SolarCity and Goldman Sachs create a $500M fund to finance solar leases

SolarCity has lined up Goldman Sachs to create a fund to support over $500 million in leases for home and business owners, the companies said Thursday. The money should enable SolarCity to install an estimated 110 MW of solar panels.

UPDATE: Goldman is the primary source of the money, which comes from multiple investors, said SolarCity spokesman Jonathan Bass. Bass declined to identify the other investors.

The two companies actually started to fund the leases last year but expanded their agreement in April after SolarCity achieved certain milestones. SolarCity already installed 26MW. Money for the remainder 84MW is part of the available funds for the 158 MW that SolarCity executives mentioned during their earnings conference call earlier this week. The California company aims to install 250MW overall in 2013.

Leases, or power purchase agreements, have become popular because they take away the pain of putting up tens of thousands of dollars for buying and installing a set of solar panels. The residential leasing market alone is expected to grow from $1.3 billion in 2012 to $5.7 billion in 2016, according to GTM Research. SunPower, which launched its residential leasing program two years ago, now plans to bring that business in France.

With leases, customers sign a contract that could run up to 20 years and pay a monthly fee for the electricity from their rooftop solar energy systems. Since they don’t own the systems, the responsibility for maintaining the equipment belongs to SolarCity.

SolarCity and Goldman have structured their fund to make it easier for cities, schools and organizations that don’t get public rated to qualify.

SolarCity, founded in 2006, helped to popularize solar leases. As I pointed out earlier this week, the company needs to excel at raising funds because it has built a business around selling power sales contracts, especially now that it’s a public company and has to show it can make a profit at some point. SolarCity went public last December.

To access more capital, SolarCity has been working on bundling its leases to create asset-backed securities. Like mortgage-backed securities, buyers of those solar asset-backed securities will get paid from revenues generated from the leases. Many of SolarCity’s rivals are waiting for the company to announce the first sale of those securities and to see whether SolarCity’s effort will attract more investors.