Customers have proven over and over again that they aren't particularly interested in paying cash for solar installations for their roofs and don't want to go to the work of keep track of energy assets like energy storage in the home. But if the financing package and services are right and savings are real, they are willing to sign long-term deals to buy energy from their roof as more of a service. 

This opens up the potential for a larger list of energy a service offerings for solar for customers. Pair solar with energy storage, demand response, and EV charging, and it may be the start of a real transition to renewable energy for millions of people

Home with large solar system.

Image source: Getty Images.

Start with what customers understand

For starters, all energy companies need to know what customers will understand and pay for. They've proven the ability to understand the monthly payment of a solar lease or power purchase agreement (PPA). These business models are simpler than a purchase or loan because the installer takes on the rebates and tax incentives that can be confusing for customers to use. Sunrun (NASDAQ:RUN) and Vivint Solar (NYSE:VSLR) are the two biggest residential solar installers, and power purchase agreements or leases dominate their business today. 

Tesla's (NASDAQ:TSLA) new solar rental brings that simplicity to another level with payments of as little as $50 per month for a solar installation. No ups and downs for seasonality; it's a constant payment all year because that's what customers understand. 

As companies have tried to add services to PPAs and leases, alterations and added system complexity have been the biggest barrier. Customers have struggled to understand why they should pay for energy storage or how demand response works (the ability to adjust a home's energy demand, like turning off the A/C, when grid demand is high), so any service needs to bring these products together in an easy-to-understand package. To begin with, we know that customers understand a monthly payment for energy and that's where companies need to start their sales pitch. If they can include components and services as part of that monthly payment that bring in new revenue streams from the utility, then it could put the solar installer at the center of your energy experience at home. 

What solar companies can offer

Solar companies can now offer a suite of products beyond just solar panels on the roof where the revenue is a monthly payment from customers. Energy storage can store energy from one time of day and use it at another, demand response can control a home's energy usage at peak price hours, and EVs are now a source of demand that can be charged at optimal times. Utilities are willing to pay for services these assets can offer as we've seen with virtual power plants bidding into capacity markets. And those added components are where solar companies start playing a much bigger role in a homeowner's energy service with multiple ways to monetize the assets. 

The inverter and energy storage system would really be the brains of the operation for any solar-as-a-service offering. It would be the buffer between the solar system, home demand, and utility. It'll control what devices can be turned on and off by demand response and where it's most cost-effective to get energy from at any given time (solar on the roof or the grid). The advantage of having a smart energy storage system is that it can use signals from the utility to optimize electricity usage in the home. 

The big change over the last few years is that energy storage could also help optimize the grid itself. Companies like Tesla, Sunrun, and SunPower (NASDAQ:SPWR) are starting to sell energy storage as a service to the grid in competitive markets, and they'll use energy storage systems in the home to provide value for the grid that utilities will pay for. Similarly, demand response can be bid into energy markets, so multiple services could be sold to grid operators from a customers' home. For the customer, this service to the grid would be nearly invisible, but the solar-as-a-service provider would be providing a service to both homeowners and utilities that both parties would be willing to pay for. 

Why utilities might buy-in

If homeowners are providing a service to utilities, the utility will clearly want a seat at the table. That may be in the form of offload agreements with an energy storage aggregator like SunPower or Tesla, but it may also be with the utility playing a role in setting customers up with solar and energy storage. SunPower piloted a program similar to this with Con Edison (NYSE:ED) three years ago, and it may offer value to both parties. If the utility is the sales arm, it could help lower the sales and marketing costs that have plagued residential solar companies for years, and solar companies would be willing to pay utilities for those sales leads. 

Installing more distributed assets would allow utilities and regulators to reduce the money that needs to be invested in new transmission, distribution, and power plants. This would make for a smarter and potentially much cheaper grid overall, which could be a win for all parties. 

The companies to watch in solar as a service

Only a handful of companies have the scale and business model to aggregate enough energy services to provide a viable product to homeowners and utilities. Sunrun, Vivint Solar, and SunPower are the three leaders in the industry, and they're the ones I would look to first. They're already offering solar services to customers and building virtual power plant networks to offer service to utilities, so they're ahead of the curve. 

Tesla would seem to have a natural product lineup for energy as a service with EVs, the Powerwall, and solar, but its solar business is shrinking and doesn't have the scale of the first three. It'll be a big battery supplier to utilities, but residential solar is no longer its bread and butter. 

If solar companies are able to get energy as a service right, they may finally have the simple product offering that consumers want and the services that utilities need to build a cleaner energy future.