Tioga Energy, which sells solar electricity to customers who don't want to own the generation systems, has raised $20 million to expand its solar energy project development business.

The San Mateo, Calif.-based private company said Friday it has lined up silicon wafer maker MEMC Electronic Materials (NYSE: WFR) as one of the investors in this B round, which Tioga said isn't closed yet.

MEMC's involvement is particularly interesting given that the company makes silicon wafers, which are used to make the most common type of solar cells found in solar panels on the market today.

Until recently, it had stayed in the component business. Then two months ago, it announced the purchase of SunEdison, an privately-owned installer and power provider based in Beltsville, Md., for $200 million in cash and stock. MEMC, based in St. Peters, Missouri, completed the purchase in November.

The acquisition surprised many in the solar industry, and prompted a tongue wagging about whether doing so is such a smart move. MEMC is taking a different route than many other components manufacturers, who typically expand into other related markets by buying solar cell and panel makers.

The idea is to create a demand for its core product by owning manufacturing operations that turn the core product into a final merchandise, which would be solar panels. Taking this approach also would enable a company to control manufacturing costs and ideally offer better pricing to beat its competitors.

For MEMC, buying those related manufacturing operations also would create a demand for its wafers. MEMC said its investments in SunEdison and Tioga would do just that.

SunEdison and Tioga could end up using solar panels made by MEMC's customers. We've put in a call to MEMC to find out more about the Tioga investment.

SunEdison and Tioga are competitors. Both target businesses and government agencies as customers, and offer them the option to sign long-term contracts to buy solar electricity without owning the systems that generate it.

This model, which has proven popular, allows customers to avoid paying the hefty upfront costs of buying and installing solar panels and all the electronics that make up a generation system.

Those upfront costs would come from money raised by the installers specifically for building those systems. The money typically comes from banks, which can use these investments to claim a 30 percent federal investment tax credit. 

Tioga cited market research numbers from Gartner predicting that the market for this power-purchase agreement model would have a compound annual growth rate of more than 100 percent through 2013.

The other investors for the $20 million round are NGEN Partners, Nth Power and Draper Fisher Jurvetson. 

Tioga raised $14 million for the A round in 2007. NGEN, Nth Power and Draper all contributed to this round.