How Residential Solar as a Service Began

The residential solar lease may bring successful companies like SolarCity, SunRun and Sungevity to mind. But do you remember when a company called Citizenre was the poster child of the sector? You may not. The company didn’t last very long.

Citizenre was a multi-level marketing company (or pyramid, depending on your preference) formed in 2006 with a goal of providing competitive solar leases in 40 states. The company’s founders set about creating an army of “Ecopreneurs” – most with little to no experience in solar – who would generate leads, install solar PV systems and send money from lease payments up the chain of command.

In addition to the bold claims that they could provide competitive solar leases in 40 states, Citizenre executives said the company was going to build a 500-MW manufacturing facility and become vertically integrated. At the time in early 2007, that would have been the biggest manufacturing plant in the world.

As is quite obvious today, the company never materialized the $650 million it claimed to be raising from investors, never built a manufacturing facility and never installed a single solar system. Here’s how one former Ecopreneur, who declined to be named, described the Citizenre’s activity in an email:

“Essentially, it was a clever way to use 1300+ ‘independent reps’ to collect market research for a business plan that never got funded because no credible investor would ever invest $500+ million in a startup with such a weak team with minimal credentials.”

Some people in the industry called Citizenre fraudulent. That’s probably too harsh, given that sales reps and executives never took any money from potential customers. But the company did offer the perfect case study on how to create a business destined for failure: Make grandiose claims with nothing to back them up; recruit inexperienced workers and pump them full of false hope; and most notably, structure the company around a stigmatized and ripe-for-abuse business model, multi-level marketing.

But Citizenre did have one very prescient component to its business model: The solar lease.

Since the company fell off the map, the residential solar-as-a-service sector has taken off with astonishing speed. In late 2006 when Citizenre was getting lambasted by a skeptical solar industry, other companies were quietly building businesses in the space. The two biggest players – SolarCity and SunRun – have collectively completed over 14,000 installations and are now operating in nine states.

So what made these companies so successful? They didn’t try to do everything at once.

Like in any good business, says SunRun co-founder and CEO Ed Fenster, you have to take small steps toward a larger goal.

“Everything is easier if you bite off a manageable amount, particularly if you’re trying something new,” says Fenster.

In 2007, SunRun started offering solar leases and power purchase agreements to homeowners in California. When the California-wide model proved successful, the company expanded incrementally into other states the following year. Instead of trying to be everywhere at once (à la Citizenre), SunRun moved market by market where the economics made sense.

“You have to test it, get the bugs out and really demonstrate its success before you roll it out,” says Fenster.

An early “bug” was the perception that there was a hidden catch to the service, says Fenster. The distrust in the market caused by Citizenre’s grandiose claims initially impacted the company.

“One of the barriers we had to overcome as we launched the business was a perspective that maybe our business was too good to be true,” says Fenster.

But when SunRun actually raised money, formed partnerships and began installing systems, the questions quickly went away. The company has since installed more than 6,000 systems in Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey and Pennsylvania.

The other market leader, SolarCity, grew in a similar way. With $9 million in venture capital from Tesla Founder Elon Musk, the founders originally set out in 2007 to broker group buys of solar systems and reduce the up-front cost for homeowners. The company quickly realized that solar services would be a more popular option and created a lease product for Californians in 2008.

After the leasing and power purchase agreement products were released, SolarCity’s business mushroomed beyond California. To date, the company has added 750 employees and installed more than 8,000 systems in Arizona, Colorado, Oregon and Texas. The company has also expanded rapidly into commercial installations, with more than half of business now in that sector.

Lyndon Rive, SolarCity’s co-founder and CEO, describes the success of the business the same way Ed Fenster does:

“It’s all about taking baby steps. There’s nothing wrong with having a big idea as long as you have incremental steps toward achieving it.”

This incremental approach has enabled residential solar-services pioneers to expand well beyond their original ideas: SolarCity is no longer just a solar company – it provides energy efficiency services, installs electric vehicle chargers and is working with Tesla and UC Berkeley to develop storage technologies for renewable electricity; and SunRun is now offering solar services in Home Depot stores while also creating partnerships with housing developers to pre-install solar on new homes.

The industry is finally realizing a residential solar-services market that Citizenre founders (and many others, like Fenster and Rive) imagined. But Citizenre got laughed off the stage because it didn’t have anything close to a realistic business plan.

SolarCity’s Rive says that the days are gone when a company with no experience and unrealistic goals can create such a stir.

“Customers and business owners can see through the fake promises. As any industry matures you eventually get the recognized brands,” says Rive.

To hear interviews with Lyndon Rive and Ed Fenster about the evolution of solar services, listen to our podcast linked above.