SunRun, which installs and operates residentialsolarsystems and charges homeowners a fixed rate for the electricity, said Tuesday it had raised $12 million in its first round of financing.

San Francisco-based SunRun is marketing a popular financing model used by other companies to put solar systems on large commercial buildings. The startup said the so-called power-purchase agreement, or PPA, model would make solar energy more affordable for homeowners.

While solar-power systems can pay for themselves over time, they are expensive to buy and install. The upfront cost has been a barrier for single-family homeowners in the United States from producing their own renewable and cheaper energy.

Businesses with large commercial properties that want to generate solar energy for their own use have turned to companies such as MMA Renewable and SunEdison, which offer PPA agreements to help its business customers offset the cost.

Under the PPA model, MMA Renewables and SunEdison would buy, install and operate solar-energy equipment in exchange for the right to sell the electricity back to their commercial customers.

The model has worked in the commercial market where solar companies typically work on fewer, but larger, projects.

But bringing that model to the residential market - where the small-scale equates to extra work, like paperwork and decentralized solar maintenance - has proven difficult.

SunRun claims it has tweaked the PPA agreement to make it work for single-family homes. Homeowners would pay a portion of the upfront cost and a flat rate for the electricity used. SunRun would install, own and operate the system.

For example, California customers who pay an upfront fee of $12,800 for a 3.75-kilowatt system can expect to pay an average energy bill of $135 per month, the company said. That bill would include payments to SunRun for solar electricity and to utilities for other types of energy.

Without SunRun's program, those same homeowners could pay $35,700 for a solar system or they could fork over $200 on average for their overall monthly utility bill, SunRun added.

SunRun, which started in September, would not say how many customers it has, except that it's in the "low hundreds." Foundation Capital led the $12 million funding for the startup.

But SunRun isn't the only company looking to make money by making solar systems affordable for the residential market.

In April, SolarCity announced a financing program intended to cut homeowners' upfront installation costs from about $25,000 to about $2,000 (see Battle for Home Solar Financing Begins). The same month, the company announced it would offer a $0-down financing option to California residents until July 31.

And Open Energy, which announced in April its first agreement to finance and install 1.2-kilowatt solar-power systems on 47 town homes in California, is going after new developments with homeowners associations (see Solar Roundup: Another Tax-Credit Proposal).

Learn the facts about solar finance at our seminar at Intersolar North America on July 16, 2008 in San Francisco. Click here to register or for more details.