Sign Up for Our Newsletter

Facebook

Selling the Sun

           
A Man, A Plan, and the Dawn of America's Solar Future

"I am a capitalist," announces Jigar Shah, the 34-year-old founder of SunEdison. We have just sat down for dinner at a bustling noodle joint in Washington,  D.C. Upon hearing Shah, who is wearing pressed khakis and a crisp blue oxford shirt, the couple at the next table nearly choke on their pad thai. A brash entrepreneur banging the capitalist drum isn't going to win many friends here, especially now. It's December, and a few blocks away congressional leaders are debating whether to give foundering automakers billions of dollars in bailout money. Ineptitude has ruined Detroit, greed has soiled Wall Street, and Democrats on Capitol Hill are counting the days until their guy steps into the White House.

But Shah can't help himself. An iconoclast among greens, he's a devoted environmentalist who champions market economics and believes American business acumen can conquer climate change. Shah has spent the past six years leveraging his convictions to build North America's largest and most successful provider of solar energy.

In 2003, Shah launched SunEdison to smash the decades-old paradigm that required anyone wanting solar to pay huge installation costs up front. Depending on its size, a rooftop array or a ground-based solar farm can cost anywhere from $10,000 to $10 million. This infuriated Shah, who has always believed that having to own the means of producing solar power is woefully out of step with how the energy industry operates. "Do you want to be in the power-plant business?" he asks. "Or do you just want to buy solar power?" Imagine having to own and operate a satellite to get DirecTV and you begin to understand why Shah scorned the prevailing model for solar energy.

A born pitchman, Shah is impossible to ignore during his spiel. When he cold-called Mark Buckley, vice president of environmental affairs for Staples, to make a case for SunEdison, the VP told Shah he'd give him two minutes. "Two hours later I got off the phone and we'd hammered out the beginnings of a deal," Buckley recalls. "He is a visionary."

Shah has acute features: a square jaw, a sturdy nose, and a tsunami of ebony hair. His wire-rimmed glasses frame deep-set brown eyes that demand attention. During our meal I notice diners leaning closer to hear Shah, whose speech is imbued with the confidence and vigor of a man who knows that he knows more than you do. I doubt they can make out what he's saying through the din, but they're sure it must be important.

For Shah's part, he didn't invent any groundbreaking technologies. He just repackaged ones that already existed and convinced people to buy them. SunEdison customers pay nothing for their solar systems. That's right, zero. Instead they sign what is known as a power-purchasing agreement, or PPA. These agreements are commonplace in the coal, oil, nuclear, and natural gas industries (the Hoover Dam was financed in part with PPAs). But Shah figured out how to make PPAs profitable for solar, something that nobody had been able to do before. When SunEdison installs a solar array, the customer agrees under a PPA to buy the electricity it produces at a set price for at least 10 years. "When we priced out owning the system ourselves, it didn't make sense," Buckley tells me. "We wanted a way to establish price certainty in a volatile market. SunEdison gave us a long-term hedge against that price uncertainty. We're paying less for electricity and reducing our carbon impact. And 15 years down the road, when the price of electricity is higher, the savings will be even more attractive."

A spokeswoman for the Kohl's department store chain, which has SunEdison arrays on the rooftops of 67 of its stores, puts it this way: "There was no capital investment, and Kohl's pays a fixed, predictable rate for its electricity that is less than the local utility rate. This gave us an important hedge against escalating energy costs."

The average solar installation produces enough power to meet between 10 percent and 20 percent of a typical big box store's annual energy needs. That may seem small, but traditional electricity pricing -- in which power purchased from the grid during peak-demand hours commands a premium -- works in a solar user's favor. A solar array reaches its maximum potential between noon and 4:00 p.m., supplying more than 75 percent of a store's daytime energy consumption and dramatically reducing the need for grid-supplied electricity when it is most expensive. "Peak demand charges might represent a third of our bill," says Buckley of Staples. "So the savings really add up fast." 

Once Shah has locked in customers through PPAs, he can then approach banks, investment firms, and private backers to borrow money for building new solar systems, using those PPAs as collateral. Revenue collected through PPAs goes directly toward repaying SunEdison's lenders, who earn a tidy return on their dollar, pocket city and state solar rebates, claim an accelerated depreciation benefit, and take a federal investment tax credit, a whopping 30 percent write-off. Banks, in turn, pay SunEdison a development fee and cover the cost of monitoring and servicing the installations for the duration of each PPA. Mark Cirilli, managing director of MissionPoint Capital Partners, one of the first venture capital firms to invest in SunEdison, says, "They simplified solar and made going green easy and cost-effective -- a real win-win."

Solar is reliable and robust, and by selling it through PPAs, Shah has created something the market finds irresistible: clean, renewable energy with no up-front equipment costs, packaged as the kind of rock-solid, low-risk investment that banks love. And now, as solar scales up and the cost of installation falls, Shah and others are convinced that the Obama administration's new policies will bring solar to a tipping point, making it competitive with conventional fossil fuel-generated grid power and turning it into a formidable player in the mainstream energy market for the foreseeable future. Shah says that "2009 will be the year of solar." And from there? Energy experts believe that continued increases in the efficiency of panel manufacturing and installation as well as the emergence of utility-scale installations will soon make solar cost-effective not only in states where grid power is expensive, but across the entire nation. When that happens, the solar industry will thrive without a single tax credit, subsidy, or incentive -- a feat that has never been achieved with any other form of energy. 

image of Michael Behar
Contributing editor Michael Behar writes about adventure travel, the environment, and innovations in science for magazines such as Outside, Men's Journal, Mother Jones, Popular Science, and Discover. Formerly, he was a senior editor at Wired and the ... READ MORE >

Very timely solar energy article. Excellent background on the Power-Purchasing Agreements, which can finance solar electric investment. Jigar Shah is not only a capitalist, but a conservation-capitalist. Maybe America will be green after all.

Well, in reality he's a Johnny-come lately, just looking to cash in on others' work. The unsung heroes are the ones that spent the last 25 years trying to make RE a reality, slowly building up demand to create more PV manufacturing capacity and developing balance of system components. Then when the whole system is ready for prime time, a handful of newbies get the credit.

I agree with Soar bozo that so many individuals and groups have pioneered the practicality of solar power and credit should go them. Yet one must accept the concept of Jigar Shah to create a method that would allow development that is more competitive.

Have to say that I disagree with those who marginalize the contributions of Jigar Shah and the business plan he developed. Shah took a great technology and turned it into something that investors want to support and consumers can afford to buy. The model he developed, which is based on a power-purchasing agreement between a solar provider and an electricity user, has been an instrumental player in creating demand for solar. In fact, we're receiving lots of letters from readers asking how they can find companies that offer power-purchasing agreements for residential customers in their hometowns. We don't have all the answers.

So readers, help us out! Does anyone have any tips to share?

There is widespread undervaluation (perhaps even a belief of negative value) of "the middle man" in economic transactions -- regardless of how much expertise "the middle man" brings to the exchange.

SunEdison appears to be constantly renewing its expertise with respect to the technology, the economics, the installation, and other aspects of solar power. There appears to be a lot of "new" in their re-"new"-able business.

I do believe that emphasizing Mr. Shah's contribution to growing the use of solar energy collection and distribution --- which he did not invent nor pioneer, as did the basic-research and applied-research scientists in the field --- still the product has to ATTRACT enough venture capital to get it bought and used by higher-end companies, such as say Kohl's. I understand the resentment that the article portrays Shah as braver and more committed than the scientists, whereas he is as committed, and clear at leveraging Capitalism to get solar into-the-field. After all, Shah, through his scheme (yes, I say scheme, because it is a business scheme that should receive continued scrutiny to see if it is sustainable!), removed the cost-barrier at the front-end for prospective customers, by making it "free" --- which is, financed, over time, by the fixed-cost PPA's; then, at the next level, he provides an incentive to venture capitalists to give him more money to make more product. If not this plan, than something like it, would always be necessary to get private investors to funnel huge amounts of capital to the nascent industry. What is a real crime, though, is that, were the political will present in the United States over the past thirty years, this already could have been accomplished by the Federal Government infusing capital to solar, with it getting returns on contracts for public-private partnerships. There wasn't the political will for that, until very recently, so Mr. Shah saw a niche, and filled it fairly nicely. After all, Kohl's will pretently be meeting the 2020 goal some State's have for mandated for percentage-of-renewable-electricity use. Who can argue with that as an example?

The following comment only applies if you rely on the grid for power: "You're talking at least 15 to 20 years before we're producing more solar power than we can use on the spot."

What about off-grid applications (rural electrification), urban/commercial backup power, or when 'net zero' homes become a requirement--what are the implications for storage?

Jigar Shah's contributions to solar energy in no way diminishes the work of the pioneers that came before him. He took what those pioneers began and added some new ideas to it in order to increase marketability. He was by no means the beginning and will by no means be the end of the building of this energy resource. Various people contribute new ideas that continue to change and grow what has been established so far. Shah made advancements and with any good fortune others will make additional advancements on the work he has done. It is all good for the process of getting onto a better track and should all be lauded rather than trying to point to who did more, who did what first or whose contributions were more important. Does any of that really matter as long as we're going in the right direction?

Every penny SunEdison has made or borrowed has been reinvested in solar; Jigar Shah hasn't taken a dime for himself. He's the genuine article and his contribution is well summarized in this article. It's true that others lobbied for the tax incentives that made PPAs possible, but they weren't and still aren't enough by themselves to make solar profitable.

Great article. Are these PPAs only possible in states with deregulated electricity markets so that customers can purchase power from a variety of generators, not just one utility with a monopoly on their service territory? Our utility in Iowa has told us we can only purchase power from them and no one else. I have been in conversation with a firm that is taking an approach similar to Sun Edison and they claim such PPAs are possible even in regulated states like Iowa so long as the power is placed behind the customer's meter and the utility's lines are not used to transmit power to the site. Can any readers shed light on these matters?

Please explain a PPA to me?

1000kw of PV installed cost $8,000,000.
Let us guess that SunPower can install for half that cost or $4,000,000.

Add in rebates and depreciations and the cost falls to $3,000,000.

1000kw of PV will yields 1300kwh per day in New England, maybe 4000kwh/day in Las Vegas.

4000 x 365 = 1,460,000 kwh per year

at 10 cents per KWH that $146,000 per year to the investor.

Ten years that $1,460,000 to the investor.

$3m in $1.5m out? Sounds like a bust to me.

What is the rest of the equation?

Jigar Shah, you are absolutely correct, when you say it is the bank roling of an industry which yields it success. You are a genius! Good luck with your continued innovations on energy solutions!

This is a great article! I have been following the solar industry for 3 years and this is one of the best articles I have read so far. I agree with what Solar Bozo said. It is only a matter of time before solar becomes mainstream. PPA model is great, but I don't think it is the main driver for this industry. Mr. Shah, although brilliant should not give himself all the credit. The PPA business model is only one piece of the big puzzle of solving global warming. The other pieces that are equally important include: continued technological innovations, political will and incentives and socio-cultural change, adoption and reeducation. All theses pillars are equally primordial to the long-term success of the solar and RE industry. Like Shah, I faithfully believe that the wave of a green sustainable world is unstoppable.

Well I am very impressed with his visionary power. At age of 16 he got spark for this future. Though he was not sure how and what he will do but didn't lose hope and efforts until he got it. Couple of readers mentioned him as newbie and he shouldn't receive the credit, but probably they have not read the article carefully. His efforts were not to get credit or to get wealthy. He wanted solar as a successful energy source which can be utilized by any US residents in a meaningful way. He could have chosen any booming field to get wealthy or he could have invested that $960000 in some secured project.
Probably this is the difference how we look things, he saw an opportunity and positive result after 10 years when he started (or just think of starting) such concept and you guys are talking about is he worth of getting credit for this or not?
Why it is too hard to look at the positive side? He didn't invent anything skyrocket, he just come up with smarter and economic way of utilizing things we have already in place.

Sun Edison isn't the only CA company making solar affordable. Sungevity.com offers a Solar Lease that I bought for my home and rental propoerty I own. They installed the PV system for free and I pay monthly about what I used to pay for electricity. Other companies in other states also offer "power purchase agreements." Sun Edison is big but not unique.

Gimme a break ... please keep the hating away from this message thread. More solar = more good. Why would anyone want to chip away at someone who helped move the needle a bit in the direction away from fossil fuels? Every scientist/engineer needs to realize that they just have some patents and gadgets until a businessman comes along. Every businessman needs to realize that he just has some pie-in-the-sky ideas until an engineer/scientist comes along. It takes all of us!

Finally, the word 'community' needs to be highlighted here. One of the best assets my town has is a true sense of community. Neighbors know each other and look out for each other. People smile and say "good morning" as they pass each other on the sidewalk. Residents are remarkably civic minded. I think that good urban design fosters that sense of community which is so abundant in Blue Island.