On Thursday solar installer SolarCity announced that it has signed up Goldman Sachs, and other investors, to create a $500 million fund to support leases for solar panels for home and business owners. With that much money, SolarCity can install some 110 MW worth of solar panels.

Solar leases are a contract between the building owner and SolarCity, whereby SolarCity pays the upfront cost of installing the system, owns and maintains the panels, and the building owner pays for the monthly electricity for the power from the panels over around 20 years. As Ucilia noted on GigaOM Pro today, the residential solar leasing market alone is expected to grow from $1.3 billion in 2012 to $5.7 billion in 2016, according to GTM Research.

Some banks and even companies like Google have been willing to put hundreds of millions into these types of funds. SolarCity has been able to raise $1.7 billion in funding over its lifetime to finance installations from groups like U.S. Bancorp, Google, PG&E and Credit Suisse. Other solar financing companies — and the competition is now getting fierce — include Sungevity, OneRoof Energy, Sunrun and Clean Power Finance.

There’s such a demand for solar leases and financing that even some companies are falling behind on getting funding for these businesses. SunPower said earlier this month that demand for its residential solar leases is far greater than the money available to finance them. Power company NRG Energy also wants to retry getting into this space, after trying out this market awhile back.

It’s not just banks and corporate do-gooders that want the opportunity to make a decent return — some 10 to 12 percent in some cases. Crowd-funding is starting to appear as an interesting blip on the radar. Startup Solar Mosaic says that it’s now raised $1 million from its crowd-funders for its solar panel systems, which offer around a 4.5 percent annual yield. Bloomberg New Energy Finance estimates that commercial‐scale solar panel systems can reach returns of 8 percent to 14 percent in states like Hawaii, Texas, New Jersey, and Massachusetts.

As big power players, upstart solar financiers and even everyday crowd-funders grow these funds and receive the returns, this market will start to expand significantly. As a boom of solar panels continues to hit the U.S., various parties can make significant money off this transition. Bloomberg New Energy Finance expects that residential solar panels could be installed on 2.4 percent of U.S. houses by 2020.

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Adding energy storage reflects the evolution of the company, which started off as a solar cell and panel maker before it entered the power plant development business. SunPower has carried out pilot energy storage projects in recent years and worked with different energy storage technologies, including advanced lead acid and zinc bromide batteries.

But lithium-ion batteries “will likely be the first technology to have an impact,” said Jack Peurach, executive vice president of products. The emergence of electric cars plays a role in making lithium-ion battery the front runner for being paired with solar, he added.

SunPower & Flextronics Factory in Milpitas, CA

SunPower executives didn’t provide details, such as the timing and battery suppliers, for its energy storage plans. But the discussion puts SunPower on a growing roster of solar energy companies that are offering or plan to offer energy storage.

SolarCity, for example,  has been bundling lithium-ion batteries from Tesla Motors with its solar energy systems and applying for a California program that subsidizes energy storage installations. One Roof Energy is working with battery maker Silent Power to roll out products. Korean conglomerate Hanwha Group, which runs a solar panel manufacturing subsidiary, is an investor in both OneRoof and Silent Power. SunEdison has done a pilot project with a battery system from startup Seeo.

Energy storage will be part of SunPower’s plan to expand its reach in the commercial and residential market, where it sells power purchase agreements or leases via its dealers or its own project development business. The company designs the power purchase agreements for its commercial and government customers and leases for homeowners. Power purchase agreements and leases work in similar ways: business or home owners sign a long-term contract of up to 20 years and pay a monthly fee for the solar electricity from the SunPower solar energy systems on their rooftops.

SunPower’s foray into the energy storage business will prompt more comparison with SolarCity, which started in 2006 as purely a solar installer. SolarCity is most active in the residential and commercial markets, but it scored the first utility project last year. As a result, the two companies have been competing more intensely in recent years.

In fact, a lawsuit filed by SunPower against SolarCity and five people last year highlighted that rivalry. The lawsuit accused five former SunPower employees of stealing confidential data and brought the data with them when they went to work for SolarCity. The two companies settled on Dec. 31, 2012, and a judge dismissed the lawsuit in January, SolarCity said in its 2012 annual report. It didn’t disclose the amount of the settlement.

SunPower executives didn’t say whether they will sell energy storage in the United States first or in other regions. Werner said that, for now, energy storage makes financial sense only in markets that offers government incentives. That would include California, Germany and Japan.

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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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Odds are, it’s a pretty safe bet even for the venture capitalists that have been scared off by the lack of consistent returns in cleantech investing. Last year there were a record-breaking 3.3 gigawatts worth of solar panels — or 16 million individual solar panels — installed in the U.S., making solar power the fastest-growing energy source domestically, according to Solar Energy Industries Association and GTM Research.

There are a few reasons why the installation of solar panels exploded last year: the price of solar panels dropped dramatically, companies have been offering financing deals that cover the upfront costs of the systems (like Clean Power Finance), and some states have been offering strong incentives to get panels installed. It’s not a coincidence that states like California with the best subsidies for solar panels had the most installations last year.

Clean Power Finance is a solar software and financing company, and it can put money into a variety of solar installers across the country. It originally grew its business on providing Software-as-a-Service tools to solar installers to start the sales, rebate, and lead-gen processes, but more recently started providing financing agreements like power purchase agreements (PPAs) for rooftop solar for home owners. A PPA is a contract over a time to buy the solar power as a service, and commonly avoid having to pay the upfront installation fee.

Solar installer SolarCity, which has a similar business model to Clean Power Finance, went public last December and its stock is trading around $18.50 Monday morning — $10 above its debut price. Sungevity, another solar financing and installation company, was able to raise a large round of $125 million of equity and project finance earlier this year.

Loving solar a little too much

Clean Power Finance previously raised funds from Clean Pacific Ventures, Sand Hill Angels and founder Gary Kremen, who is a long time entrepreneur and investor, and who previously founded of Match.com. Clean Power Finance raised another $25 million from Google Ventures, Kleiner Perkins Caufield & Byers, and Claremont Creek Ventures back in 2011.

Solar financing and installation is one of the few bright spots in cleantech investing. It’s a business model innovation, which is based around solar panels becoming a low cost commodity, and banks or corporations becoming comfortable putting up the upfront funds for the installation. In contrast solar manufacturing innovation has proved to be far tougher as an investment category (Solyndra, Miasole, etc.). The solar module manufacturing industry is also seeing mass bankruptcies this year, precisely because the cost of solar modules has gotten so low.

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C3 is a four-year-old startup that develops data grid analytics tools for utilities like PG&E, and is the software behind GE’s Grid IQ Insight product. The company was founded and is led by Siebel System’s Tom Siebel, and had been largely in stealth mode until earlier this year when it talked a bit about its smart grid plans at the DistribuTECH event in February. Previously C3 had focused more on collecting data about corporations’ carbon emissions and energy, but has seemed to veer away from that in recent years.

C3′s current big data software platform collects disparate data about buildings, energy generation and energy consumption from a variety of places like publicly-available data scraped from the web, utilities’ energy use info from its customers, and weather data from weather information companies. For PG&E, C3 aggregated at least 8 terabytes of data, which C3 normalized and loaded at 500 million records an hour. The data product helped PG&E do a year’s worth of energy audits on the commercial and industrial buildings in its footprint, said Siebel at DistribuTECH.

C3 plans to launch another five projects like this in 2013 and another five in 2014, and its other customers include Entergy, Northeast Utilities, Constellation Energy, NYSEG, Integrys Energy Group, Southern California Edison, ComEd, Rochester Gas & Electric, and DTE Energy.

Silver Lake Kraftwerk is private equity firm Silver Lake Kraftwerk’s clean energy growth fund, and it has a thesis to invest in later stage growing clean energy, waste and other types of cleantech companies. The fund, which also is looking to invest aggressively internationally, has raised at least $350 million, though I’ve heard the fund is closer to having raised $600 million at this point. Silver Lake Kraftwerk has invested in a later round in SolarCity (before it went public) and German recycled plastics processing and manufacturing company Friedola Tech.

Zoi spoke at our Green:Net event back in 2011. She also joined the Board of Makani Power, the high altitude wind power startup in Alameda, Calif.

This post was updated at 10:45AM PST on April 4th 2013, to change that C3′s data for PG&E was loaded at 500 million records an hour, instead of 5 million records an hour.

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So whatever happened to that IPO? Last week, Mascoma quietly withdrew its IPO plans. The company cited “market conditions,” for the move, though the macro IPO market conditions seem a little better in 2013 than 2012. Already this year smart grid company Silver Spring Networks went public, and late last year solar installer SolarCity made it out.

Mascoma currently makes a next-generation yeast that it sells to corn ethanol makers to help them cut the costs of making corn ethanol. That’s what made up the other 14 percent of its revenues (the part that wasn’t grants) at the time of its IPO-filing. But Mascoma’s real aim is to use its technology to make cellulosic ethanol — a next-gen type of ethanol that uses plant waste (not corn) — and the company wanted to do that using wood waste in a factory in Michigan. Many companies have tried to make cellulosic ethanol at scale in recent years and failed.

Before pulling its IPO, Mascoma raised two rounds of a few millions of dollars in debt over the past six months. That’s not the typical behavior of a company on the upswing getting ready to go public.

And over the past year and a half, as Mascoma amended its S-1 every once in awhile, its finances didn’t improve. The latest revenue numbers from March 2012 — a year ago — said that government grants and awards then constituted 93 percent of its revenue while sales of its equipment and services made up 6 percent of revenue. So the percentage of grants disturbingly actually rose over the 6 months from its first filing, rather than dropped, and its percentage of sales from real products fell.

Mascoma over the years has raised a lot of money from both venture capitalists, strategic corporations and public funds. At least over $100 million in private capital from companies like Khosla Ventures, SunOpta, GM, Marathon Oil, Khosla Ventures, Flagship Ventures, Atlas Venture, General Catalyst Partners, Kleiner Perkins Caufield & Byers, Vantage Point Venture Partners, and Pinnacle Ventures. The company was founded in 2005 from research from a Dartmouth Professor, Lee Rybeck Lynd.

Public funds have also been awarded and sometimes allocated for its projects. The Department of Energy awarded it $80 million to help it build Kinross, though its unclear if Mascoma actually drew down on those funds. The state of Michigan also offered Mascoma a $20 million grant to build the factory in Michigan.

At some point in 2012, Mascoma had been hoping to start construction on its factory in Kinross, Michigan that could eventually produce 20 million gallons per year of cellulosic ethanol. The company had wanted that to happen before the end of 2012, with operations starting in 2014.

An article in Michigan Capital Confidential from the summer of 2012 quotes a financing partner of Mascoma’s, Frontier’s VP of Operations, Ken Nielsen, who said that the company expects to ”start construction by the end of the year [2012].” Mascoma managed to secure (in December 2011) an agreement with Valero to help it build that factory, but it’s unclear how much Valero was willing to put up to finance this project.

According to the Michigan Capital Confidential the Kinross project had as of the summer of 2012 only created three jobs (it was originally supposed to create 70) and “received strong criticism from environmental and fiscal groups across the political spectrum.”

As of March 2013, it’s unclear if Mascoma ever broke ground on that facility, or if it hasn’t when it will. I’ve reached out to the company and am waiting to hear back. You can bet if they did start construction, they’d have sent out a press release on it across the internets. Instead, vaguely, Mascoma’s website still says the Kinross facility is “planned” and anticipated to go under construction in 3 to 6 months (the same time line it used a year ago).

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NRG Energy already builds solar panel projects for commercial and industrial building owners. Doyle told me that the company has been “heartened” by the amount of Fortune 300 companies that have wanted to install solar panels on their rooftops. Distributed solar panel systems have been gaining momentum, said Doyle, adding that they’ve been delivering higher growth than utility solar systems. In an interesting twist, that puts NRG Energy in grwoing competition directly with utilities, notes Bloomberg.

The emergence of the solar lease, or other financing options for solar, has helped unlock huge growth in solar panel rooftop installations in recent years. Essentially a third party, like SolarCity or Sungevity, raises a few hundred million dollar fund from a bank or a big company like Google, and uses that money to provide the up front capital for a home roof top system, which can cost tens of thousands of dollars to install. The homeowner doesn’t have to pay that upfront cost, but pays the solar leasing company a monthly bill that is usually lower than its former utility bill. Over time the bank or “the Google” gets paid back with a return that can be around ten to twelve percent.

As I reported last month, three quarters of the solar panels installed on home roofs in 2012 in California were financed and owned by these solar service companies, and not the home owner. These “third-party owned” solar systems collectively generated $938 million in revenues last year.

It’s one of the more lucrative businesses in the solar market these days. So why wouldn’t NRG Energy want to be in it. SolarCity, a former startup that has helped pioneer the business, went public in December 2012 at $9.25, saw its stock soar 40 percent on its debut day, and has now more than doubled to $18.57 Monday morning. Other companies that offer solar financing options include Sunrun, and Clean Power Finance.

The emergence of NRG Energy in the solar leasing business could be a real threat to the companies already operating in it. NRG Energy earned $1.59 billion last year, which was a decline from the previous year, but which is clearly far larger than the fairly new companies like Clean Power Finance and Sungevity.

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During a wide-ranging interview with former Wired Editor Chris Anderson at the SXSW Interactive festival in Austin on Saturday afternoon, Musk talked about hair-raising attempts to troubleshoot a spaceship, showed off a video of a test landing of a reusable rocket, discussed his one regret from the Tesla incident with the New York Times, and talked about how he once considered buying missiles from Russia.

On his one regret from the New York Times review incident:

Musk said that the only thing he regrets from the interaction with the New York Times over the publication’s negative review of Tesla’s Model S, was that he never posted his own rebuttal of the New York Times’ rebuttal. Musk says he wrote a response to the New York Times’ journalist, which noted that he thought that the writer had committed a “low-grade ethics violation” and sent it to the New York Times’ editor, but he never published it himself.

Musk said he wanted to make it clear that he thought the writer had not “acted in good faith.” He also said he still might publish the response.

On spaceship anxieties:

Last Sunday SpaceX’s spaceship Dragon was able to connect with the International Space Station and delivered cargo to the astronauts on board. But before that connection happened, the spaceship suffered from a problem which Musk gave details of during the interview.

Basically three of the spaceship’s four thrusters stopped working, leaving the spaceship essentially floating in space, and the team couldn’t figure out why. Eventually the team used a pressure system to jolt the Spaceship and give it “the equivalent of the heimlich maneuver,” said Musk. That finally worked and all three thrusters started working again. Musk called the experience “extremely nerve wracking,” and said “that was hard core. I never want to go through that again.”

On testing reusable and landing rockets

Musk showed off a video, which he says was shown to the world for the first time at SXSW, of SpaceX testing a rocket that can launch and land in the desert. The video showed, to the tune of the Johnny Cash song Ring of Fire, a 10-story high rocket launch and then shortly after land back in place still in the launch position. The rocket had a tiny Johnny Cash cowboy on the side.

Traditional rockets launch but don’t land. And Musk says that to make interplanetary travel financially feasible rockets need to be built to land successfully. All other vehicles are reusable and can start and stop without having to be replaced, said Musk, adding, imagine if you were watching Star Trek and the Enterprise was replaced every time.

On his biggest mistake:

In response to a question about what his biggest mistake in life has been, Musk said that he has routinely made the mistake that talent always trumps personality when it comes to people he works with. He said he’s put too much weight on it being just about the brain, when having a good heart is very important. It’s a mistake he said he has made many times.

On trying to buy intercontinental ballistic missiles from Russia:

Musk says that back in 2001 and 2002, when he was just starting to get into the idea of building tech for space travel, he traveled to Russia three times trying to figure out how he could buy Russian intercontinental ballistic missiles to aid his idea. He says when he got back from his third trip he started to realize that his original premise to use that technology, and work outside of the U.S., was wrong. “The U.S. is a nation of explorers,” says Musk.

Musk also says he originally wanted to launch a spaceship to Mars that could crash into the planet and germinate a kind of greenhouse, and that he wanted to do such a stunt to help NASA increase their budget to travel to Mars. He said he had looked onto the NASA website and saw no section for Mars travel, and at first he thought maybe it was hidden somewhere.

On what he is most concerned about:

Musk says he will be very disappointed if humanity doesn’t land on Mars in his lifetime. “That’s the thing I’m most concerned about.”

On managing to have a family at the same time as his crazy life:

Musk says he does email on his phone while he spends time with his five kids, and says that’s how he’s able to spend time with them and run two companies. In response to that, interviewer Anderson said that he wasn’t able to do such a thing as it’s negative for both the email and the kids.

Other fun stuff:

• “Its fun to gamble as long as you are the house,” said Musk.
• People Musk admires: Founding father Benjamen Franklin, Google co-founder Larry Page, Amazon founder Jeff Bezos.
• “My buddies from PayPal saved my butt,” said Musk, in reference to when Peter Thiel and the Founders Fund backed SpaceX in a crucial time before its successes.
• “Don’t compete with China on a commodity product,” said Musk referring to the failure of solar companies like Solyndra.
• “I would like to die on Mars, just not die on impact on Mars.”

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SolarCity said for the fourth quarter of 2012, it had a net loss attributed to shareholders of $3.04 million, while it had a positive net income attributed to shareholders of $14.07 million for the same period a year earlier. Per share, that was a loss excluding items of $1.10 for the fourth quarter of 2012, compared to a positive gain in net income of $0.24 for the same period a year earlier. Revenue for the quarter was up slightly at $25.27 million.

For the full year 2012, total revenues were $128.66 million, which was double the revenues in 2011 of $59.55 million. SolarCity CEO Lyndon Rive said the company is signing up a new customer every five minutes. There were 157 MW deployed in 2012, which was an increase of 118 percent over 2011.

SolarCity now has over 50,000 customers and has deployed close to 300 MW worth of solar panel projects over its lifetime. They also have close to 200 MW of backlog orders to deploy. Rive said on the earnings call on Wednesday that for 2012 “we could not have asked for a better year.”

Unfortunately now that the company is public, it’s a quarterly numbers game to Wall Street and analysts.

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Companies that have developed these types of financing models for solar include SolarCity, Sunrun, Sungevity, Clean Power Finance, and others. These companies commonly raise money from banks and even Google to put up the initial funds to install the solar panel systems and then the solar customer enters into a contract to buy the solar electricity over time, usually something like two decades. The bank can ultimately get that money back, plus 10 to 12 percent more, because solar systems provide revenue in the form of energy bills.

These companies are also some of the startups that have been founded in the clean energy sector that are actually making substantial money these days. SolarCity held a successful IPO last year, while Sugevity, Clean Power Finance and Sunrun have grown significantly.

While 75 percent of home solar systems built last year were owned by third parties, just over half, or 56 percent, were owned by third parties in 2011. The top cities with these third party owned solar systems in California include San Diego, San Jose, Bakersfield, Los Angeles, Fresno, San Francisco, Corona, Murrieta, Clovis and Temecula.

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