SunRun secures $18M Series B for residential solar

San Francisco-based SunRun said today it raised $18 million in a Series B financing led by Accel Partners and including existing investor Foundation Capital.

SunRun provides solar to residential customers through power-purchase agreements with fixed rates that are already at a discount of between 5 percent and 20 percent compared to utility prices. SunRun President Lynn Jurich said business has been booming during the recession as consumers take a closer look at their monthly expenses.

"Homeowners might not think 5 percent is amazing or think about the fact that it can add up over time," Jurich told the Cleantech Group. "In the post-recession new world, people are really paying attention to that."

The company has signed contracts for more than 1,000 systems. Jurich declined to say how many have been installed, but the company told the Cleantech Group in November that 300 residential installations were completed in California since the company started there in 2007.

SunRun expanded to Massachusetts and Arizona early this year. The company plans to use the funding to expand into new markets. Jurich said destinations would be based on state incentives and solar potential, making the mid-Atlantic states, Colorado, Oregon and Texas likely candidates.

The price of modules has been dropping worldwide as solar companies have dealt with excess inventory, which has reduced SunRun's expenses, said Richard Wong, a board member and lead investor of Accel Partners (see Extra solar panels in Spain driving down prices).

Wong said Accel committed the majority of the round's funds within seven weeks of the first meeting with SunRun, in part because Accel sees SunRun as a leader in the PPA sector. He said the slowdown in cleantech investment doesn't give an accurate representation of the sector's health because many investors are simply waiting to see how their investments play out in biofuels, fuel cells, solar and other "first wave" technologies.

"In contrast there's a growing and accelerating second wave of investment in market-based solutions, energy efficiency around smart grid networking, or software," he said. "Whether it's Silver Spring, eMeter or SunRun, there are many examples of this second wave starting to ramp up" (see Watch out Microsoft: Sequoia leads $32M round for eMeter and Smart grid tech draws $75M for global expansion). 

SunRun previously raised $12 million in Series A funding in June 2008 led by Foundation Capital, with participation from Parker Weil of Merrill Lynch's clean energy investment banking, and Gregory Avis, founder and managing director of Summit Partners (see Sun worshipers lead the week).

Later that year, SunRun secured up to $105 million in project financing from U.S. Bancorp to install 2,000 residential solar systems in the U.S. (see SunRun nabs $105M to ramp solar PPAs). U.S. Bancorp provides SunRun the capital to buy systems while using federal tax incentives to offset its own tax obligations.

"We have a lot of runway available in that fund, so we've been able to grow without any real competition," Jurich said.

There are several other major PPA providers, but Jurich said most focus on the commercial market, while SunRun sells exclusively to consumers. The chairman of commercial PPA provider SunEdison sits on SunRun's board, she noted.

"It's the same business in that it's owning and taking care of solar, but the consumer is so different," Jurich said. "It's about 'How do I make it easy and simple and turnkey for the consumer?'"

Two of the PPA providers for the commercial sector secured significant backing in 2008. Mill Valley, Calif.-based Solar Power Partners closed on $100 million in debt and equity financing for its PPA model for commercial and government systems (see Solar financier SPP nets $100M, aims for more). And San Francisco's Recurrent Energy said in July it raised $75 million from private equity firm Hudson Clean Energy Partners for its PPA model, in addition to $200 million in financing from Morgan Stanley in December (see Solar continues to take in cash).

Under the PPA, a customer initially pay between nothing and $4,000 for SunRun to secure a local contractor to install the solar system, which typically covers about 70 percent of the home's electricity demand. SunRun has established partnerships with nine installers in the U.S.

The customer then buys power for a fixed rate that varies according to location, typically between $0.09 and $0.25 per kilowatt hour for 18 years, while SunRun owns and maintains the system. The customer would buy the remaining electricity from the utility.

Up until this year, the U.S. tax incentives for solar were often more beneficial to commercial customers than residential because residential customers were subject to a cap of $2,000 on the 30 percent tax credit (see Solar takes stock after tax-credit battle). SunRun benefitted from the larger incentive because it bought systems as a commercial entity, enabling it to get better pricing than consumers.

The policy removed that cap as of Jan. 1, but Jurich said SunRun hasn't been affected. Unlike homeowners, the company can capture the tax benefit of accelerated depreciation, in addition to being able to get better pricing by buying in bulk. In addition, the debate over the energy bill raised consumers awareness of solar power, she said.

"We had a little bit of an advantage for a while, but the model really makes sense even without that," Jurich said.

Cleantech developments making news in the past 24 hours

• Metabolix, ADM to open new bioplastics factory
• Rockwool nears construction on Indian insulation factory
• Two Israeli wastewater firms to locate in Michigan

View the last week of cleantech developments here | Subscribe to full feed