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To cut price, SolarCity leases solar panels

The key to speeding solar power adoption is financing. Start-up offers solar panel leasing program in three states for a relatively small up-front fee.

Solar installer SolarCity is doing, in a limited way, what many people contend is the key to wide-scale adoption of solar power: a leasing program.

The Foster City, Calif.-based start-up is offering customers in California, Arizona, and Oregon a financing option that allows them to get solar panels with a relatively small up-front down payment and monthly lease fee, SolarCity CEO Lyndon Rive said on Monday.

Solar panels that generate electricity can cost between $20,000 and $35,000 before tax credits and other clean energy incentives. Those subsidies can bring the cost down significantly, depending on the state or country, but up-front costs remain a significant barrier to adoption.

SolarCity's financing plan will allow people to have solar panels installed for $1,000 to $3,000 up front, depending on the size of the system, and a monthly fee.

The numbers work out so that most consumers, particularly those who pay large electricity bills, will pay less per month with the arrangement, he said. As energy prices go up over time, their savings can go up.

"Historically people who are adopting solar are those who really care about the environment and have disposable income. This will open it up to new clients, the millions of people who want clean power," Rive said. "Why would you not do this?"

The service makes most sense for consumers who pay high electricity bills, particularly in states like California that have a tiered pricing regime in which consumers pay a higher electricity rate the more they consume.

The model also assumes electricity prices will continue to go up, which is likely to be the case, although at an unknown rate.

How it works
What SolarCity is doing is a residential version on a commonly used commercial financing model, called a Power Purchasing Agreement (PPA).

When corporations put solar panels on their rooftops, they often don't actually own those panels.

Instead, a third-party installer or financier owns and maintains the panels and sells the electricity they generate back to the customer.

It's an arrangement that lowers the up-front costs and gives customers a locked-in price for electricity over several years. That acts as a hedge against rising fossil fuel prices, since the price of solar energy is constant.

In SolarCity's residential financing program, the company will maintain ownership of panels and benefit from a commercial tax credit, which is better than the residential rate.

Other companies have tried to apply this model to the residential market.

Another Bay Area start-up called Sun Run has a similar financing and ownership model but appears to require a higher up-front investment.

Another company, Citizenre, has promised the same low-money-down arrangement in the face of deep skepticism but has not launched a product after more than a year of advertising it.

Other installers, such as groSolar, offer to broker financing services for customers.

Rive said that SolarCity hopes to roll out the financing option to other states later this year.