PG&E Finances $100 Million in Residential Solar Installations

Homeowners in five states, from California to New Jersey, will have more choices for solar electricity without footing the expensive, upfront cost of owning solar panels. The investment arm of PG&E (PCG) announced Monday a $100 million deal with SunRun to finance 3,500 new solar home installations.

San Francisco-based SunRun offers long-term power purchase agreements and leases to homeowners, who pay a monthly fee for the use of the solar electricity generated by their rooftop systems, rather than owning the equipment.

This financing mechanism initially became widespread for large, commercial installations that cost millions of dollars, and it has gained popularity in recent years as more consumers embrace solar energy, particularly in states with generous incentives.

Expensive to Purchase, Cheaper to Lease

The price of a solar electric system varies depending on location, the type of equipment and labor costs. The California Public Utilities Commission, in the largest solar market in the country, estimates that the price averages about $9 per watt, before incentives. Typical residential systems have a generating capacity of 3 to 5 kilowatts, making them expensive to purchase.

Consumers who opt for financing pay an installation fee and a low monthly payment to SunRun for the clean solar power generated by "their" panels, which replaces much of the higher-cost electricity they'd otherwise get from their local utility company.

SunRun says it will hire contractors to install the 3,500 systems in 2010 and 2011. The company serves Arizona, California, Colorado, Massachusetts and New Jersey. SunRun tpically owns the solar electric systems it finances and is responsible for managing them. Both SunRun and PG&E's investment arm will receive payments from customers in the $100 million program.

A Nice Tax Break

The deal turns Pacific Gas & Electric, California's largest utility, into a key player in the residential solar financing business. It's the second such deal for the company, which announced a $60 million fund for SolarCity in January this year. Unlike SunRun, SolarCity, another California startup, is an installer that puts solar electric systems on residential and commercial properties.

By financing these projects, PG&E can get a tax credit worth 30% of the cost of the solar electric equipment and installation. Congress extended this tax credit at the end of 2008 by 8 years. Until the recession, banks had been the primary investors to take advantage of this tax break.

The credit is a boon for banks and large investors. Many solar electric equipment sellers and installers, who tend to be small, want to offer financing options to make solar electricity more affordable to a larger home market. So these solar companies offer the tax credit in exchange for funds to finance installation. SunRun, which doesn't have its own installation crew but contracts with installers, has raised money from U.S. Bancorp. in the past.

Other Options for Consumers

Private financing is no longer the only option for consumers who want solar electricity. A program first proposed by the city of Berkeley, Calif., has become a popular model for other cities and counties across the country to promote solar.

The program, typically called PACE (property-assessed clean energy), allows cities to essentially loan money to businesses and homeowners to install solar electric systems. They pay the city back through their property tax bills over time, with interest. In Berkeley, the home and business owners pay the city back over a 20-year period. Local governments can finance the upfront installation costs by selling bonds.