Silicon Valley has something to offer the world in the drive toward a clean energy economy. And it’s not technology.
It’s a financing formula. In a region that spawned tech giants Apple and Google and is famous for innovators and entrepreneurs like Steve Jobs, a handful of startups began offering to install solar panels on the homes of middle-class families in return for no-money down and monthly payments cheaper than a utility bill. This third-party leasing method — which made expensive clean energy gear affordable — ignited a rooftop solar revolution with annual U.S. home installations increasing 16-fold since 2008, according to the Solar Energy Industries Association and GTM Research.
The world is taking notice. Businesses in China, the biggest greenhouse-gas polluter, are so keen on replicating California’s success that Trina Solar’s Head of Global Marketing Jing Tian said she had to come up with a rough Chinese translation for “third-party leasing.” Similar models are spreading to countries like Mexico and Japan and are being employed to sell other emerging clean energy technologies such as batteries and onsite waste-water treatment gear.
“There is a reason why California is a tech Mecca for the world because the infrastructure is here to attract that talent,” said SolarCity’s Chief Executive Officer Lyndon Rive, whose company popularized third-party solar leases for homeowners starting in 2008. “All the major innovation is going to occur in California. One of the innovations is the financing of solar assets.”
One thing world leaders seemed to agree on before climate change talks taking place in Paris this week is renewable energy resources including solar are critical to efforts in curbing global warming. The International Energy Agency has said that renewable energy investment in the power sector needs to increase to $400 billion in 2030 from $270 billion in 2014.
Under a solar lease, a homeowner can have a rooftop solar power system installed for little or no money. Instead, they pay the developer for the output that the panels produce over 15 or 20 years, at a price that’s usually lower than what the local utility charges.
SolarCity took the leasing model that SunEdison first developed for the solar industry by a graduate student named Jigar Shah. He founded the company and sold its first power purchase agreement with Whole Foods Market in 2003, according to his book, Creating Climate Wealth.
SolarCity adapted that model for residential consumers in 2008 and many more offered similar arrangements including Sunrun and Vivint Solar. In August, SolarCity bought a developer in Mexico that was offering the first leases to businesses in that country and plans to expand it to homes there.
And now the idea is spreading to other industries trying to sell expensive capital equipment that reduce pollution and fossil fuel consumption. Cambrian Innovation, a startup out of Massachusetts Institute of Technology, has developed onsite wastewater treatment plants. While the high cost make them difficult to sell, when they combine all the benefits to a consumer like a brewery — lower disposal fees, water use, energy use and carbon emissions — they can finance leases and offer savings at no cost to the consumer.
“SunEdison developed the solar power-as-a-service that helped the industry take off,” Matthew Silver, chief executive officer of Boston-based Cambrian, said in an interview. “Now we’re offering clean water as a service that municipal utilities can or won’t do.”
