Breaking the mold in solar power

Can homeowners save money by renting solar panels? One start-up says yes, but industry incumbents say it has a lot yet to prove.

Martin LaMonica Former Staff writer, CNET News
Martin LaMonica is a senior writer covering green tech and cutting-edge technologies. He joined CNET in 2002 to cover enterprise IT and Web development and was previously executive editor of IT publication InfoWorld.
Martin LaMonica
6 min read
Start-up Citizenre thinks the solar power industry is ready for a radical new way of doing business: rent out panels, rather than sell them.

The company has devised a plan that essentially would allow individual homeowners to lease solar electric panels installed on their roofs. That way, they would avoid hefty up-front costs--a perennial barrier to widespread use of solar power.

But there's a hitch: Citizenre does not yet have a product to sell and has not named financial backers. Next month, though, the company intends to announce its lineup of investors, who are expected to put $650 million into the operation. It will also disclose the location of a planned manufacturing plant.

The absence so far of these crucial details has brought skepticism from solar electric industry incumbents, who fear that Citizenre could set solar power adoption back by promising too much. But even critics admit that one of the big ideas behind Citizenre--letting people rent rather than buy solar power--is compelling.

"Inevitably, somebody is going to figure out how to deliver energy services to customers versus selling solar PV (photovoltaic) systems," said Travis Bradford, author of Solar Revolution and president of the nonprofit Prometheus Institute, which promotes sustainable business.

The energy industry today, like the telecommunications market in the 1990s, is ripe for change, Bradford said. Just as cell phone providers offered an alternative to traditional phone service, new solar energy businesses will arise alongside traditional power suppliers, he predicted.

Right now, homeowners who want to tap solar energy typically pay an installer, who gets the systems from a distributor. The distributor, in turn, gets the different components, including the panels and inverters, from manufacturers.

Bradford predicted that in coming years, an existing utility company, or a solar energy provider serving the commercial market, will devise a way to provide consumers with a wider range of energy services. These could include local power generation through solar panels, financing and ongoing maintenance.

"Solar power is disruptive technology," Bradford said. "Now what we need is new business models."

Buy versus rent
Solar photovoltaic panels for the individual home are expensive, requiring up-front investments of $25,000 or higher. Even after tax rebates, it takes years for that investment to pay itself back to the homeowner in locally generated electricity.

The target customer for Citizenre's products and services is the "average Joe" who, until now, has been shut out of renewable energy by the high price tag, company CEO David Gregg said.

To crack the largely untapped residential market, Citizenre wants to borrow a financing mechanism commonly used by renewable energy companies for commercial customers: a purchase power agreement.

The idea essentially goes like this: A homeowner leases the panels, which would still belong to Citizenre. As part of it, the customer signs a "forward rental" agreement to purchase the electricity generated by the panels from Citizenre at a fixed rate, over five or 25 years.

The advantages to consumers are a fixed electricity rate and a small investment--a $500 fee, which acts like a safety deposit.

"The gamble you make is that your utility power prices will be continuing to go up. Also, you're contributing to a change in the power system, because you're generating power that does not have any (greenhouse gas) emissions," said Erika Morgan, Citizenre's senior vice president of communications, who still works on a part-time basis.

Part of Citizenre's marketing plan calls for it to partner with well-known non-government organizations, such as environmental advocacy groups, to help sign up customers, she said.

Over the past few months, renewable energy blogs have seen a flurry of heated discussions about Citizenre and its approach. Amid criticism, the company's sales associates and others have defended it for trying to break the log-jam in solar power.

"I signed up to get in line for a (Citizenre) Renu system without a request for a security deposit or any money up front, I know these programs take time to work out the kinks. I don't expect to get a unit until sometime in late November or December 2007, or even in 2008," wrote contributor "2renu" in the comments section of a blog that suggested Citizenre's offer was flawed. "Give them a chance to succeed or fail but just give them (a) chance. Who else is taking a risk with a business model like Citizenre?"

That model calls for Citizenre to make a significant break from today's solar supply chain. The company plans to do its own manufacturing and to offer installation services for its panels through a network of independent affiliates.

Citizenre intends to purchase the equipment to build panels from existing manufacturers such as SpireSolar, Gregg said. It will buy its own silicon, which is used in the solar cells that convert light to electricity. And it will manufacture its own inverters, which are the boxes that convert the direct current electricity generated by the solar panels to the alternating current used in a home.

"The industry has always known it is possible to manufacture on a large scale to drive down costs."
--David Gregg, CEO, Citizenre

By "vertically integrating" these different steps--manufacturing, assembly and installation--the company will be able to wring an economic advantage out of today's fragmented market, Gregg said.

He noted that the solar industry is already seeing signs of this sort of combination. SunPower, a manufacturer of solar cells and panels, last year bought PowerLight, an installation company, with the goal of speeding up its delivery of systems.

"The industry has always known it is possible to manufacture on a large scale to drive down costs," Gregg said. There are other ways of squeezing costs, he added: "We can eliminate the investment hurdle using our debt financing structures."

Gregg said that within nine months of breaking ground on a manufacturing plant, it will have turned out enough solar panels to generate 100 megawatts of power. Within two years, it will have produced 500 megawatts of capacity.

By comparison, there were about 100 or 150 megawatts of capacity installed in all of the United States last year, said Alex Klein, a senior analyst at Emerging Energy Research.

To keep the cost of sales down, Citizenre has devised a multilevel marketing approach in which independent salespeople, called "ecopreneurs," get a cut of the money generated by other salespeople. That, in theory, will enable the company to sign up a large number of customers quickly. It also intends to set up franchises that will help train sales staff.

Not buying it
Citizenre, whose management has a mix of experience in renewable energy and the IT industry, has made ambitious claims since launching a pilot program five months ago. Perhaps because of that, the company is getting grilled by many people who have been steeped in the solar industry for decades.

Jeffrey Wolfe, CEO of solar photovoltaic installer and distributor GroSolar, said he examined the company's business plans and concluded that the numbers do not add up. In a piece on the Renewable Energy Access Web industry site, he said that Citizenre's promises ultimately will disappoint consumers in a situation which "represents a threat to the entire solar industry."

Richard George, a solar industry professional who signed up as a salesperson for Citizenre, has also been a vocal critic. George stepped down, as he felt that the company's top executives were not addressing a long list of "red flags" (described in this PDF).

Gregg said that some skepticism is warranted because people have yet to see and hear the full picture of the company's plan, something it intends to divulge over time.

However, he believes Citizenre is also catching flak because its business model is a challenge to solar power industry incumbents.

"The harshest critics making accusations are the distributors, who are the most at risk of us taking their jobs away," Gregg said. "Unless you study the industry from the bottom up, you won't know where the cost savings are."

Gregg and Morgan acknowledge that the company has gotten ahead of itself in some respects. Specifically, it has signed on many salespeople without having the resources to fully train them. That's a situation the company intends to address in the coming weeks, Gregg said.

Also, they caution that customers may have to wait years between signing their forward rental agreement and having the panels installed.

All in all, Citizenre--which Morgan describes as still being "in extreme start-up mode," has drawn both ire and admiration.

Some solar installers say its rental plan addresses one of the biggest problems facing the widescale adoption of renewable power, a long-pursued but unrealized goal.

Yet the company's stated ambitions to break the rules of the existing solar industry have alienated many of those who built that industry up. Much of the criticism is due to the large scope of its planned operation and the lack of detailed information on its setup.

"If you're going to make claims like that, the details need to be available if you want the support of the industry," Bradford said.