How SolarCity, Sunrun and Solomon Compare

It is hard to believe that the US solar industry ten years ago was in its infancy, the exotic realm of a few scientists and off-grid enthusiasts and visionaries.  Fewer than 5,000 homes throughout the country sported solar panels on their rooftops.  Few commercial building owners would take it seriously.

Fast forward to the present and some 200,000 single family homes – still a small percentage of houses but growing at a rate of close to 50% a year – have installed rooftop solar.  Workers in the industry have been estimated to total at least 60,000 and possibly as many as 200,000.  Municipal, commercial and industrial real estate owners and managers have embraced solar, both rooftop and ground mount.  Even churches and other non-profit institutions have taken advantage of the technology.

Most people date the turning point to SunEdison’s introduction in 2007 of the solar lease structure.  Jigar Shah, who founded SunEdison in 2003, worked with colleagues like Chris Whitman, the CEO of Solomon Energy, to introduce a mechanism for third party financing of solar projects:  Investors would use tax credits and depreciation allowances to offset the cost of developing photovoltaic arrays for electricity consumers who would then pay the developers a price per kilowatt over a 15-25 year contract term.  The payments came to be known as PPA payments after the Power Purchase Agreements entered into between the developers and the solar energy consumers.

Over the past eight years a number of companies have taken the SunEdison financing model and applied it to commercial and residential solar projects.  The most prominent solar developer to emerge has been SolarCity based in San Mateo, California.

SolarCity’s financing packages have helped over 100,000 homeowners and thousands of businesses take advantage of solar energy, often with no capital costs.   Most of their sales are financed with $0 down from customers although recently they have offered a financing package that supports homeowner ownership of the solar system.

The basic SolarCity offer is attractive:

  • $0 down
  • Pay only for electricity generated from solar panels
  • 100% maintenance free
  • 20 year term
  • Option to renew, buy or have SolarCity remove

Unlike many companies that offer 100% financing and subcontract the installation, SolarCity has built its own workforce of contractors.  This enables it to manage the entire process from sales, design and engineering, permitting, construction and utility commissioning.

SolarCity has raised close to a billion dollars in financing to support its third party ownership approach.  Much of this financing has come from major banks that can utilize the tax credits and depreciation allowance.  These banks include US Bankcorp and Goldman, Sachs & Co.  The financing entities take title to the projects for at least a few years after which they sometimes sell the projects back to SolarCity.  Another large finance provider is Google.

Over the past year SolarCity has launched another avenue of finance, packaging loans and securitizing them for a public sale.  It has also introduced a new product that promotes homeowner ownership of panels in lieu of its third party ownership structure.

SolarCity has achieved its dominance of the residential solar industry in only eight states although it continues to expand as new states introduce new and attractive financial incentives for homeowners.

Another major solar contractor is SunRun.   Like, SolarCity, SunRun will arrange 100% financing third party ownership tax credits.  SunRun has successfully raised capital from some of the same banking sources tapped by SolarCity.  Unlike SolarCity, however, SunRun has chosen to avoid maintaining its own network of installers, preferring instead to subcontract its installations to local and regional outfits with experience in rooftop solar.

SunRun will have a specialist from one of its local partners visit with homeowners to confirm that their rooftops are suitable for solar photovoltaic panels.  They will then estimate the amount of solar production that can be achieved from the installation and propose a Power Purchase Agreement based on SunRun’s standardized contracts.

Under the PPA, consumers will pay SunRun a fee per kilowatt hour of electricity produced from the panels.  In some states where a PPA is not permitted SunRun may estimate the average monthly payments that can be expected from the solar panels and set a monthly lease payment that approximates those payments.

Like SolarCity’s product, the homeowner or small business owner will not own the solar system.  Rather, title to the system will be retained by the financing entity lined up by SunRun.  Essentially, a homeowner or small business is leasing the use of its rooftop to the developer.

SunRun will continue to maintain the panels for the life of the contract.  If the panels are damaged for any reason SunRun will replace them free of charge.   Of course, because SunRun does not have its own contractors on staff it will be required to turn to local subcontractors to perform any necessary maintenance work.

Solomon Energy neither finance nor installs residential or commercial solar systems.  Rather, Solomon works with its clients – municipalities, commercial and industrial energy consumers, and non-profit institutions like churches – to find cost-effective solar or other energy efficiency solutions that can lower utility bills.

Solomon Energy will help clients analyze the benefits they can derive from solar and energy efficiency.  They will then help their clients conduct a process, known as a Request for Proposal, to solicit bids.  Companies like SolarCity and SunRun may reply to the RFP.

Solomon will then evaluate the proposals submitted and help to clarify any ambiguous or open issues in the bid submissions, after which Solomon will help to prepare an apples-to-apples comparisons of the bids for its clients.

Solomon is not a competitor of SolarCity, SunRun or other solar contractors.  Indeed, Solomon wishes such companies to thrive and grow as their success will help bring benefits to Solomon’s clients.  In the last analysis Solomon brings the cumulative benefits of all solar contractors like SolarCity and SunRun to its clients.