Goingsolarisn’t something that should be reserved for the wealthy, according to the founders of PosiGen, a four-year-old solar company out of New Orleans.
“We call it 'blue-collar green' -- bringing renewable energy and savings to those who can benefit from it the most,” said CEO Thomas Neyhart, who launched PosiGen in 2011 along with co-founder Aaron Dirks.
Neyhart and Dirks built their business on a unique model of low-cost solar leases combined with energy-efficiency upgrades, targeted at middle- and low-income homeowners. And, so far, it seems to have been a success.
When the two businessmen got into the renewable energy market, they immediately noticed a disconnect: Many people in the working class are paying taxes to fund state renewable energy programs, but seeing none of the cost savings from going solar. In PosiGen's home state of Louisiana, an estimated 85 percent of the population has essentially been blocked from going solar because they don't have the credit score to participate in conventional third-party leasing or the income to buy a system outright.
Today, more than 80 percent of PosiGen’s customers reside in low-income census tracts. And while he didn’t offer any specifics, Neyhart said the company’s portfolio is operating like any other solar company’s. “We’re very comfortable with it,” he said.
By tapping into an underserved market, PosiGen has quietly become one of the fastest-growing solar companies in the United States, out of the heart of oil and gas country.
PosiGen has installed 29 megawatts of solar on more than 6,000 houses in the last three years, and continues to install projects at a rapid clip of between 80 and 100 systems per week, according to Neyhart. The company also recently expanded operations outside of Louisiana, with new offices in the largely blue-collar towns of Albany, New York and Bridgeport, Connecticut.
Most of PosiGen’s work to date has been financed by Minneapolis-based U.S. Bank. Last fall, the company raised nearly $90 million in financing from two Wall Street banks, including $40 million from Goldman Sachs, to fund additional growth.
The company currently has 163 full-time employees (40 percent of which hail from the same low-income census tracts the company does business in) and 150 full-time subcontractors. Neyhart said that he hopes to double the number of jobs the company completes over the next 18 months compared to current levels.
So how did PosiGen get here?
The solar-plus-efficiency model
PosiGen’s recent success rests as much on its solar business model as it does on offering energy-efficiency upgrades at scale.
Few companies have taken this approach. SolarCity dipped its toes into the energy efficiency market a couple of years ago, but found that establishing a standalone energy-efficiency business was far more complicated and less lucrative than setting up a dedicated solar panel installation service. Other solar companies have steered away from energy efficiency because they see it eating into their profits, said Neyhart.
“The majority of solar people believe making the home more efficient is going to cannibalize the number of panels they can put on the roof,” he said. “But we looked at it in terms of how we can have the biggest impact as quickly as possible.”
When Neyhart and Dirks started out, there was a lot of interest in weatherization in Louisiana left over from Hurricane Katrina, and some funds for home improvement still available through the recovery effort. PosiGen tested their model on a batch of about 200 homes, and continued to build from there.
Today, PosiGen does a blower door test on each house it puts solar panels on, then makes up to 30 energy efficiency upgrades, including swapping out incandescent light bulbs, adding insulation and installing smart thermostats. According to Neyhart, doing solar and energy efficiency together saves customers 40 percent to 80 percent more than a typical solar PPA, which typically save customers $10 to $20 a month.
Another key component of PosiGen’s business model is that it offers a uniform solar array to all of its customers. PosiGen installs the same 6-kilowatt system on every roof for a flat rate of $50 per month for a 10-year lease (there’s also a 20-year option), plus a $10 monthly charge for energy efficiency upgrades. In exchange, the customers get a guaranteed percentage of energy savings. No money down and no credit check required. No PPA and no escalator.
In Louisiana, where electricity prices are around 10 cents per kilowatt-hour, PosiGen’s last 2,000 customers averaged $125 in monthly savings, said Neyhart. After paying PosiGen a fixed flat lease rate of $60 per month, the average customer nets about $65.
“If you save someone who makes $150,000 a year $60 bucks a month, they’re going to spend it on Starbucks,” said Neyhart. “If you save that for a working family, they’re going to spend it on their children, on school supplies, on groceries and on real needs for their home.”
In the two years since Rosanna and Shawn Plep installed solar with PosiGen on their one-story home in a suburb of New Orleans, their energy bills have fallen dramatically to below $13 per month. Even with PosiGen’s monthly fee, they’re seeing a significant net savings.
“I’m not really an environmentalist; I like practical things,” said Rosanna, who home-schools their three kids. Shawn works from home as a web developer.
“There’s so much sunshine here,” she said. “And anything to help bring the bills down would be good, we thought.”
“PosiGen, the way they do it, makes it easy for everyone,” Rosanna added.
"The Southwest of solar"
Most solar companies strive to cover every inch of a roof with panels to maximize the amount of energy a customer produces, and, therefore, doesn’t have to buy from their utility. Rather than try to eliminate its customers’ electricity bills, PosiGen sacrificed customization and some generation to provide the greatest savings at the lowest cost.
"When we go to a customer's house, we don't get technical,” said Neyhart. “We put the same system on every roof, same number of panels, same racking.”
"We package it to where it's basically solar in a box," he said.
Because PosiGen buys all of its panels in bulk from a single vendor, Hyundai out of South Korea, it’s able to get the best pricing and drive material costs down as low as possible.
Also, because the solar systems are uniform, PosiGen installs arrays in an assembly-line fashion, driving down the costs for labor.
Even more importantly, the uniform design drastically reduces the amount of time it takes to get a solar project approved, since there’s no need to submit a new electrical drawing with each permit application. In most cases, PosiGen installers can be up on the roof less than 30 days after a customer signs up with the firm, said Neyhart.
As soon as one home goes solar with PosiGen, others tend to follow. About 60 percent of PosiGen’s customers come from referrals. The company also does relatively low-cost outreach at community events and with church groups.
According to Neyhart, PosiGen’s acquisition costs are 20 percent of those of SolarCity’s. What's more, its soft costs are 20 percent of those of other large competitors.
“We’re kind of the Southwest of solar,” said Neyhart.
Opening up a new market segment?
It's been somewhat of a bumpy road to get to where PosiGen is today. Neyhart’s previous company, Grant Resource Advisors, suffered a setback few years ago over a controversy surrounding green credits. PosiGen was also hit with a small fine last year for falsified information on a state contractor’s license. And, earlier this year, PosiGen and its CEO faced nearly $1 million in federal tax claims. According to Neyhart, the Internal Revenue Service’s concerns have been addressed and the tax liens removed.
“This situation has been resolved to all parties' satisfaction and will have no impact on our normal business operations,” said PosiGen spokesperson Morgan Stewart.
PosiGen has also been involved in a court battle with former employee John Pinholster, who claims the company still owes him $750,000 in salary and bonuses. Neyhart said disagreements like this are an unfortunate byproduct of the company’s rapid success.
Despite these issues, PosiGen may now be on a sustainable path to long-term growth. Banks give PosiGen special consideration, because financing systems for lower-income customers helps them meet their compliance obligations under the Community Reinvestment Act.
In the near term, PosiGen will also continue to benefit from attractive solar incentives. On top of the 30 percent federal Investment Tax Credit, Louisiana offers a 38 percent tax credit up to $25,000 for third-party-owned systems, which is scheduled to step down to 18 percent in July. All incentives are due to expire in 2017. But when that day comes, Neyhart argues the only way for companies to stay competitive is to pair solar with efficiency upgrades so customers can continue to see significant savings.
Finally, while PosiGen compares its performance to other solar companies, it appears to have tapped into a market where there’s enormous customer demand and almost no other companies operating.
“I don’t think we’re taking solar installations away from our competitors; I think we’re opening up a new segment of the market,” said Neyhart. “I think they’re going to watch us and see how we do, and I’m sure at some point down the road, they’ll take a look at our success or failure and decide if they want to move into that market segment as well.”