California Solar Power Co. Gets $55 Million

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June 29, 2010 2:30 PM EDT

Three private equity firms have taken part in a $55 million financing for SunRun, a California company that leases solar panel systems to homeowners.

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Sequoia Capital, Accel Capital and Foundation Capital all took part in the financing. Warren Hogarth, a partner at Sequoia, wouldn't say how much of the $55 million his firm provided, except to say that it was a substantial piece.

Hogarth said solar power cost trends made his firm take an interest in the company. "Two curves, the price of solar power and the cost of electricity, are converging," Hogarth said. In California especially, the cost of power is reaching the point where solar becomes an attractive option -- Hogarth says it has come down 33% in just two years. The same pattern is unfolding in other states. Sequoia was also interested in SunRun's business plan; leasing the panels eliminates the cost of manufacturing.

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Instead of selling solar panels, SunRun installs them and asks homeowners to pay a fixed monthly fee for a set term. The monthly cost is less than what the electricity would be. SunRun takes care of maintenance.

SunRun CEO Ed Fenster said his company had met with Sequoia previously, though the firm didn't invest at the time. Coupled with a $100 million equity fund from PG&E Corporation, the California utility holding company, it shows that photovoltaic panels are a viable business.

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"We've reached the point where we depend only on the investment tax credit," Fenster said. That credit will become less important as time goes on. The federal tax credit currently covers 30 percent of the cost of a solar panel installation and setup. There are also utility-level rebates for generating solar power. In California, for example, some utilities offer 50 cents per kilowatt.

But those rebates are less important than they were, Fenster said. "For the first time there's a really clear path to not needing the rebates."

SunRun operates in Arizona, New Jersey, Colorado, and Massachusetts as well as California. California, Massachusetts and New Jersey have higher-than-average per-kilowatt hour residential electricity prices, at 15.26 cents for the former and 15.88 cents for the latter two. Colorado and Arizona are only slightly below average at 10.86 and 10 cents, respectively.

SunRun doesn't operate in states where financing for solar power is dependent on state budgets, Fenster added. Better is to be in a state where the laws require utilities to provide incentives. That way the business is not held hostage to the political climate.

This article is copyrighted by International Business Times, the business news leader