Better Know A Deal: SolarCity and Its $1 Bargain

Better Know A Deal

Heron investee SolarCity uses creative financing options to expand residential use of solar power in the United States.

SolarCity has made a $400 rooftop solar installation nearly as affordable as sunlight with its $1 Groupon offer. Solar City installs high-quality residential and small commercial solar power systems with lease financing that offloads the often-intimidating upfront cost of solar energy, but their recently announced partnership with Groupon was a first-of-its-kind foray intended to “test the appetite for discounted solar installers in 84 U.S. metropolitan areas.” The SolarCity Groupon deal offers to install a customized panel for $1, promising the customer will “only pay for the electricity it generates.”

 

A Heron investee originally via our partnership in DBL Investors (a San-Francisco based double bottom line venture capital firm), the now-public SolarCity was founded in 2006 by brothers Lyndon and Peter Rive, after Lyndon came up with the idea while driving to the Burning Man festival with his cousin Elon Musk. (SolarCity’s founding investor and chairman of the board, Musk also founded PayPal and is founder and CEO of SpaceX and Heron/DBL investee Tesla.) In 2007, when DBL first invested in SolarCity, the company had a total of 63 employees. As of June 2014 the company has grown to 6,000 employees nationwide—the majority of which are solar installation jobs that cannot be outsourced abroad.

The Groupon offer is the latest experiment in SolarCity’s ongoing endeavor to make solar installations more affordable to average Americans. Their lineup of innovative financing mechanisms includes solar leasing and power purchase agreements (PPAs), which reduce or eliminate the upfront cost of solar energy systems. Although the PPA model was pioneered by SunEdison  founder Jigar Shah for the commercial market, SolarLease was the first residential financing program to be provided directly by an installer, offering homeowners a way to go solar without a significant upfront cost, and with low monthly payments. Its introduction in 2008 helped SolarCity become the top residential solar installer in the United States. In 2011 the company added SolarStrong, a partnership with developers of privatized U.S. military housing which was predicted to be the largest residential solar photovoltaic project in American history. (They also make a particular effort to hire veterans.)

As explained to the New York Times in 2012:

Lyndon Rive, the head of SolarCity, said: “People don’t buy gas stations. People don’t buy utilities. Why are we having them buy solar equipment?” The… basic value proposition is this: Say you have been paying your utility, on average, $100 a month. The solar company installs solar panels on your roof, maintains them, monitors them and repairs them for the life of the lease. The output will reduce your utility bill to roughly $20 a month, and you pay around $65 a month to lease the equipment (and the power the equipment produces, along with maintenance). You’re now paying $85 a month total, 15 percent less than you were, the installer has a revenue stream that it can use for cash flow or sell off to an investor and everybody is playing his part in reducing the burning of fossil fuels.

…[H]e still goes to dinner parties, where people know all about SolarCity and what he does, and at the end of his pitch about the solar lease, somebody will say: “So how much does this cost again? What’s the payback period?”

“‘You haven’t heard me!”’ he shouted to me, over the telephone, spelling out his frustration with those kinds of questions. “You get cheaper electricity! Full stop!’ ”

The company is still pioneering financial tools for expanding solar: in November 2013, SolarCity financed their own expansion by issuing of one of the world’s first bonds backed by solar electricity payments. Their next step, announced June 17th, will be acquiring of solar panel technology and manufacturing company Silevo and continuing Silevo’s plans to build one of the world’s largest solar production plants in upstate New York.

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