Google Invests $280 Million in SolarCity Project Finance Fund

Google Inc. (GOOG) agreed to put $280 million in a new project financing fund for SolarCity Inc., a financier, installer and owner of rooftop photovoltaic systems, in the Internet search engine’s biggest clean-energy investment.

The deal with San Mateo, California-based SolarCity is also Google’s first investment related to distributed solar energy, Rick Needham, the search engine’s director of green business operations, said by telephone yesterday.

The investment is a “quadruple-win” because it will enable more homeowners to lower their energy bills while also shifting to renewable energy, allow SolarCity to expand its business and facilitate wider deployment of solar, Needham said. Mountain View, California-based Google will also make a return on capital upfront, he said, since its investment is supported by the Treasury Department’s cash grants program.

As an alternative to tax credits, the program reimburses investors for 30 percent of project expenditures for solar. The program was created after the 2008 financial crisis to revive spending on clean energy. Projects must begin construction by the end of 2011 to be eligible.

With the looming expiration of the grants program, other corporations with large balance sheets need to “get into this space or else we’ll see project financing struggle,” Lyndon Rive, SolarCity’s chief executive officer, said yesterday in a telephone interview.

“Most solar financing has occurred with traditional banks,” Rive said. Those investors though are “constrained with the amount of capital that can be deployed for distributed power. Google is setting an example other corporate companies will follow,” he said.

‘Transformative Business Model’

SolarCity will use the funds as the equity component in project financing. The company finances solar-energy systems through an arrangement known as a power-purchase agreement or solar lease, in which it owns the solar panels. Customers pay nothing upfront and buy the generated electricity at a fixed monthly rate that’s lower than a typical utility bill.

“That’s an attractive and transformative business model SolarCity has developed,” Needham said. By focusing on distributed projects, the approach also avoids transmission issues associated with larger developments in remote areas, he said.

The new fund is SolarCity’s largest to date and brings the company’s total project financing to more than $1.25 billion through fifteen funds with seven different partners, it said today in a statement. SolarCity offers its services in 10 U.S. states and the District of Columbia and has completed or is developing 15,000 projects, it said.

Google’s Other Deals

With the SolarCity deal, Google has invested more than $680 million in the clean-energy industry to date, Needham said.

Its first investment in utility-scale renewable energy was in May 2010, with $38.8 million provided for two NextEra Energy Resources LLC wind farms in North Dakota.

In April this year, Google said it was investing $100 million in Caithness Energy LLC’s 845-megawatt Shepherds Flat wind farm in eastern Oregon. Last month, the company and Citigroup Inc. (C) each agreed to provide $55 million to buy and lease back to Terra-Gen Power LLC the fourth 102-megawatt phase of a wind farm in Southern California that will be 1,550 megawatts in capacity on completion.

Also in April, BrightSource Energy Inc. said the search engine company joined NRG Energy Inc. (NRG) as an equity investor in its Ivanpah solar-thermal plant in Southern California and agreed to provide $168 million to fund construction.

Underwater Transmission Network

In October 2010, Google said it was investing in a $5 billion underwater transmission network for wind farms off the Mid-Atlantic coast and would own a 37.5 percent equity interest. Google also purchases wind power from NextEra wind farms in Oklahoma and Iowa.

Its philanthropic arm, Google.org, also has provided venture backing for other clean-energy companies since 2006, including Altarock Energy Inc., Potter Drilling, eSolar Inc., ActaCell, Aptera Motors, Makani Power and BrightSource, according to data compiled by Bloomberg New Energy Finance.

In February, Google Ventures led a financing round for energy-efficient power module maker Transphorm Inc., and it has also invested in Silver Spring Networks Inc. and CoolPlanetBiofuels.

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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