Internet search giant Google has recently announced plans to invest $280 million in a fund to finance solar residential rooftop installations. It has chosen to partner with Silicon Valleyâ€™s SolarCity, a California based company focusing on providing solar power services. SolarCity will draw on the fund to provide the necessary capital to construct and maintain rooftop solar projects for clients.
But wait a second, you say.
Why would Google invest $280 million to finance something like this? And furthermore, how can SolarCity generate a profit if it is funding the construction of solar projects for clients?
Well, an ingenious new business model has emerged whereby companies lease solar power systems to homeowners. These leases can span 20 â€“ 30 years, and save homeowners substantial sums of money on their monthly electricity bills. Plus, by leasing these systems on a long-term basis, homeowners are avoiding the high initial capital costs for solar panel installation â€“ installations which typically cost $25,000 – $30,000 each.
So customers win by saving money on their energy bill, and SolarCity wins by generating a profit over the duration of a householdâ€™s lease (despite taking a hit on the initial capital costs). Finally, Google generates a profit by receiving interest on the fund, which SolarCity pays back over time as it receives money from clients. It therefore seems like a win-win situation for everyone.
SolarCity sees Googleâ€™s investment as a crucial first-step in convincing corporate America of the economic viability of solar power. Although SolarCity had been able to finance most of its 15,000 projects through banks, many banks have recently avoided financing new solar projects. To truly achieve economies of scale, it needs to tap into the $1 trillion cash currently available to the top 200 corporations.
And interestingly (though admittedly not a complete shock) Google is initiating this new move for economic reasons â€“ its sees the $280 million investment as a way to diversify its cash flow and achieve future prosperity. Plus, the company admits that as a heavy consumer of power, it wants to ensure it gets its energy from clean sources. Environmental policies have been a key component of its business practices recently, with $350 million in clean energy investments and an expansion in its electric car program.
I would also add, these policies give Google a huge public image boost.
It makes me optimistic to see big corporations such as Google stepping to the plate when it comes to sustainable energy. Hopefully other corporations will follow in Googleâ€™s footsteps when they see the profits to be had in the environment.