SunPower looks to solar leases as a bright spot

Leasing solar panels, instead of buying them outright, has become a popular way for consumers to get solar panels on their rooftops. And in a solar market that’s been ravaged by a massive drop in solar prices, residential solar leasing can provide a bright spot for solar companies. On Wednesday, SunPower said that it’s accrued 10,000 contracts for its home solar lease program, and that the number of solar leases doubled between the first and second quarter of this year.

“We are just at the beginning of expanding this program. In a year or two it could become 20-25 percent percent of our business,” said Howard Wenger, president of SunPower, during a conference call with analysts to discuss the company’s second-quarter earnings.

The lease program has grown quickly and prompted the Silicon Valley solar panel maker and power project developer to go out and raise more money to finance installations within the program. Just before disclosing its earnings, SunPower announced that it had lined up $325 million from Citi and Credit Suisse to do that. Citi is an early partner for SunPower’s program: it contributed $80 million to the $105 million fund that SunPower announced last summer as it began to offer residential leases through its dealers.

The lease program provides an average of 10 percent return on the investment (after tax), said SunPower CEO Tom Werner. The way the program is structured, SunPower owns the solar equipment and leases it to the financial institutions that funds the installations. The banks then sublease the solar panel systems to homeowners and make money from lease payments and federal tax credits. SunPower also receives lease payments from homeowners but only during the second half of each lease period.

Homeowners like solar lease deals because they only have to put up a small amount — or even no upfront costs — to have solar panels installed on their rooftops. They then pay a monthly fee for the electricity from the solar panels. A lease generally runs 20 years and, depending on the terms of the agreements, consumers could pay to own the solar panels or pay for only the electricity throughout the life of the contracts.

Startups such as SunRun and SolarCity have helped to make this type of financial agreement popular among homeowners and attractive to investors, especially in states with generous incentives. Lease financing is not only coming from banks but also from corporate investors such as Google. But unlike SunRun, SolarCity and other startups who install or run lease programs, SunPower also makes the solar panels.

In California, the largest solar market in the country, solar leases accounted for over half of the residential solar energy systems installed in 2011, according to state regulators.

While SunPower’s lease program is doing well and the company is reducing its manufacturing costs at a faster pace than it had planned, the company has yet to return to making profits. SunPower posted $595.9 million in revenue for the second quarter, up from $592.3 million from the year-ago period. It recorded $84.2 million in net losses, or $0.71 per share, for the second quarter, compared with $147.9 million in net losses, or $1.51 per share, from the second quarter of 2011.

The company expects to generate $545 million to $620 million in revenue and net losses of $0.10 to $0.25 per share, for the third quarter. For 2012, it’s forecasting $2.4 billion to $2.6 billion in revenue.

Photo courtesy of SunPower