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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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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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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Launched in 2011 and based in San Diego, Calif., OneRoof Energy — one of our 13 solar startups to watch in 2013 — teams up with roofers and electricians to sell rooftop solar systems and financing products (like leases). The company says it has $100 million worth of solar agreements, projected sales of solar financing deals of $300 million, and it says within 2013 it will have helped develop solar rooftop systems for 10,000 homes.

While solar startups that are making next-generation solar panels struggled in 2012 — and will continue to in 2013 — solar startups that are selling services are on the up and up. Solar nerds call those the “downstream” solar companies.

Those companies are doing well because solar cells and panels are at one of their cheapest points in history, and in the U.S. and China solar panels are being installed on rooftops at a rapid rate. The Solar Energy Industries Association estimates that there were 3.2 GW worth of solar panel capacity installed in 2012 in the U.S., up from the 1.89 GW installed in the U.S. in 2011.

The boom in the U.S. is also because of the emergence of solar financing options like the one that OneRoof Energy provides. Customers pay little or no upfront cost for the systems, and then pay off the solar system over time, anywhere between a decade to two decades. Many customers can even find agreements where they pay less on their monthly energy bill with solar. But to provide financing agreements like that OneRoof Energy needs to raise project financing from investors like banks to cover the upfront cost of the system.

Korean conglomerate Hanwha already invested in OneRoof Energy back in 2011, and has funded other solar startups like solar panel tech maker TenKsolar, silicon wafer maker 1366 Technologies and Crystal Solar in Silicon Valley. Hanwha also spent $370 million for a nearly 50 percent stake in China-based silicon solar cell and panel maker Solarfun Power in 2010 (which has since been renamed Hanwha SolarOne). Hanwha has its own solar business is called Hanwha Solar, which set up an office in the U.S. in 2011 and inaugurated a $14 million research and development center in Silicon Valley.

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Competition in the residential solar panel installer business — and the accompanying services industry — has intensified as the drop in solar panel prices has led to a solar panel installation boom in the U.S. The Solar Energy Industries Association estimates that there were 3.2 GW worth of solar panel capacity installed in 2012 in the U.S., up from the 1.89 GW installed in the U.S. in 2011.

Founded in 2007, Sungevity handles sales and marketing, system designs and financing deals, for residential solar panel systems, but the company farms out the installation work to contractors. Other companies like SolarCity — which recently went public — does all that and also installs the panels. Other competitors include SunRun, Clean Power Finance,  Solar Universe, Brightergy and Solmentum.

Sungevity, led by the charismatic former Greenpeace-r Danny Kennedy, and CEO Andrew Birch, already grew a lot in 2012. Kennedy told the New York Times for a magazine article last year, that the company’s “revenues grew by a factor of eight in 2010 and doubled again in 2011, and employees grew to 260 from 3 since the company was founded.

The equity funding came from investment fund Brightpath Capital Partners, home improvement company Lowe’s, and investors Vision Ridge Partners, Craton Equity Partners and Eastern Sun Capital Partners. The project financing came from an unnamed bank and private equity firm Energy Capital Partners.

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But there were also quite a few things that excited me this year, which in honor of our upcoming day of thanks, I’ve decided to call out. Here are 10 things to be thankful for in cleantech.

1). Obama won: Thank goodness. The entire cleantech sector dodged a bullet — and breathed a sigh of relief — as the votes rolled in and President Obama was re-elected for a second term. Obama delivered an unprecedented amount of cleantech funding: billions in incentives for clean power, electric cars and energy efficiency through the stimulus package. While the incentives won’t likely be as high as they were when the stimulus package was determined, if Mitt Romney had won, it would have likely been a real blow for cleantech. Romney is a self-professed coal-lover, who used speeches to point out misspending for clean power companies, and made a now infamous joke (post Sandy) about climate change.

2). New solid customer: Internet infrastructure: A growing amount of Internet companies — and web infrastructure providers — are looking for ways to add more clean power to their data center energy consumption mix, and are also looking for ways to be less reliant on the power grid. Some of the leaders in this area include Google, eBay, Microsoft, and Apple, and many of these companies have invested in both solar systems, energy efficiency technology and even fuel cell farms. Fuel cell maker Bloom Energy has managed to find a niche and growing market here.

There’s also a growing trend of IT companies looking to utilize low power servers — servers built off of low power cell phone chips. AMD this year acquired startup SeaMicro, and weeks ago AMD launched its SeaMicro low power server. Calxeda just raised $55 million to move toward commercializing its own low power server product.

3). Digital green, or clean web: Cleantech — from a VC and entrepreneur perspective — is in a transitional state. But in the meantime, clean technologies that are based on IT — like mobile, big data, cloud computing, software — are still seeing a lot of innovation and investment. Examples of startups in this sector include Opower, Nest, Solar Mosaic and Sungevity. Investors are calling this sector different things — Greenstart calls it digital green, Spring Ventures calls it Clean Web, and MDV calls it where cleantech meets IT — but it all means the same thing to them: a way to make money that more closely mimics making VC investments in web and mobile companies.

4). Smart thermostats: A particularly interesting area to me in terms of the smart grid and cleantech startups is the growing use of thermostats that are connected to the internet and that can smartly cut building energy use. Nest says it’s sold in the mid-hundreds of thousands of its learning thermostats, which can learn the users behavior and shave off energy consumption overtime. EcoFactor’s service is being used in a commercial deployment in Las Vegas, and Opower’s software is being used in three utility trials with Honeywell’s thermostats. Startup EnergyHub is also working on providing the software for smart thermostats.

Connected thermostats could be the answer to what utilities call demand response, which is basically turning down the energy use of its customers during peak times of day. The customers agree to the programs and can see lower energy bills. If the system is automatic and non-intrusive — which can be done using smart thermostat analytics — customers are far more likely to join the programs, and the utility’s results are better.

5). Tesla: Electric car maker Tesla has one of the most ambitious ideas in cleantech, and has actually — mostly — delivered on its goals. Yes, it was slow to get its estimated volume of Model S cars out to owners in 2012, but it’s on track to deliver its new estimates over the coming months. The company is also one of the few cleantech ideas that have captured the imagination of the public, and recently won Motor Trends’s car of the year award — the first time in history that an electric car won it.

6). The learning curve: Like I said, cleantech is in a time of transition. And I think that’s a good thing. As Greenstart founding partner Mitch Lowe said on a recent panel I moderated, fewer companies are being funded, but that just means the bar is higher. While bubbles are fun — like the one that grew in cleantech between 2006 and early 2008 — bubbles mean a lot of stupid money is flowing. Hopefully the smarter money of the next 18 months will deliver some breakthrough cleantech startups.

7). Cheap solar panels: One of the most dramatic clean power economic factors to emerge in 2012 occurred via super cheap solar panels coming out of China. While rock bottom solar panels make a difficult market for competing solar manufacturers, that ecosystem has created a boom in solar panel installations. In the U.S. there are now 250,000 rooftop solar panel installations, and companies like SolarCity are seeing large growth.

8). Wish for big ideas: Outside of cleantech, in the general tech and IT markets, there’s been a growing drumbeat of entrepreneurs and investors calling for greater attention on “big ideas.” While there can be easy money in social media and mobile apps ($1 billion for Instagram), there’s an emerging discussion around technology being used for higher aims, like solving problems for resource constraints. Investor Peter Thiel has been a chief champion of this approach and recently created a growth fund that will tackle big problems — the fund has already backed firms like compressed air energy storage startup LightSail Energy. They’re not calling it cleantech, but it is under the hood.

9). Meat 2.0: When the population explodes to 9 billion people by 2050, livestock for consumption could become a constrained resource — particularly because the emerging middle class in developing countries are increasing their meat consumption. That’s one of the reasons that innovation is occurring around fake meat. As Greentech Media wrote, paraphrasing a VC: “having a “fake meat” company in one’s VC portfolio was becoming a must-have, like having a cloud computing firm or a failed thin-film solar company.” Beyond Meat is one startup and Sand Hill Foods seems to be another. Modern Meadow Meat is a startup working on meat manufacturing, with backing from Thiel.

10). Collaborative consumption: And another sector of cleantech that’s not really cleantech: sharing goods. The next-generation of young people are less interested in owning things, and more interested in gaining access, or using things as a service. That makes the use of goods more efficient and sustainable. You don’t need to buy a car, because you can pay for access via Zipcar. There’s tons of startups in this space from giants like Airbnb, to new comers like electric scooter rental startup Scoot Networks.

Image courtesy if Aine D, waywuwei,

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The event will take place at Sungevity’s headquarters in Jack London Square in Oakland, and will start at 5:30 PT, and run until Sunday evening. The hackers will spend 48 hours, supplied with pizza and Redbull, to build solar apps, and the best solar apps will win prizes at the end of the weekend. More info can be found here.

The “Cleanweb” is the trend of using information technology — software, the web, social media, mobile — to address resource constraints around energy, food and water. Sungevity founder and President, Danny Kennedy, tells me in an interview that they’re using the Cleanweb Hackathon thesis to build a community around trying to get more solar panels connected to grid infrastructure.

Kennedy is expecting between 50 and 100 participants and the Mayor of Oakland is expected to speak.

Sungevity uses the Internet and software to develop sales, marketing and financing for rooftop solar panel systems. The company was founded in 2007 and counts investors like Brightpath Capital Partners, Firelake Capital Management and Greener Capital.

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It takes smart software and analytics tools to network clean power devices, integrate them into the electric grid, make money from them and educate consumers about the benefit of owning them. We wrote about the need for more software and services back in 2010. Sungevity, a solar installer, is holding a solar hackathon this weekend in Oakland, Calif., to promote building mobile and web apps.

Here’s a look at how software is making a difference:

1. Power forecasts: Solar and wind power production varies because it depends heavily on weather conditions. But utilities are used to managing the steady stream of power from fossil fuel-based power plants. The North American Electric Reliability Corp. said in a recent report that better wind energy forecasts are needed since data shows that a wind farm could produce anywhere from zero to about 21 percent of its stated production capacity during hours of peak demand.

Because solar energy could come from large power plants or little rooftop systems scattered across cities, predicting solar power output and its impact on the local grid presents a different set of challenges. Creating accurate forecasts for wind and solar will require pulling lots of data on wind speed, clouds and other meteorological conditions. AWS Truepower and WindLogics are two companies that have been at this for a while. More recently, Clean Power Research announced a data and forecasting service for managing a fleet of solar energy systems.

2. Putting energy storage to work: Many pilot projects are underway to see how battery systems could complement wind and solar farms by banking these intermittent sources of power and releasing it into the grid to meet peak demand or stabilize the grid (maintaining a balance of supply and demand is crucial to avoid back outs and other problems). These are largely projects that involve large wind or solar farms. But in the future, energy storage systems could make their way to small businesses and homes and enable their owners to also make money from selling, say, solar power back to the utilities.

Carlos Coe, chairman of battery developer Xtreme Power, told me the bulk of the company’s technical expertise actually lies in the software that controls its battery system to make sure it works well with the control system of a utility or power project developer. Companies that are focusing on developing energy storage software include Growing Energy Labs and Greensmith.

3. Energy diets: Energy costs are set to go up overtime, and that has prompted many commercial and industrial building owners to consider technologies that will help them rein in costs. Being able to accurate predict daily or even hourly energy use and take quick steps to reduce or maintain the amount of electricity being consumed throughout the day requires some hefty data crunching, and that’s what companies like startup GridNavigator are doing. This type of software gives building owners a finer control of their energy use.

Another way to reduce energy bills is to sell unused power back to the utility or grid operator. Some utilities pay their customers to dial down power use during times of high demand in order to avoid blackouts. You can expect new software being developed to serve this demand-response market.

4. Home automation:  Energy management equipment and software developers have historically targeted the commercial and industrial building owners, who tend to be heavy energy users and might be more willing to invest in energy efficiency retrofits to cut costs. The average consumers, on the other hand, doesn’t really give a hoot about monitoring their energy use hourly or daily and adjusting their lifestyle accordingly. At least not manually.

Automating this process, on the other hand, will make a big difference. And this is why devices such as so-called “learning thermostats” from startups like Nest can be a game changer. A learning thermostat figures out its owner’s energy consumption behavior and adjusts the heating and cooling of a home accordingly.

5. Building an ideal solar roof: Solar installers such as Sungevity and SolarCity have all touted their software development expertise in marketing and engineering solar electric systems (SolarCity sought to build an energy auditing and retrofit business by developing software that performs more accurate energy audits and can better quantify saving). Geostellar recently raised nearly $14 million to build a business that pulls together a bunch of data – including weather, roof slope, property values, electricity rates and government incentives for installing solar panels – and sells the crunched data to installers and others who want to hone in on their ideal customers. The company also claims to be able to estimate power production of solar panels on each roof.

6. Solar monitoring: Solar energy systems – whether they are on a rooftop or in the desert – are meant to be long-term investments, so there is a need for good monitoring and management software to pinpoint problems quickly. The ability to check the performance of individual solar panels is partly what makes microinverters – which convert the direct current from the solar panels to alternating current for the grid –an appealing option.

Making monitoring data easily accessible is just as important. GreenVolts, a developer solar energy system that uses mirrors to boost the power produced from solar cells, recently made it possible for its customers to monitor their GreenVolts systems on their smart phones and other mobile gadgets.

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The company provides leases or power purchase agreements to consumers who pay a monthly fee for the electricity from the solar panels installed on their rooftops. This way, the home owner doesn’t have to pay the expensive, upfront cost of the equipment and installation but still gets to use a cleaner source of power. Lease or power purchase agreements are long-term contracts – 20 years for those from Sunrun – that sometimes guarantee consumers lower electric rates than what they have been paying their utilities. This model has become popular in states such as California and Massachusetts.

Sunrun is part of a group of startups that set up shop about half a dozen years ago to tackle the emerging solar retail service market. Sunrun provides the financing and owns and maintains the solar equipment, and it’s built a network of contractors that do the installation work and help market Sunrun’s financial services. The company said it has has more than 20,000 customers in 10 states since its inception in 2007.

Since then, the solar retail service market has grown tremendously, and competition also has intensified. The company has run bill board ads and launched a new marketing campaign recently. Other solar service companies have used the same types of advertising as Sunrun. Some team up with nonprofits to market their services. Sungevity, for example, announced Wednesday it’s working with the Sierra Club, and customers who go to a Sierra Club website to sign up for Sungevity’s service will get a $750 cash gift card. Sungevity also will then donate another $750 to the Sierra Club.

Some of Sunrun’s venture-backed competitors include SolarCity, Sungevity and Clean Power Finance. SolarCity plans to do an initial public offering, and Sunrun, which recently hired a chief financial officer, could also be heading in that direction, too.

Overall, Sunrun has raised $145 million in venture capital. The latest round came from investors including Madrone Capital Partners, Accel Partners, Sequoia Capital and Foundation Capital.

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