News Column

Entrepreneurs Launch Solar Home Project Using Groupon Approach

Oct. 26, 2011

Richard Halstead

solar power panels

A young Vacaville entrepreneur hopes to negotiate a large group purchase of residential photovoltaic systems in Marin over the next few months.

Daniel Parrella, 20, compares his business plan to the approach taken by the popular Internet company, Groupon, which negotiates large group discounts for its members.

"The logic is very simple," Parrella said. "By going in as a group you can switch the power to the homeowners and negotiate favorable pricing."

Statistics kept by the state show that interest in installing solar systems in Marin has remained steady despite economic fallout from the Great Recession. Thanks to state and federal incentive programs, at least 882 solar systems were installed in Marin from January 2007 to July 2011. These systems collectively generate 3,891 kilowatts of electricity.

The idea of using group buying power to get affordable rates for residential solar power customers didn't originate with Parrella, however. In November 2007, Lisa Max of San Rafael assembled a group of nearly 500 Marin residents interested in installing solar systems under the name GoSolarMarin and negotiated a group discount with Novato-based SPG Solar that resulted in about 100 systems being installed.

"I started out by knocking on my neighbors' doors and saying, 'Hey, does anybody want to join with me to get a better price?'" Max said.

At the time, SPGs reduced its price for participants to $7.94 per watt from $9.32 per watt, cutting about $4,000 from the cost for an average-sized three-kilowatt installation.

In 2008, Max organized a second group buy, this time negotiating a deal with SolarCity of Foster City. Only about 30 systems were installed as a result of that effort.

"That's when all the financing went kerflooey in 2008, so SolarCity's leasing program got held up," Max said. Leasing solar systems instead of buying them has become a popular option for many homeowners.

Max said she hasn't tried to organize any new group solar installation purchases in Marin since then. She said she's been waiting for federal objections to an innovative strategy for financing home solar systems to be worked out.

In 2008, the city of Berkeley launched a program that enabled residents to borrow money for solar installations and repay the financing through their property tax bills over 20 years. The idea caught fire and was on the verge of spreading statewide in 2010 when the Federal Housing Finance Agency, which oversees mortgage finance giants Fannie Mae and Freddie Mac, raised objections.

Because such Property Assessed Clean Energy programs would place a first lien on property, regulators said they could damage the already weakened mortgage system and leave homeowners at risk. Proponents of the PACE programs are still pushing for federal approval. The PACE Protection Act has been introduced in Congress; it would eliminate the regulatory roadblock, but the legislation remains in its early stages of consideration.

Parrella said that because GoSolarMarin hasn't launched a deal in Marin in more than two years, "We figured we could kind of take their place."

This summer, Parrella left the University of California at Santa Barbara where he was a sophomore studying political science, to orchestrate a group purchase of solar systems in Davis. Parrella signed up more than 150 Davis residents who expressed an interest in installing solar panels at their homes, and convinced REC Solar, based in San Luis Obispo, to offer these residents a 20 to 25 percent discount if they purchased a system over the next three months.

Participants in the deal will pay REC Solar about $5.45 a watt for their systems, or about $15,000 for an average-sized three kilowatt system. Parrella said state and federal tax credits and incentives will reduce that cost to about $10,000. The federal tax credit amounts to 30 percent of the total system cost while the California rebate is 25 cents per watt.

"In terms of participation so far, we've got about six people under contract with anticipation of many more," said Mike Gallagher, a consultant with REC Solar.

Now Parrella is attempting to organize similar efforts in Marin and Santa Cruz. He has signed up about 40 Marin residents and hopes to sign up more than 200 more. He'll market the idea via the Internet and by hiring employees to canvass neighborhoods door to door.

Parrella's company, Spearhead Solar, which consists largely of Parrella and his partner, Chris Duran, 27, a former solar system salesman, receives a commission from the solar installers on every contract it signs. The size of the commission is based on the size of the system and ranges from 15 to 25 cents per watt. A contract for a three-kilowatt system would net Spearhead Solar about $700.

Max said she made no money on the group purchases she helped arrange. She added, however, that, "All of the solar companies now offer referral fees from $400 to $1,000. They vary by the size of the installation."

There are some questions about how well the group discount model works in today's marketplace. SPG Solar no longer installs residential systems.

"We're a little leery of these things," said Aran Moore, co-owner of Sun First in San Rafael. Moore said if solar companies bid too low, they won't be able to provide adequate servicing. He said Sun First provides 10-year warranties on its systems.

Jonathan Bass, a spokesman for SolarCity, said, "The market has evolved a lot since 2007. We've reached a scale where we can now deliver the kind of savings that were initially generated from a group purchase as part of our general pricing."

Bass said SolarCity could provide to any customer the $5.45-per-watt price that REC Solar is providing to group purchase customers in Davis.

Moore said, "The flood of Chinese product has really brought the prices down a lot." He said solar panel manufacturers, eager to unload products in today's weak economy, are offering attractive options for homeowners to lease systems with an option to buy at a deep discount later.

Gallagher, however, said REC Solar is happy to be working with Parrella and is looking forward to working with him on more deals in the future.

"Clearly, if you're able to get a 100 people interested with the expectation of a certain number of contracts, it's a simple economies of scale," Gallagher said. "If you called the local Chevy dealership and said, 'I'm going to buy 20 cars instead of one,' they're going to give you a deal on the price."

Contact Richard Halstead via e-mail at rhalstead@marinij.com



Source: (c) 2011 The Marin Independent Journal (Novato, Calif.)


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