SunEdison: Making solar pay

Solar energy may be hot these days, but it still costs two or three times more than the power your local utility provides. SunEdison, a Beltsville, Md., startup whose backers include Goldman Sachs and MissionPoint Capital Partners of Norwalk, Conn., has created a new financing model that allows solar to make financial sense for businesses.

The roof of Sea Gull Lighting Products' distribution center in Burlington Township, N.J., is covered with solar panels that the lighting maker did not pay a cent for. They are installed, operated, and maintained by SunEdison. The company acts as a bank, soliciting investors interested in a return on solar energy. SunEdison's investors own the solar panels, and Sea Gull agrees to buy the power.

The solar panels produce about 40% of the energy that the warehouse uses during peak hours, those times of day when purchased electricity is most expensive. In New Jersey, during hot summer afternoons when the sun is high and everyone is cranking up the air conditioning, the price of electricity can rise tenfold.

Fortunately, that's the same period when solar panels generate the most juice. During those peak hours solar is cheaper for Sea Gull Lighting than power from the grid, and the company is saving 25% in annual electricity costs. The other benefit: Sea Gull can lock in the price of power for the next ten years, which, given recent trends in energy pricing, seems like a good idea.

Of course, if federal or state subsidies for solar disappear or subsidies for fossil fuel and ethanol rise, these financing deals could no longer make economic sense, and SunEdison's market could shrink. Short of that, SunEdison investors will know exactly what their profits will be over the next ten years. Their solar investment is not unlike a long-term bond held to maturity whose only real risk is the sun's not rising.

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