By Nichola Groom and Peter Henderson
SAN FRANCISCO, July 15 - (Reuters) - Chinese panel maker Suntech Power Holdings Co Ltd is getting into the solar lease business to compete with venture-backed start-ups such as SolarCity and SunRun, the vice president of project finance for its U.S. business said on Wednesday.
The program, already launched in California, will expand to up to six more states by the end of 2011, Scott Son said in an interview, adding the initiative will increase panel sales by helping the installers it partners with stay competitive.
"They are competing with SunRun and SolarCity and, if they don't have this option, they are at a competitive disadvantage," Son said. "We're just trying to level the playing field a little bit for Suntech partners and we think they significantly appreciate that, and they'll be loyal to us and buy panels from us, not just for the residential lease program, but for maybe their commercial business."
Son offered new details on financing plans a day after Suntech America President Steven Chan spoke at the Reuters Global Energy and Climate Summit.
Solar lease programs enable customers to pay a monthly fee for solar panels rather than a large up-front installation price. That fee is often offset by the customer's savings on electric utility bills. The programs have been popularized by San Francisco Bay Area start-ups SolarCity and SunRun, who buy panels from suppliers such as Suntech.
Nevertheless, Son said Suntech can beat the start-ups on pricing for solar leases.
"Whereas SolarCity and SunRun need to get VC kinds of returns on these investments, we're really using this vehicle to increase panel sales," Son said. "Our lease offering is competitively better than what SunRun and SolarCity are offering because our return requirement is lower."
Tax equity investors, however, will realize the same returns as they would partnering with the start-ups, but with less risk, Son added.
"Who's backing those leases? So that would be a primary concern of mine if I were a tax equity investor," Son said.
Suntech has big panel business and a big balance sheet.
"I feel pretty comfortable about partnering with them. I know they are not going anywhere," he said.
Returns for tax equity investors on residential solar projects are higher than for utility systems because investors prefer big, single deals, Son said. But tax equity investor returns could be 15 percent or higher in residential.
"There's a lot of capital that's chasing large utility scale deals," Son said. "There's not a lot of capital chasing residential deals."
The company is raising funds for the solar lease program from a couple of tax equity investors and hopes to close on that "in the next month or so," Son said.
Suntech is also working on a power purchase agreement program for commercial customers with a joint venture partner Son would not name.
The PPA program will be launched in the next couple of months and "would be 50 megawatts to 100 megawatts over the next one to two years," Son said.
The company is also developing financing programs for utility customers, who would be a significantly larger portion of its business than residential or commercial, Son said.
"We think the opportunity on the utility side is exponentially larger," Son added.
(Reporting by Nichola Groom; editing by Andre Grenon)