Sometimes we tech reporters get so wrapped up in writing about cool new technologies that we overlook other, equally important forms of innovation. Recently I visited SunRun, a San Francisco startup that installs photovoltaic panels on residential buildings and charges homeowners for the electricity they generate. I was expecting to hear a lot about the latest ways to engineer solar panels to produce more power—but I came away with a notebook full of thoughts about power purchase agreements, tax equity financing, and pricing engines. So while there are certainly people at SunRun who spend their time figuring out how to optimize the power output of the company’s 3,500 installed systems, this is largely a story about how three-year-old SunRun is spreading solar to more homes through clever financial engineering.
Despite the rapid growth of the Bay Area’s three leading residential solar companies—SunRun, Solar City, and Sungevity—there’s still a big puzzle about solar homes. It’s why there aren’t a lot more of them. California Governor Arnold Schwarzenegger signed the California Solar Initiative into law in 2006, making more than $2 billion in cash rebates and tax credits available to utility customers who put solar panels on their roofs. The goal was to get a million residential rooftop systems installed in the state, but all that free money hasn’t translated into the envisioned acres of solar panels. “We’ve soared past a million Priuses shipped, but in terms of solar homes in California, we are only at 100,000 since the beginning of the solar initiative,” notes Steve Vassallo, a Foundation Capital general partner who oversees several of the firm’s energy investments.
It’s partly an awareness issue: the state’s Public Utility Commission has issued dozens of news releases since 2006, and has designated August as “Solar Energy Awareness Month,” but it hasn’t done much else to publicize the rebates or explain how consumers can get them. But it’s also an economic issue: homeowners hammered by the recession don’t have a lot of extra money to shell out for home improvements these days, and they aren’t sure how much money they can save on their utility bills by installing solar.
And that’s the first thing that’s so ingenious about SunRun’s business model. It’s designed to take most of the risk out of solar installation, by asking homeowners for a tiny down payment (averaging $500), lining up equipment and installers, handling all maintenance and repairs for 20 years, and finally guaranteeing that homeowners’ post-installation electricity payments to SunRun will be lower than their existing utility bills.
That simple pitch has won SunRun 7,000 customers in seven states—Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, and Pennsylvania—and made it the fastest growing residential solar company in the country. But it has taken a lot of careful planning, and quite a bit of creativity on the financial and administrative sides, to make it all work.
“It’s a simple concept to take away the hassle and up-front costs of solar,” says Vassallo, who’s been working with SunRun since Foundation made its first investment in the company in mid-2008. “But to make it happen behind the scenes, a lot of fascinating challenges had to be overcome.”
The story starts back in 2007, when Edward Fenster and Lynn Jurich, who would eventually become SunRun’s CEO and president, respectively, were students at Stanford’s Graduate School of Business. Fenster had M&A experience from
