Solar power that pays back fast

July 28, 2009

OK, solar panels are getting cheaper, but can it be possible to get back the $1,000 you invested in home solar in 45 days?

It couldn’t happen where I live, and maybe not where you do, but the owners of a solar electric company say the arithmetic worked for one of their customers. He is a chief executive with a six-bedroom, five-and-a-half bath Spanish-style hillside home in Fremont, California. Fremont is a stone’s throw from Silicon Valley, and home to many high tech firms.

This executive was paying a monthly electric bill of $3,492 on average, according to solar electric firm SunRun. The company was started by two finance experts who came up with their business model while still students at the Stanford Business School.

SunRun charges a relatively small price to install panels, then owns and services them for the life of the contract — 18 years.  SunRun said the Fremont executive paid $1,000 to have the $375,000, 55-kilowatt system installed. So far, it has cut his monthly electric bill to an average of $2,808.  SunRun collects $2,163 of that for electricity generated by the sun, while utility Pacific Gas & Electric collects $645 for electricity from its grid, on average.  At moments when there is surplus solar electricity, SunRun’s equipment automatically sends it to Pacific Gas & Electric for credit.

“You turn your home into a hybrid,” said Lynn Jurich, president of SunRun, and co-founder with chief executive  Edward Fenster. The occasion for her interview was to announce  $18 million of additional funds from two big Silicon Valley venture capital firms,  Accel Partners and Foundation Capital. They say because SunRun uses independent contractors it can quickly expand its business in California, Arizona and Massachuestts.

It’s not the only game in town.  SolarCity does something strikingly similar, working in California, Arizona, and Oregon. Its business model is a bit different. For example, it does all installation with its own employees. Its fee structure is also different.

The United States has lots of houses with roofs that catch rays, so it’s not clear yet if one company will drive the other out of business, or if there is room for both. U.S. Bancorp seems to be betting on both, because it has set up financing — sweetened by government tax breaks — to help each of the companies buy the solar equipment that they install.

Photo Credit: SunRun (A SunRun installation in central California)

5 comments

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Another of my thought inventions has already been achieved – solar microfinancing. It’s basically a mortgage on a $375,000 investment with monthly service of $2163 with $1,000 down. Of course it’s not a consistent amount, due not only to seasonal solar output, but fluctuation in energy prices. It would be interesting to see what range of these variables a business model anticipates.

@$2,000/month for 18 years, that’s a total of only $432,000 over the life of the system. That’s pretty much a zero interest loan.

A dramatic rise in energy costs must be assumed.

Posted by MMY | Report as abusive

It looks interesting but does it still work if you have a much lower monthly electricity bill?

Ok, shoudn’t we be asking this: how oh how can this guy have an electric bill this high?!?! hmm, maybe that is part of the general problem….

Posted by Sebastian | Report as abusive

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Sorry, hard to understand how anyone has a $3500/month electric bill. Perhaps it is time to learn to close the windows before turning the air conditioning on.

The solar panels, at retail, would cost about $165,000. The inverter(s) would run about $35k to $40k, throw in $25k for the rack and other hardware, you have materials that cost (retail price now, not manufacturers costs) $225k.

Their capital outlay, $225,000 financed for 18 years equals to something like 9.5% interest to get to a payment of $2150. So, it seems clear why the bankers are lined up for this business. How else can you charge 9.5% interest on a secured 18-year loan?

If you don’t like that analogy, then consider it this way, they are charging $150k to install the system plus they should already have earned some profit on selling the $225k of materials.

Nice… Too bad “green tech” seems to draw the greedy bankers out of the woodwork and not patriots working to restore this countries independence.

Posted by David | Report as abusive

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I totally agree with the comment posted by David. I have come across such price quotes on various renovation projects I have reserached and undertaken on various residences. “You better shop around” and work directly with the manyfacturers avoiding greedy middlemen and get a contractor who charges you a decent labor cost(debatable on what you consider decent-but in my experience, I gladly paid a sincere person and it is easy to identify one with a little effort) – these have all been the lessons I learned.

I am in NJ and am interested in knowing how this can be adapted to average households in middle class neighborhoods, without ripping the end user off his hard earned savings. I know for a fact, most contractors here are greedy in getting your money but shoddy in their workmanship or business ethics.

Posted by Jay | Report as abusive

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