energy, Entrepreneurship, startups

How SunRun Applies Financial and Software Muscle to Home Solar Installation

Wade Roush 12/21/10

Sometimes we tech reporters get so wrapped up in writing about cool new technologies that we overlook other, equally important forms of innovation. Recently I visited SunRun, a San Francisco startup that installs photovoltaic panels on residential buildings and charges homeowners for the electricity they generate. I was expecting to hear a lot about the latest ways to engineer solar panels to produce more power—but I came away with a notebook full of thoughts about power purchase agreements, tax equity financing, and pricing engines. So while there are certainly people at SunRun who spend their time figuring out how to optimize the power output of the company’s 3,500 installed systems, this is largely a story about how three-year-old SunRun is spreading solar to more homes through clever financial engineering.

Despite the rapid growth of the Bay Area’s three leading residential solar companies—SunRun, Solar City, and Sungevity—there’s still a big puzzle about solar homes. It’s why there aren’t a lot more of them. California Governor Arnold Schwarzenegger signed the California Solar Initiative into law in 2006, making more than $2 billion in cash rebates and tax credits available to utility customers who put solar panels on their roofs. The goal was to get a million residential rooftop systems installed in the state, but all that free money hasn’t translated into the envisioned acres of solar panels. “We’ve soared past a million Priuses shipped, but in terms of solar homes in California, we are only at 100,000 since the beginning of the solar initiative,” notes Steve Vassallo, a Foundation Capital general partner who oversees several of the firm’s energy investments.

It’s partly an awareness issue: the state’s Public Utility Commission has issued dozens of news releases since 2006, and has designated August as “Solar Energy Awareness Month,” but it hasn’t done much else to publicize the rebates or explain how consumers can get them. But it’s also an economic issue: homeowners hammered by the recession don’t have a lot of extra money to shell out for home improvements these days, and they aren’t sure how much money they can save on their utility bills by installing solar.

And that’s the first thing that’s so ingenious about SunRun’s business model. It’s designed to take most of the risk out of solar installation, by asking homeowners for a tiny down payment (averaging $500), lining up equipment and installers, handling all maintenance and repairs for 20 years, and finally guaranteeing that homeowners’ post-installation electricity payments to SunRun will be lower than their existing utility bills.

That simple pitch has won SunRun 7,000 customers in seven states—Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, and Pennsylvania—and made it the fastest growing residential solar company in the country. But it has taken a lot of careful planning, and quite a bit of creativity on the financial and administrative sides, to make it all work.

“It’s a simple concept to take away the hassle and up-front costs of solar,” says Vassallo, who’s been working with SunRun since Foundation made its first investment in the company in mid-2008. “But to make it happen behind the scenes, a lot of fascinating challenges had to be overcome.”

The story starts back in 2007, when Edward Fenster and Lynn Jurich, who would eventually become SunRun’s CEO and president, respectively, were students at Stanford’s Graduate School of Business. Fenster had M&A experience from …Next Page »

Wade Roush is Xconomy's chief correspondent and editor of Xconomy San Francisco. You can e-mail him at wroush@xconomy.com, call him at 415-796-3024, or follow him on Twitter at twitter.com/wroush. You can subscribe to his Google Group and you can follow all Xconomy San Francisco stories at twitter.com/xconomysf.

Customers

First of all, Krigsman says customers need to know why they are doing the project. He says customers often see enterprise IT projects as different from normal business projects but that customers shouldn't view technology projects differently. Like any other project, IT projects have a budget and need a plan, a clear set of goals and a clear idea of the expected benefit.

To improve the project planning process, Krigsman suggests that customers take a hard look at what could go wrong early in the process. He says denial is a serious issue for many enterprise customers. He has written about this subject before in a post called "The twin evils of IT gridlock and denial." Krigsman wrote:

Project progress continues, despite lack of consensus. In denial situations, the team does not address disagreements, agreeing to wait until sometime in the future to resolve open issues. Problems then simmer below the surface only to "unexpectedly" erupt later, usually in more severe form.

Customers need to add conflict resolution into the earliest stages of the planning process.

System Integrators and Other Professional Services Providers

Krigsman says system integrators and other professional services providers need to remember to put customer's interests first and foremost.

Krigsman suggests one way consultants can improve customer's projects: demand clarity from the customer, especially at the start of a project. "System integrators should view project efficiency as a worthy goal, even if they make less money in the short run," Krigsman says. Making sure your customers have a clear idea of what they want done will help you over the life of the project.

There's a benefit for consultants here too, though: "Some customers take unfair advantage of their integrator during the initial bid process by pretending that a poorly planned project is well defined," Krigsman wrote.

Vendors

Meanwhile, Krigsman says vendors need to do a better job of simplifying products and educating the customer so that the customer can make wise technology decisions regarding their product.

Krigsman suggests that vendors could tie sales compensation to successful project outcomes. A sales representative would be rewarded not just for the size of a sale but for the customer's success in implementing the project. This would discourage sales people from doing pointless upselling and incentivize customer education.

Perhaps other teams, such as engineering and product management, could be similarly compensated to bring all parties on the vendor side into alignment?

It's All About the Long Run

The common theme seems to be that each part of the Devil's Triangle needs to focus on the long-term. Customers need to consider problems and solve disputes before spending money on a project. Vendors and consultants need to prioritize their reputation and the success of their customers over short-term sales and billings. It sounds simple when put that way, but it's always easier said than done.

For some examples of what not to do, check out Biggest ERP Failures of 2010, which includes commentary from Krigsman.

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