SunRun gets $12M, for “dominant” solar installation model

Like a new car, a solar system is a big investment. Some home owners can front the $10,000 – $30,000 for the panels and installation, but most need help. SunRun is one of a new breed of companies that’s figuring out ways to set up almost anyone with solar panels, whether or not they have lots of money.

The earliest solar vendors were expert mainly in setting up and maintaining solar systems. SunRun, on the other hand, is a bit more like a leasing agent. Instead of just selling panels, SunRun sells its customers something called a Power Purchase Agreement (PPA), which locks into a low electricity rate for a period of 18 years. The customer agrees to host the panels and pay for the power, but never needs to invest a large sum.

The model is a variation on a new business category that has been dubbed “solar services,” and contains several strong startups. These include SolarCity, which provides leasing or payment plans; Sungevity, which tries to make solar dirt cheap; and Recurrent Energy, which sells power to businesses and government. For its part, SunRun limits itself to the residential business.

Like all good ideas, solar services is a bit more complicated than it seems on the surface. The companies have to contract out the actual installation to specialists, or train their own installers. They also have to figure out how to cover their financing options, either through banks or their own on-hand cash. And they have to plan well into the future, because most remain responsible for servicing the panels they install.

The practical considerations aren’t stopping their rampant growth, though. SunRun co-founder Nat Kreamer told me recently that demand is exceeding the company’s expectations, and that he sees solar service “emerging as the dominant business model.” In one example, a contract for multi-residence installation the company won rights to bid on in San Jose saw three quarters of the households choose SunRun’s PPA agreement, while only a quarter opted to buy their systems outright.

There’s plenty of room for growth. Although the majority of these companies operate mostly in California — with some notable exceptions like Standard Renewable Energy — they’ve got around a million rooftops to cover before they have to start fighting for customers. And as costs for solar go down, the other 49 states will await.

The $12 million funding was led by Foundation Capital, and is SunRun’s first venture round. The San Francisco company was seeded by angel investors and its management team.