Small Businesses, Once Off-Limits to Solar, Get Greenlight From SolarCity

July 28, 2015

July 28, 2015 | 7:00 a.m. EDT

The sun could soon shine on small business.

For all of the solar industry’s explosive growth in the past six years – expanding faster than each fossil fuel last year, for example, thanks to cheap prices and government incentives – what may be the most lucrative market in the U.S. has also remained the most elusive.

That may soon change.

On Tuesday, the country’s largest solar installer of 2014, California-based SolarCity, declared it had figured out how to install solar panels atop small and medium businesses while also turning a profit – potentially opening a market estimated to be worth at least $10 billion a year.

“When you fly into any airport, you see these industrial areas – what are small warehouses with small businesses in them – and there’s no solar,” CEO Lyndon Rive said in an interview with U.S. News ahead of Tuesday’s announcement. “We now have a solution that makes it cost-effective.”

The country’s solar capacity has surged by more than 400 percent since 2010. On Sunday, Democratic presidential candidate Hillary Clinton said she would seek to build more than 500 million panels by 2020, and the power source has been a key part oflocal, state and federal efforts to reduce the heat-trapping carbon emissions that contribute to global warming.

Yet that growth has occurred in just two markets: small set-ups for residential homeowners and giant installations for companies, schools and government agencies.

Risk is a big reason. Most solar installers require no money upfront. Homeowners have FICO scores that can quickly be used to determine if they have good credit, while most large companies and government agencies are similarly backed by investment-grade credit ratings. Small businesses, however, lack either credential – that means solar companies have to spend much more time and money to figure out whether the business owners will pay their bills on time.

Then there’s the issue of scale: Most homes are small enough to be outfitted with a few panels in a couple days. Huge buildings, by contrast, take much longer – sometimes two to three weeks – but they’re buying so many panels that it’s worth the investment.

SolarCity, a company headed by Tesla and SpaceX CEO Elon Musk, claims it’s solved these challenges. First, in 2013, the company bought Zep Solar, a startup which developed an innovative “snap-together” solar panel and mounting system that fits more panels and is much faster to install. The installations are also done in-house, rather than through subcontractors, helping squeeze a few more pennies per panel.

“It’s really a dramatic difference,” says Jonathan Bass, vice president of communications for SolarCity.

Then there’s the financing: By harnessing a vehicle known as PACE, or property assessed clean energy, SolarCity says businesses in more than a dozen states can now pay for their panels through their property taxes.

“They must pay in order to retain the deed to the property,” Shayle Kann, senior vice president at GTM Research, explains in an email. “This should reduce the default risk significantly, which makes the project easier to finance and the credit requirements a bit less stringent.”

Together, these approaches are a path that other solar installers will also likely soon follow, he says.

“There’s a whole swath of companies who are looking for every opportunity to drive costs out of commercial solar,” Kann says. “None of these things is revolutionary on their own. What SolarCity thinks they’ve done is they’ve squeezed out from each part of the system the numbers that pan out at the end of the day.”

Originally published by Alan Neuhauser in US News & World Report.