manufactures the solar equipment, says it requires no upfront cost from developers or homeowners.
Homeowners pay Sun Run a prepayment of $16,000 for a 5-kilowatt system, then are guaranteed a fixed rate of 13.5 cents per watt for 20 years (see Power Purchases for the People).
In SolarCity’s case, the company guarantees a minimum amount of power from the system and charges a fixed monthly fee, instead of a rate for the power. That means that residents get any excess power the system produces for free, CEO Lyndon Rive said. If the system underperforms, SolarCity pays its customers back.
"We’re taking care of everything in relation to the solar system," he said. "Everything that goes wrong is our responsibility. Today, people don’t think about the utility and where the power is coming from. We don’t want people to think about maintaining their solar system; all we want them to think about is having clean power."
The company is known for its community programs, in which it gets a neighborhood to sign up for solar power together, allowing it to build a larger installation that serves multiple homes. The new financial program will be used for these community installations, as well as for individual homeowners, Rive said.