the customer is getting a solar system for cheap. In most cases in California, 60 percent of our customers are cash-flow positive. Their monthly payment to us, with no investment up front, is less than they were paying to their utility from month 1, and in all cases, by month 120 they are saving money.
X: Your leases sound different from the situation where a solar provider pays for the installation of the equipment, and then the homeowner pays them for the electricity.
DK: Yes, that’s called a power purchase agreement, and our model is slightly different. We model the amount of electricity and we say “this is the performance your system will get,” and you will pay us a monthly lease that rises 2.5 percent per annum, which is a built-in but known inflator, where as electricity prices are known to go up more than 2.5 percent. You just pay us that monthly fee. With a power purchase agreement you pay for the power consumed. That is SunRun’s model. I think both models are powerful. The benefits of the Sungevity solar lease are a lower inflator, a lower price, and a shorter term. Power purchase agreements are mostly structured around an 18- to 20-year term, whereas ours is 10 years. For a lot of customers, it’s easier to imagine committing to 10 years.
But the important thing here is that there are options emerging. I don’t want to get into shilling Sungevity versus the competitors. The fantastic news of the last two years is that there is a smorgasbord of solar options that make it easy and affordable. We think we are at the cutting edge of that, with the best solar lease in the space, but the fact is that there are other models too.
X: To what extent is your business dependent on government subsidies, in the form of tax credits for solar installation?
DK: The biggest legislative marker, in my view, was when the value [of a solar installation] assignable to the tax credit investor went from a $2,000 flat amount for any residential system to 30 percent of the value of the system, which was ushered in on the back of the 2008 bailout bill. That really makes this space wide open. When we were doing cash sales in 2008, there were also some rich rebates being offered in San Francisco, as well as the state rebates which have since been stepped down. We also had crews working for us who were workforce development crews, so we had an additional rebate for creating “green-collar” jobs. We were selling small systems for as little as $2,000 cash. It was the cheapest solar on Earth—25 years of electricity for $2,000. It was pretty amazing, and it was a lot of fun. That was when we started selling by e-mail only, or over the Web, with not even a phone call, let alone a home visit.
X: When you’re designing these installations remotely, without even looking at the site first, isn’t there a risk than when the contractors get to the home, your measurements will turn out to be wrong, or you won’t be able to complete the job the way you thought?
DK: It’s really the law of large numbers—a million solar roofs is the goal here. You can work around the statistical variations. You can say that 1 in 150 homes is not going to have the rafter specs that we require, but we can afford that. In the odd case that comes up, we have an out in the contract, saying that the customer has to upgrade their rafters or we are not obliged to fulfill. These things have come up; when you’re installing on older building stock, sometimes it’s not up to the task of supporting new solar panels. The difference is that whereas the cottage-industry, conventional process would go and do a site visit with a two-hour truck roll and a guy and the overhead and the insurance cost for getting on the roof and all the rest, and then tell the customer “Sorry, you can’t go solar,” we do all that at this end.
X: How long does it take to get solar on your roof, from beginning to end?
DK: To chunk out a solar sale for you, first there’s the research and the cost-gathering from the customer’s point of view. Most California customers do comparison shopping. They get two or three quotes. So there is that phase. Then there is committing and buying, signing the lease. Then there is the waiting for Godot, as whoever your provider is goes through the permitting, applications, and rebating for you. We try do all that for you and keep the customer experience painless. But depending on the jurisdiction, it can take between four and 12 weeks. It seems to be getting even worse in Southern California—I could rave to you about how the paperwork is a burden of about a dollar per watt in back-office costs. Then there is the construction project. That’s really just the final mile, and only 10 percent of the cost of the whole thing is the labor on the roof. It takes two days in most cases. If you have a McMansion with 15 kilowatts it will take longer.
X: Is there anything you can do to speed up the process?
DK: We have streamlined it as much as possible. We are on the cutting edge of digital filing and digital signatures. We have been running a campaign since 2009 to
