If you own a home or business out West and have been scrounging for the cash to install a solar system on your roof this year, California utility Pacific Gas & Electric and solar installer and financier SolarCity might be able to help. Pacific Venture Capital, the investment arm of PG&E’s parent company, plans to provide $60 million in tax equity financing for SolarCity to install an estimated 1,000 solar systems at homes and businesses in 2010 — primarily in California, the country’s largest solar market, but also in Arizona and Colorado — the companies announced today.
PG&E and SolarCity, a Foster City, Calif.-based startup founded in 2006 and backed by Tesla Motors CEO Elon Musk, Draper Fisher Jurvetson and JP Morgan, are calling the deal the first investment of its kind by a utility holding company, and the first collaboration of its kind between a utility holding company and a power provider. It’s more common for a bank to invest in tax equity — basically buying clean energy tax credits to shelter otherwise taxable income.
Here’s how it works: SolarCity typically finances the systems it installs — paying the upfront costs of the system in exchange for a contract to sell the electricity produced at a fixed, flat rate (a power purchasing agreement), or leasing the system to customers. Under the PG&E deal, the utility will pay the upfront costs for SolarCity to install a system, and then receive revenue from the customers’ lease payments. PG&E will also reap federal investment tax credits and rebates provided at the local level for solar projects.
Firms like AIG, Lehman Brothers, Wachovia and Morgan Stanley not too long ago ranked among the most active tax equity investors. But given the recent turmoil in the banking sector, it’s an interesting move for SolarCity and PG&E to join hands for this type of financing.
According to a statement from Rand Rosenberg, PG&E’s senior VP for corporate strategy and development, in today’s release, this deal with SolarCity offers the utility a number of benefits. The investment will “broaden access to renewable energy,” he said, helping PG&E to support California’s rooftop solar goals. And working with SolarCity, Rosenberg said, will give PG&E “valuable experience with a technology and a marketplace that may become increasingly important in the future.” (See our Q&A with SolarCity CEO Lyndon Rive for more about the startup’s business model.)
Currently operating in Arizona, California, Colorado and Oregon, SolarCity plans to expand to 5-10 additional states in 2010.
Photo courtesy of SolarCity