What are the challenges of growing a solar installation company? SolarCity provides some good insight into that question as it reports earnings for the first full quarter since it became a public company last December.

Raising funds to support its financial product offerings, signing up a greater number of new customers, expanding its operations, and shortening the project completion process are just some of the issues outlined by SolarCity’s executives during their discussion with financial analysts yesterday.

These issues are nothing new, of course, but SolarCity’s financial results help to quantify some of their costs. Given that the solar market is still young, most of SolarCity’s competitors are private and often much smaller.

The California company installed more megawatts of solar energy projects during the first quarter than it initially anticipated (46MW instead of 41MW). But it didn’t raise its 2013 installation forecast, which remains at 250 MW this year. SolarCity boosted its first-quarter sales to $28.2 million but posted $31 million in losses.

“At this stage, we still find ourselves delivery constrained. It’s a matter of scaling our residential operation as well as bringing in our commercial projects on schedule that prevent us from increasing the guidance from 250MW right now,” said CEO Lyndon Rive during the conference call. “We are just focusing our operational capacity.”

SolarCity runs on a business model that is quite different from many of its competitors. The company does the sales, engineering, installation and maintenance with its in-house crew. Rivals such as Sungevity, OneRoof Energy, Sunrun and Clean Power Finance farm out the installation and maintenance work to roofers and other installers. Some of them want to build their brands and invest in marketing and sales to consumers while others sell their financial products and services to installers. Vivint, which has built a large home security system business before getting into solar, operates more like SolarCity.

SolarCity’s model requires much more capital to scale up the business. It needs to hire and train more people, maintain trucks and other tools of the trade and set up shop in expanding its reach across the country. It also has to aggressively court consumers.

The company does business in 14 states, and in March it announced a plan to set up operations in Nevada. The company saw its operating expenses grow from $24.7 million in the first quarter of 2012 to $34.5 million a year later. It serves home and business owners, as well as schools and government agencies. It’s getting into the utility market, too. By the end of the first quarter, SolarCity had accumulated 54,416 customers, and most of those customers are in the residential space: 33MW of the 46MW it completed during the first quarter went to homes.

Raising enough money to finance leases and power purchase agreements is another big challenge for SolarCity and its competitors. With leases or power purchase agreements, customers pay a monthly fee for the electricity generated from the solar panels on their rooftop. They don’t own the panels, however, since they didn’t pay for the high upfront costs of the equipment and labor that can run around $20,000 for an average system in places like California.

The investors that give the funds that support those financing options own the solar electric systems, and they get to take advantage of a 30 percent federal investment tax credit and count on revenues from the monthly payments for the duration of the contracts, which usually run 20 years. As of May 10, SolarCity has enough funds to finance 158MW worth of projects.

SolarCity is a formidable fundraiser. In its 2012 annual report, the company said it had raised $1.7 billion to finance installations since its inception from companies such as U.S. Bancorp, Google, PG&E and Credit Suisse. SolarCity also puts in its own money in some of the funds to finance the installations. The pressure to raise money consistently is even greater now that SolarCity is a public company and must not only show growth but also generate profits at some point. It doesn’t want to be in a situation where the demand for its leases outstrips the funds available, something that happened to SunPower during the first quarter of this year.

SolarCity also needs to shorten the amount of time it takes from selling solar panel systems to installing each project. It has 195MW of backlog, some of which are planned as multi-year projects. But overall, the company wants to sell and install the equipment during the same month, Rive said. To accomplish that, the company is constantly looking for ways to simplify the installation process by using different designs for racks and other components. It also invests in software to reduce the time it takes to apply for permits and complete the sales process.

SolarCity has been an interesting company to watch since its start in 2006. It was one of a crop of venture-backed companies in the emerging residential solar market. Now, how well the company can grow its business and make a profit will be used by investors to evaluate other solar retail service companies that want to go public.

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Tofel is our gadget and mobile device reporter (he has a podcast too!), and has been trying connected devices in his home (pictured) since 2010, so he has hands on experience setting up a home automation system using an Insteon-based system. But as, we discuss on the podcast, this limits the connected devices he brings into his home and it doesn’t work with his Nest thermostat for example. He offers some good tips for those planning their own connected homes such as planning ahead, picking a protocol and thinking about what you really want to achieve. Toward the end we even debate the merits of apps versus voice and gesture controls for telling our smart homes what to do.

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Show notes:
Host: Stacey Higginbotham
Guest: Kevin Tofel

• Kevin’s 41 solar panels aren’t connected to his Nest thermostat. Should they be?
• We offer two practical considerations consumers must think about before buying connected devices. Hint, one is the protocols you’ll be using.
• Why you need to plan ahead when buying connected devices for your home.
• Kevin predicts the death of the remote control and I complain about having too many apps.

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In these 5 charts, we track the growth of solar power:

1). The amount of solar energy produced in the U.S. has risen 500 percent in 2012 alone, according to the Energy Information Administration.

2). The increase in solar production has to do in part with the growth of solar panel installation and capacity in the U.S. Solar panel installation is expected to rise nearly 70 percent this year, according to the Solar Energy Industry Association’s third-quarter report.

3). SolarCity’s IPO in late 2012 was one of the rare success stories for solar and cleantech startups. While some solar stocks have taken hits this year — due to over supply and super low prices — SolarCity was able to go public and its stock rose 50 percent on its first day of trading. The company, which finances and installs rooftop solar panels, originally priced its shares lower than expected, but the company’s stock price remains relatively high.

4). The price of silicon — the main material in solar panels — has dropped by half in less than two years, making solar panels cheaper to produce and to buy. The low prices, in turn, have fueled the growth of solar panel installations.

5). As is common with new commodity industries that grow rapidly, solar cells and panels are now so cheap to produce and make that there’s an oversupply problem. According to SEIA, there’s now 70 GW worth of solar module manufacturing capacity, but the current world capacity for solar modules is only 31 GW.

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Cold weather doesn’t make for a happy Volt

One external factor that’s hurting the number of miles we can run on a full battery charge is the winter. Under typical driving and climate conditions, GM says the 2013 Volt should get around 38 miles of travel on a single charge. But like any batteries, those in the Volt are adversely affected by cold temperatures. As a result, we’ve experienced some driving days where we only get 34 or 35 miles on car’s battery and then the gas generator kicks in.

The engine has also turned on sporadically to maintain the battery temperature; even when there’s still plenty of juice in the power pack. I’ve noticed this when the temps drop below 35-degrees or so, which is common right now where we live in Pennsylvania. These few periods when the engine heats things up a bit don’t use up much gas however. The engine might run for two or three minutes at a time.

We’re using more electricity, but still not paying for it

Part of the reason we decided to get a car that runs primarily off of electricity is because we’re creating more electricity than we use on an annual basis. In the last 12 months, our 41 solar panels produced 13.8 MWh of electricity but we only used 7.5 MWh of it. Of course, recharging the Volt’s battery on a daily basis is increasing our electricity consumption. It takes roughly 10.8 kWh to fully charge the Volt, which costs us about $1.18 and takes 10 hours with the standard charger.

Although the month of December isn’t over, I checked our electricity usage to date and found it to be 628 kWh so far this month. A quick peek at our home’s solar energy electricity production show that we’ve only produced 462 kWh of energy, so we’re at a deficit. (Note: Our solar array data is made public in real-time here.) I’m not concerned, however.

We’ve built up enough of a surplus with our energy provider so we’ll simply tap into that reserve instead of paying a bill this month. And the winter months are known for both their shorter days and a lower sun angle, so I’m not surprised that we haven’t created enough electricity to have a surplus. That’s sure to change as the days get longer: Last June our panels produced 1.48 MWh of electricity, or nearly four times that of the current month.

Even though there aren’t too many public charging stations in our area, I have found one at the King of Prussia mall, which is the second largest mall in the country and local to us. Atop one of the parking garages are two spots dedicated to electric vehicles, complete with a pair of 240V charging stations. There’s no cost and we’ve taken advantage of them three times already. By the time we’re done shopping, our Volt battery is fully charged for the ride home.

Savings are looking good

Even though we’re tapping our personal reserve of electricity, we’ve come out way ahead in this first month. It was a typical driving month for us, in terms of mileage, but didn’t really cost us anything out of pocket for fuel. The prior month, we drove roughly the same miles and spent just over $227 in gasoline costs.

This month we didn’t see an exact savings of that figure, of course, however the first tank of gas in our Volt was provided by the dealer. And, as noted, we won’t pay anything more for the electricity used to charge the Volt. If we can fill up the tank once per month — at a cost of around $35 for the small tank — and produce enough electricity from the sun, we will have drastically cut our costs for fuel.

Fun to drive at the same time

Not only are we saving money, but we’re having fun driving the car. I really enjoy it. It’s almost like a game to me: Getting each ride to be as efficient as possible. We haven’t really been limited by the fact that only four people fit in a Volt but it could be a future inconvenience. We have two kids, so in most cases, we’re fine. If the kids have a friend over and we have to go somewhere, either  my wife or I ends up staying at home. If nothing else, it gives one of us an excuse not to be the kids’ chauffeur.

I still haven’t enabled the OnStar account, so I haven’t yet been able to play with the smartphone apps. I’ll do that over the holidays. I’ve also ended up saving myself $10 a month by cancelling my Rdio music subscription and just using Pandora in the car over Bluetooth. There’s a dedicated Pandora app that displays album art and supports the thumbs up / thumbs down rating activity on the car’s touchscreen.

So far there isn’t much that I don’t like in the Volt, save perhaps the many touch buttons in it. All of them are labeled against a white background — at least in our model — and can sometimes be hard to read. Without a doubt, you really have to look the console to find the right button, which can be a safety issue. My way around that has been to make very good use of the car’s integrated speech recognition system, which works quite well for audio and climate controls.

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The downside

So where do we stand now? First of all, the solar market has been deeply affected by the dramatic cost reduction of solar panels due to Chinese manufacturers. While China and the US are disputing trade tariffs, solar modules continue to fall in price, creating a lot of victims among US module manufacturers or emerging startups working on cheaper cells.

Wind Production Tax Credits are also expiring at the end of the month, which will likely dramatically impact the wind market. Last time the PTCs were allowed to expire, at the end of 2003, installations dropped 77 percent the following year. Power Purchase Agreements for wind projects have also never been so low: from $72/MWh in 2009 they decreased to $35/MWh by 2011. The equation might be hard to solve in 2013 for the wind industry.

IPO attempts in the cleantech sector have not been so successful either. Several companies ditched their IPO plans in 2012, such as solar thermal company Brightsource, waste fuel company Enerkem and electric vehicle company Smith Electric. In addition to SolarCity, Enphase is one of the only companies that made out this year. VCs are now stepping out of the industry as some have put heavy investments into development and manufacturing and have seen few returns.

The upside

However, this year could just be a step that eventually delivers market maturation rather than a “crisis”. Low cost Chinese manufacturers actually enabled a dramatic increase in solar panel installations, particularly in the U.S. With a more than 100 percent year-over-year increase in mid-2012, the US market has been booming this year and grid parity is on good track.

The focus has now shifted beyond module manufacturing and to new financing mechanisms such as leasing or crowd-funding. The objective is to make solar projects more accessible by avoiding high upfront costs and enabling the mass-market to participate in this effort.

Venture-capitalists are also not totally out of the game yet. The energy market is a tough one to penetrate with high upfront investments and 20-30 years payback as you build a new power plant – a far cry from the quick returns of IT/Internet companies. That is why VCs shifted their attention to what they know best: software.

Call it Green IT, Cleanweb or Cleantech 2.0, these are the application of web business models to cleantech. Focused on software or apps, these products do not need high capex and can generate some revenues fairly quickly. Some people are skeptical about if the cleanweb can be as disruptive as next-gen energy technologies like new solar cells. Nonetheless IT will be a useful tool that will support and promote the cleantech market, and act as a catalyst for breakthrough technologies. In fact, these apps and software could be the trigger to bring renewable energy or electric cars to the mass market.

Ultimately, policies are still decisive for our industry. Obama‘s re-election creates hope regarding the PTCs’ extension. A few game-changers were also introduced this year: the Green Button initiative announced in 2011 really materialized this year through utilities’ adoption and the Apps for Energy challenge. It opened up a new market in terms of energy services and will help entrepreneurs to develop their products without entirely depending on utilities to reach end-customers. More recently, California’s Cap and Trade market finally put a price on CO2 emissions. This will enhance energy efficient systems and promote low-emissions technologies.

In a few words, a lot of money has been spent over the last years within the cleantech industry. 2012 has actually been the witness of a market concentration, where we had to start rationalizing the expenses in order to build a sustainable system. With most of the technologies now in place, we need to modulate and bundle them, so they meet the market’s expectations. Inevitably, cost structures and customer adoption will be decisive for the cleantech to really and sustainably take off.

As an engineer Maud Texier dedicated her efforts towards the energy market. She hails from the oil & gas industry, and started her career working in electricity markets. As an analyst on a power trading desk, she studied the market mechanisms that can develop new demand-response models. Maud is now scouting new technologies such as renewables, storage or energy efficiency, for a large power utility, and analyzing the main trends of this growing market.

Images courtesy of SolarCity, flickr user Tapestry Dude.

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My wife and I both work from home, so even though we can rack up miles on our vehicles, most travel is short-range. But we didn’t want to go completely electric for our next car because we occasionally like to take trips to New York City, Baltimore and Washington, D.C.; all of which are 100 or more miles away.

How much was our Chevy Volt

I shared the details and costs of our solar panel project, so it makes sense to cover the Volt financials as well. The car still qualifies for a $7,500 federal tax credit, which can help offset some of the next cost. And that’s good because the base 2013 Volt starts at $39,145. Our particular vehicle has a few options — alloy wheels, a rear camera, sensors for front parking assistance and a forward collision alert camera — bringing the MSRP to $41,935 with destination charge included.

We actually opted to lease the vehicle for a few reasons, so we’re not get the direct tax credit benefit. Instead, the dealer gets the credit and can apply some of it to reduce the leasing costs. Since the Volt doesn’t have a long history of proven technology, we opted to work with the dealer on the lease and after applying some equity on our trade-in, our total payment including tax is $301 a month for 36 months. We also got a 4000W gas generator from the dealer, which was a Thanksgiving weekend perk, so now we’re really ready for the next big storm!

Ultimately, we paid nothing out of pocket, as a result of our trade-in and various incentives that GM and Ally Bank are currently offering. We also opted for 15,000 miles per year — which raises the monthly cost — because the Volt will be our primary vehicle. Another $6 of the monthly payment extends the 36,000 mile warranty to our potential 45,000 miles. Bear in mind that any particular deal you work out on a Volt will likely vary from ours; I’m simply trying to provide an idea of what it might cost.

Is it efficient?

Obviously, it’s too soon to say how efficient the car will be but so far I’m impressed. Here’s a screen shot of the first 73.2 miles we drove, which used 0.4 gallons of gas after the battery was depleted. Note that this data is for two days and the battery was recharged once; GM says you should expect about 38 miles of driving on the battery before the gas generator kicks in.

The Volt uses premium gas, which is currently near $4.00 a gallon nearby, so the 0.4 gallons used essentially cost $1.60. Of course, there are electricity costs involved as well when you consider the need to recharge the Volt, even though we over-produce energy with our solar panels. We currently pay just under $0.09 per kWh — not including any distribution costs, taxes or other fees — and we get paid at that same rate for excess energy.

So the 20.1 kWh used for our 73.2 mile drive would cost $1.81 on our electric bill. That works out to $3.41 for this driving session. Our old vehicle averaged 20 mpg and also used premium fuel, so the same 73.2 miles we covered would have cost $14.64 in gasoline. Note that there are many costs and benefits to look at, both short-term and long-term. The above exercise is just one example to view the cost to travel.

Better bring your smartphone!

Although we got a Volt to pair with our solar panels, I’m impressed with the MyLink system in the car, which is also available in other Chevy vehicles. MyLink is used on the 7-inch touchscreen — the same one that monitors energy usage above — through voice commands and GM’s OnStar service.

My wife and I both paired our smartphones with the MyLink system over Bluetooth, which lets us stream audio through the Pandora and Stitcher apps on our handsets. Both iOS and Android are supported and there’s even a MyLink application for both platforms. With it we can remotely monitor, stop or start the battery charging process, check our fuel level, start the car and much more.

MyLink will also play music from a USB-connected iOS device or from a USB stick. The system integrates Gracenote’s music database for audio file information such as title or artist and can display cover art as well. All of this music can also be controlled through voice. Say “Play artist” and the system will ask for an artist name. Speak it and the appropriate artist tunes start playing over Bluetooth audio or USB.

I like the idea that the car uses a smartphone for connectivity, mainly because I don’t want my connected car to have an embedded connection of its own. That’s just another potential data plan to pay for and there’s no need for it when a smartphone can provide a 3G or 4G connection to the car. I expect more apps to be supported in MyLink as well, although I’ve already streamed music over Bluetooth from my Rdio app. GM is expected to soon add a connected map service called BringGo that stores maps on a connected smartphone and uses them on MyLink for in-dash navigation.

We’re just starting down this road

Adding a Chevy Volt to our garage may make more sense for us than most others. We have excess electricity and we can go farther on that energy for less than the price of gasoline and with our driving habits we may not need to fill the gas tank for 6 weeks or more. I realize that not everyone fits into this category. But I think it’s important to share the details of this experience to help those interested learn more about the pros and cons of electric vehicles… and solar electric energy too, for that matter.

So as we do more traveling with the Volt, I’ll periodically share more of the experience. Until then, leave any questions in the comments and I’ll do my best to address them!

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First things first: Decisions and costs

Our family has always tried to be green when possible. We’re avid recyclers, we tried a small composting project, we use CFL or LED bulbs throughout the house, and I can’t tell you how many solar-powered chargers I’ve tried for my mobile devices. (The most recent one is outstanding.) But we never had the money to “go solar” even though we wanted to. That changed due to a unique financial situation. In the spirit of transparency, I’m going to share the details.

My wife inherited a family member’s IRA account several years ago and the law required that the funds be liquidated over a five-year period. We got to the final year in 2011 and realized we were going to be hit with a large tax bill on the remaining IRA funds and decided to invest the funds into something with a tax incentive. After much research on solar energy — this is a great site to estimate system sizing, pricing and benefits – return on investment and such, we decided to go with solar panels, moved in part because our rear roof faces south.

It turns out that a local contractor nearby put solar panels on his office and became a certified solar panel installer. I requested a number of quotes from companies in the area, but he gave the best price at the time: $5.50 per watt. I then looked at our electricity usage for the prior year — we’re a family of four, with two full-time work-at-home people — and over-specified the system by 25 percent capacity for two reasons. We have a four bedroom house, so I planned for the next homeowner to have five occupants. And I wanted to maximize the tax benefit, which was a 30 percent federal tax credit on the entire project.

The specified 9.43 kW (DC) system turned out to be 41 panels — 230 Watts each — which produced 12.05 megawatt hours of electricity from Nov. 1, 2011 to Oct. 31, 2012. That cost us $51,865 up front, including installation, permits, inspections, parts, labor and warranty. Yup, it’s a big chunk of change but that federal tax credit totaled $15,560, which helped offset taxes on the IRA liquidation. And many states offer rebates on solar projects; ours provided us a check for around $7,100 once the system was up and running. Our net cost then was $29,205.

It’s also worth considering companies in some states offer no-money down solar panel systems: essentially you let them install a system on your property and then lease the system. The company itself reaps the incentive benefits, but you may save money on your electricity bill.

Installation of the puzzle pieces

I had thought the system would be complicated by many parts, but it’s actually quite simple. Obviously, we have the panels, which generate electricity from sunlight. All of that power is DC, or direct current, so the system needs an inverter for AC power. We considered one single inverter but instead opted for individual microinverters attached to every panel. There are several benefits to this approach.

For starters, if one panel or inverter fails, it’s easier to locate and fix the issue. Second, the microinverters feed real-time data from every panel via Ethernet over powerline  to a small web server included for monitoring purposes. I can get tons of useful information from the system. You can view most of my system details here online, for example.

The microinverters, as well as the small web server that tracks them, are made by Enphase. Each one converts the DC power from its connected panel to AC power. Each microinverter is linked to the next one in the solar panel array so essentially, these are plug-and-play devices. Each connects to the next, and the last microinverter feeds a power line, which we fed through our attic and down along the outside of our house near our electrical meter. The panels themselves are attached to the roof with aluminum framing so the install process is fairly simple: Install the frame, connect the microinverters to their respective panels, attach the panels to the frame and link the microinverters.

Because of the solar panels, two additional electrical meters were needed. We still have the original meter that measures our electricity use from the grid but a new meter is needed to measure power output and a third measures the difference between electricity created and used. More on that in bit.

So how well is the system working?

In a word: great! In this graph below — from Enlighten’s web service that creates reports from our solar panel system — you can see exactly how much energy we produced on a daily basis.

In fact, this graph gives you rough history of the weather where we live in southeastern Pennsylvania. The drops on the graph represent days with little or sun, although even on a cloudy day we make a little energy. You can also see when the days get longer and provide more direct sunlight to our roof; we’re in the downward trend now as the shortest day of the year is approaching. Here’s a look at the numbers for production and usage by month:

There’s no maintenance to the system; it’s just always working to create power when there’s enough light. I haven’t yet had to do a thing to the panels, which have a 25 year warranty, same as the microinverters. So with the solar panels then, you’d think we’d be fine during a power outage, like the one we experienced for 4 days last week. Not quite….

Different systems for different needs

One of the upfront decisions you’ll need to make when planning a solar panel system is will you still be tied to the electric grid? Or will you go off-grid? There are pros and cons to each; the former costs less up front while the latter provides stored power during the evening hours or during an outage. Since we had no power during Hurricane Sandy, you can guess which system we have: One that keeps us tied to the grid.

That means all of the power our panels create is actually fed back into the grid; we still get all of our power from our electric company in this configuration. And in the case of an outage, grid-tie systems such as ours are automatically disabled. Why? Because if we were feeding power into the grid during an outage, it would be unsafe for the workers trying to fix the outage.

To go completely off-grid and have batteries store excess power would have added approximately 20 percent to our up-front project costs. My wife felt we’d never regain that cost because we rarely have outages. During Hurricane Sandy, of course, I gave her one — and only one — light-hearted “I told you so.” And at this point, I’m reconsidering what to do for backup power, but that’s another post for another time.

Is solar right for you?

I can’t answer that question, but hopefully, I’ve provided some insights to help you decide. Having a house some south-facing roof is a must unless you plan to have panels on your grounds. Local or state incentives vary by location as well so you’ll need to check them in your area.

The biggest issue for most is likely the large up-front cost involved although you could start small and build up the system over time. I can’t argue that the costs are still high, although they should be lower now than a year ago. And the payback period — which will vary based on your system, location and energy costs without solar — can be high. Our break-even point is around 7.3 years, but that includes the home appreciation expected due to the system.

We may not be here long enough to break even but we’ve already gained an appreciation benefit from the panels. Taking advantage of the low rates, we refinanced our home last month and the added value of the solar panels was around $30,000. And why not when the next owner of this home is unlikely to have an electric bill ever? We were paying around $2,500 per year for electricity before the system was built; now build up a credit in most months. But for us, it’s not all about the money or the investment, even though we have a hedge against a rise in electricity costs: Any price increase means we’ll get more for our excess energy production.

We feel we smartly took advantage of certain tax incentives, added value to our home and are one step closer to being energy independent, save for a backup system. If I could go back in time, I’d probably add some type of battery backup. At this point, we’re making enough excess power that we’re considering a plug-in car to replace our current vehicle. Why not let the sun power our home and our wheels while cutting down on our annual gasoline costs at the same time?

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