Rooftop solar companies are morphing into quasi-utilities as they sign up hundreds of thousands of customers to buy green energy for decades to come.  Leading the way is SolarCity, which has seized one-third of the booming household solar market and booked $4.1 billion in future payments from its customers.

Like numerous rivals, SolarCity offers air pollution-free power under contracts of 20 years or more that undercut utility rates. The San Mateo-based company, publicly traded on the Nasdaq stock exchange, views rapid expansion as a matter of survival — the only reliable pathway for ratcheting down the cost of rooftop solar before a key federal tax incentive collapses at the end of 2016.

That deadline will put solar on much closer footing with conventional suppliers of electricity.  To date, more than a half-million households in America produce their own solar power — the majority of them in California.

San Diego is at the center of the craze, thanks to its sunshine, high electricity prices and solar-friendly public policies.  Purchasing a new solar-energy system typically costs as much as a new mid-sized car — from $25,000 to $30,000, including the interest on a non-equity loan.

New twists on solar financing can provide immediate savings on electricity bills with few upfront costs.  For customers, the effect can be like turning in a gas-guzzling clunker to find that the monthly savings exceed your new-car payments.

“In California, this model has been so successful because the price of power is so high that solar companies can come and give people a solid discount,” said Travis Lowder, a solar finance specialist at the National Renewable Energy Laboratory in Golden, Colo. “It works as a hedge against future electricity price increases. But it can also give you immediate savings off the bat.”

Among the latest solar financial innovations are loans and leases that customers pay off in return for clean electricity at a set kilowatt-hour rate, starting around 15 cents per kilowatt-hour and rising in tiny increments each year.  That leaves extended room for savings in San Diego Gas & Electric territory, where household customers pay 22 cents a kilowatt-hour on average, and up to 41 cents for big consumers of energy.

Sales pitches galore

You can sign up for solar anywhere in San Diego: At a street fair. As you shop at Lowe’s, Home Depot, Kohl’s or Best Buy. When you purchase a Honda.  There are 800 toll-free phone numbers, one-time offers and complementary NFL tickets.  Accountants and financial planners double as solar sales agents.  Behind the pitches are local contractors and credit unions, along with sunny, upstart brand names — Vivint, Sungevity, Verengo, Solar Universe — from a slate of five companies that account for nearly half of all home solar deals.

Assailed by propositions, homeowners here are increasingly asking themselves, “Why not?”  The familiar sales pitch for rooftop solar energy came over the phone at least once a month for Toni Hull of Chula Vista: “Are you interested in reducing your utility bill?”

Toni and her husband, homeowners with a $420 monthly utility bill, learned to dismiss the calls only to be sold while walking their dogs by a salesman for a solar company called Vivint.

Door-to-door sales and quick-draw bids have made the Provo, Utah-based company the nation’s No. 2 supplier of rooftop solar energy. The company went public on the New York Stock Exchange on Oct. 1 but shares have slipped more than 25 percent to the $11.70 range on negative third-quarter earnings, even as its customer base grows.  Toni Hull said Vivint offered her family a way to save without an upfront investment that might involve debt. The panels arrive this month. “It turns out he (the salesman) was doing our neighbor’s house,” she said. “So we thought, ‘Oh well, let’s go ahead.’ ”

Varied services

Not all solar providers are alike.  Among those catering to households, Oakland-based Solar Universe oversees a network of locally owned franchises that sell and install rooftop solar. Its founder, Joseph Bono, previously owned Quiznos sandwich-shop franchises.

Sungevity, founded by a Greenpeace activist, pioneered the use of overhead satellite imagery to judge the size and orientation of rooftops — and deliver a firm solar quote to customers without a home visit. Variations on the practice are now commonplace.  Mosaic Solar, also out of Oakland, pools money from small investors to underwrite loans to solar customers, both home and commercial.

Hundreds of independent local contractors, if not thousands, ply the solar trade in Southern California, with their own tool kits of solar loans and leases.  Leading the solar pack is SolarCity, whose vision has been influenced by space and electric-car entrepreneur Elon Musk of Tesla Motors and SpaceX fame. Musk is SolarCity’s largest shareholder.  At the end of September, the business had more than 168,000 customers in 15 states and Washington, D.C. — most of them concentrated in five states including California.

Ambitious goals

SolarCity co-founder and CEO Lyndon Rive, Musk’s cousin, aims to reach a million customers by mid-2018.  To get there SolarCity has taken direct control of almost every facet of its business and supply chain — sales, finance, installation — creating a new model for the vertically integrated company a century after the breakup of Standard Oil.  The goal, as described by Rive, is to relentlessly shrink costs and inefficiencies.

Installing a typical home-energy system takes less than a day, where it once took 2½, thanks to SolarCity’s 2013 acquisition of a company named Zep and its quick-mount technology for installing panels.  SolarCity has even jumped into the perilous business of making solar panels, a sector upended by Chinese manufacturing in recent years. It acquired solar manufacturer Silevo and broke ground in October on a plant in Buffalo, N.Y., designed to crank out a gigawatt of solar panels annually.

On a sunny day, those panels would match the output of a large nuclear reactor.  “I actually view the gigawatt factory as just the start,” Rive said recently in a podcast interview. “It won’t be long before we have to kick off a five-gigawatt factory facility, and then that would be the largest manufacturing facility in the world. If you don’t do it at scale then you are essentially just compounding inefficiencies.”

San Diego solar contractor Daniel Sullivan of Sullivan Solar Power is wary of SolarCity and a cost-cutting approach he likens to Walmart stores.  “Driving costs down is a good thing, but not at the expense of quality,” he said.  In a conversation with U-T San Diego, Rive said SolarCity has a vested interest in quality because customer payments are based on monthly deliveries of solar power.  He said SolarCity’s ambitions are ultimately about untethering the conventional power grid further from fossil fuels. The company has started to pair battery storage with rooftop solar, and is devising other ways to help stabilize the grid and manage fluctuations in demand, especially during seasonal peaks.  “But you need to allow it to get to scale,” Rive said, who believes SolarCity can offer batteries with every rooftop solar installation by 2020.

Rich returns

The solar payback can be especially rich in Southern California, and not just because of the sunshine.  The state’s peculiar utility bills, combined with its system for crediting rooftop solar customers, can help knock several hundred dollars off larger monthly utility bills. The arrangement is set to undergo significant changes starting next year.

Consumers continue to sign up for solar at a fast clip.  In October, a record-breaking 1,616 households went solar in SDG&E territory, spanning San Diego and southern Orange counties. That brings the total of grid-connected solar homes to roughly 44,000.  Investors in rooftop solar providers view a national market that might expand to tens of millions of customers. But doubts remain about whether leading solar companies like SolarCity and Vivint can keep pace with Wall Street expectations and evolve into major public companies on a national scale, when nearly all construction trades are dominated by local and regional contractors.

SolarCity executives called positive third-quarter earnings an unusual anomaly, as they reinvest every penny available in expansion.

Public policy skirmishes

New players with deep pockets are entering the arena. NRG Energy, which holds a major portfolio of conventional power plants, opened a residential solar division last year.  Adding to uncertainty, politically savvy utilities are throwing roadblocks into rooftop solar’s path at state utility commissions across the country, hoping to protect investment opportunities in conventional grid infrastructure.  California’s major investor-owned utilities, including SDG&E, say solar customers have been unfairly evading costs of maintaining power lines that they, too, rely on when the sun goes down.

SDG&E spokeswoman Stephanie Donovan said rooftop solar providers need to be open and transparent about pending regulatory changes. “It’s going to be a whole new ballgame,” she said.  Amid public policy skirmishes over clean energy, SolarCity has a growing base of financial and philosophical supporters that extends beyond solar customers to Wall Street investors who own its stock, bonds and solar lease-backed securities.  Recently, it began selling $1,000 bonds directly to the public, inviting “everyday Americans to participate in energy transformation.”

“The policies that we have in the U.S. today need to stay in order to allow the industry to continue to grow, and continue to reduce its costs,” Rive said. “If the policies change before we hit the inflection point where the cost curve is sustainable without incentives, it will essentially destroy all the investments that have been made previously.”