SolarCity sees bright future for residential solar systems
SolarCity, the Bay Area company that is the leading provider of residential solar systems, shook up the renewable energy industry by pioneering a financing program that made solar panels accessible to more than rich eco-fans.
The company — founded in 2006 by brothers Lyndon and Peter Rive — has completed or is working on more than 10,000 solar projects and is expanding to the East Coast.
The company has ballooned to more than 1,000 employees, even though progress was stalled during the recession, and it has raised more than $700 million in project financing.
Now SolarCity wants to take further leaps in growth by diversifying, and perhaps going public.
“We’ve crossed out of the phase of being a young start-up and are approaching the maturity of a larger company,” said Lyndon Rive, 34, SolarCity’s chief executive.
But expansion in the fledgling green sector, even for a company that has shown early progress, does not always go smoothly.
“Usually young companies need to stick to their knitting, their core business,” said Michael T. Eckhart, co-founder of the American Council on Renewable Energy. “Diversifying will certainly make the company more interesting, but it also creates risk.”
Judging from the history of the Rive family, risk is not something the brothers fear.
Their grandfather was an explorer who searched for lost cities in Africa. Their father, a chiropractor, also managed a pizza parlor and a construction company. Their mother ran a health spa.
“We come from a very entrepreneurial family,” said Peter Rive, 36, SolarCity’s chief operations officer.
The boys were raised in South Africa, where as preteens they made Easter eggs to sell to neighbors. They attempted to open a video game arcade but were told that they were too young to legally operate it.
In the late 1990s Lyndon Rive went to San Jose to compete in the world championships for underwater hockey, played in a pool with a small hand paddle. He liked California so much that he stayed and launched a company with his other brother, Russell.
That firm, Everdream, set up computers for companies with remote offices. Peter Rive soon joined as chief technology officer.
But Lyndon and Peter believed that they could be doing something bigger.
When Lyndon ventured into the Nevada desert with his cousin, Elon Musk, in 2004 to attend the Burning Man festival, he was open to suggestions. Musk said the nascent solar power industry might have potential. (Musk had taken a different green path — in 2003 he founded Tesla Motors Inc., which makes electric cars and is now the only publicly traded automobile manufacturer in California.)
Russell Rive eventually split off and started his own company in Brazil. Lyndon and Peter teamed up to do solar after realizing that there was a surplus of new technology on the market, but not enough customer service.
More important, solar systems at that point were prohibitively expensive for homeowners to buy and install.
SolarCity, which launched in 2006, had a different model — leasing. Homeowners would pay no upfront costs for installation of the solar system. They would instead pay a monthly leasing charge, based on the size of the system. The company would retain ownership of the equipment.
Overall, new SolarCity customers save an average of 10% to 15% over what homeowners on the traditional grid pay, the company said. And savings increase over time.
“It wasn’t some crazy visionary thing,” Peter said, “but just looking at what was preventing people from going solar.”
Solar Energy Industries Assn. Chief Executive Rhone Resch hailed the program as “the most significant residential financing innovation the industry has ever seen.” The majority of California residential solar power systems are now leases.
Not all homeowners qualify for a system. SolarCity sends inspectors to evaluate the roof conditions, access to sunlight and other factors.
The company also tackles commercial systems. In 2008, it snagged the contract to install a 60,000-square-foot, 650-kilowatt system for EBay Inc.
“EBay would have been one of many large systems for the other companies, but a marquee account for us,” Lyndon said. “All of our resources went into it.”
SolarCity also has installed systems for Wal-Mart Stores Inc. and Intel Corp., and for three military services — the Air Force, Navy and Marines.
The company ran into obstacles during the recession. The Rives were negotiating a $200-million financing deal with Morgan Stanley when the entire department working with SolarCity was laid off. The brothers were forced to reduce their staff, and they spent the first six months of 2009 running on cash until financiers tiptoed back to the solar market.
“We’ve definitely taken our blows, gone through survival mode,” Lyndon said.
To stay flexible, SolarCity experimented with funding arrangements. In a role traditionally filled by a bank, the utility owner PG&E Corp. invested $60 million to help SolarCity install panels.
The Rives would not disclose their company’s revenue, but expansion plans include developing a new type of storage battery and a car-charging system.
Other solar companies, such as Solyndra Inc., have struggled to go public. But the Rives keep it as an option.
They want to grow, but the fact that SolarCity is a young firm works to their advantage, Lyndon said. It’s still basically a family-run operation without a lot of bureaucracy, but the company has matured enough to attract significant funding.
“You might move slower in some areas but can do things on a much bigger scale,” he said. “It’s tremendous fun.”
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