Wall Street Gives Cash and Clout to Rapidly Growing Solar Market

If you're a fan of renewable energy, the latest move by Goldman Sachs could be a welcome signal that the rooftop solar industry in the United States is coming of age. It also means solar power is more easily accessible to businesses and individuals without the huge upfront cost. Goldman Sachs recently made a massive $500 million investment in the SolarCity fund, which allows home owners, businesses, and other organizations to lease solar power at a cost 10 to 15 percent lower than the usual utility bill.

The $500 million dollar investment is the largest in the fund to date and illustrates Wall Street's growing interest in the rooftop solar market. Goldman Sachs's investment is enough to produce 113 MW of solar power. Or put another way, enough installed solar capacity to power over 31,000 average homes.

Keep in mind, the price of solar is mostly from upfront expenses, unlike coal or natural gas plants. Once the solar is installed, there isn't the 50-year commitment of constantly buying fuel and shipping it across the country to the plant.

The recent investment brings SolarCity's  financing fund up to $2 billion dollars, which includes other Wall Street investors such as US Bancorp and Credit Suisse Group AG, just to name a few.

In a nutshell, here's how the fund works: Investors effectively own the solar setups (panels, inverters, etc.), they get the 30 percent federal tax credit, SolarCity installs them, and the investors make an ongoing return from those who lease the solar setup. The end electricity consumers benefit because they can lease the system for a rate lower than they'd pay for their electricity bill. And they don't have to front the five-digit outlay it would take if they purchased it all themselves.

There's something in it for everybody: SolarCity gets to install the arrays and manage the securities for a profit, investors get an asset-backed investment with a monthly payment for 20 years, and electricity consumers get a lower energy bill and solar power without the prohibitive upfront cost.

Meanwhile, the solar industry benefits as a whole as well. Wall Street now has a vested interest in the continued existence of a 30 percent federal tax credit for solar installations. With their clout, the tax credit could stay reliably in place, lending stability to the entire emerging solar market: investors, manufacturers, consumers, installers. Shortly after Goldman Sachs's announcement, SolarCity stock prices jumped by 11 percent.

Rooftop solar installations are becoming a growing reality in the United States. So much so that an Edison Electric Institute report, entitled Disruptive Challenges: Financial Implications and Strategic  Responses to a Changing Retail Electric Business identified rooftop solar as a "potential 'game-changer' to the U.S. Electrical Utility Industry," saying,

Today, a variety of disruptive technologies are emerging that may compete with utility-provided services. Such technologies include solar photovoltaics (PV), battery storage, fuel cells, geothermal energy systems, wind, micro turbines, and electric vehicle (EV) enhanced storage.

The cost of photovoltaic panels  has taken a sharp turn downward from almost $4 per watt in 2008 to under $1 per watt in 2012. Even with potential restrictions on Chinese-made solar panels from the EU and US, the price of solar PV panels is expected to see a general downward trend.

Costs are coming down, Wall Street is on board, consumers are embracing solar, and new financing models like those created by SolarCity and others are making the technology more accessible for businesses and households. We are on the verge of a revolution in how electricity is create and distributed in the U.S. One thing is clear, the old business models for utilities and electricity providers need to be re-invented.

[image credit: FuFuWolf: Source ]