One of the complaints about the solar industry when it comes to solar homes is that it caters mainly to high-income homeowners. This makes a lot of sense because for someone to install rooftop solar, they need to own their home, and a larger roof makes for a better financial return per solar installation. The economics work for high-income families.
SolarCity (NASDAQ:SCTY) has tried to move beyond that, partly because it has a vision of solar being affordable for everyone and partly because it needs the biggest market possible. This week, it announced a program that will make it possible for low-income housing developers to install solar and share savings with their housing units.
SolarCity's move into low-income housing
On Thursday, SolarCity announced plans to work with affordable-housing developers to provide low-cost solar electricity to residents. SolarCity will finance and install the systems and residents will receive credits toward their utility bill depending on what they're allocated by the developer. It probably won't be more than a few dozen dollars in savings per family, but that can go a long way in low-income communities.
The company's first announced partnership is with Everyday Energy, a developer of solar systems for affordable-housing units. Both companies will work within California to grow this community solar model, helped by subsidies recently passed by the California Public Utilities Commission. $54 million in state funding was recently made available for solar developers to fund 35 megawatts of new solar installations. When combined with the Investment Tax Credit -- a federal subsidy that covers 30% of a solar system's cost -- developers like SolarCity could have these systems paid off on day one by using subsidies and financial investors to fund construction. It's a nice move into the low-income market, but it's also very low-risk for SolarCity.
Community solar models grow
This isn't the first time SolarCity has tried to democratize the solar industry. Earlier this year, it announced plans to build 100 megawatts of community solar gardens in Minnesota. That program would feed electricity to the grid and allow renters to virtually buy energy, saving money on their electricity bill.
In both cases, SolarCity is providing energy savings to those who may not be able to install solar energy systems themselves. This opens up new markets for SolarCity and potentially lowers default risk as well. If your counterparty is a housing developer or the utility, such as the one that agreed to partner on the solar program in Minnesota, the risk is lower than having a homeowner be your customer, with the likelihood that the home will be sold more than once before the 20-year power purchase agreement is up.
SolarCity diversifies into attractive new markets
2015 has seen SolarCity continue its domination in residential solar, but the more important moves this year are into commercial solar and community solar projects. These projects diversify the company's business and bring with them a more attractive customer than homeowners, who tend to move regularly.
The financing structure is still the same for community or commercial solar, so I wouldn't expect profits to explode as a result of these moves. But in the long term, the focus on democratizing solar and broadening the customer base will be good for the company and its shareholders.
Travis Hoium has no position in any stocks mentioned. The Motley Fool owns and recommends SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.