SolarCity hopes its bonds attract new customers and advocates for its rooftop-solar systems.
SolarCity hopes its bonds attract new customers and advocates for its rooftop-solar systems. - 
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SolarCity, the country’s biggest installer of home rooftop solar-energy systems, now has a new product: bonds that let consumers invest in thousand-dollar increments. But with billions in capital from big banks as well as the stock market, what's the point of borrowing up to $200 million from consumers?

It's not the cash, says the company's CEO, Lyndon Rive. At least not primarily. "The number one reason is to create more awareness," he says. "For people to participate, get a financial return. Now they tell their friends: 'Hey, have you looked at solar bonds? Have you looked at solar?'"

And have you looked at SolarCity?  

In addition to raising money, the campaign could cut down on one of the company's biggest costs: sales. An investor is a hot lead, and a source of referrals. 

"Customer acquisition is maddeningly expensive for residential-solar," says Shayle Kann, senior vice-president at GTM Research, which tracks the green-energy sector. 

Right now, SolarCity’s business model only works in about 15 states. But the company can sell bonds — and build relationships — in all 50, for the day when, or if, other states open up.

Advocates in those states — for instance, bond-holders — can only help. "They're not exactly customers if they buy bonds," says Kann. "But they're probably advocates, or supporters."

The push to expand into new markets, and to lock up potential customers in those markets, is key to SolarCity’s overall strategy, says Severin Borenstein, an economics professor at Berkeley who studies renewable energy.  

SolarCity's competitors are trying the same thing. "Right now, a lot of solar companies have the strategy of trying to get large enough on what is basically a bet on getting out ahead and being the recognized name brand, which could potentially have huge value," says Borenstein.

He compares it to the bet Microsoft made on computer operating systems in the 1980s. SolarCity wants to be the Microsoft of solar.

But what if it’s the AOL instead? Remember all those CDs from the 1990s?

That's not the worst-case scenario, says Borenstein. "It's not just a matter of whether they're going to be the Microsoft of solar or the AOL of solar," he says, "but whether they're going to be the Microsoft of solar or the Microsoft of a product that never takes off at all."

Residential solar isn't a sure bet, says Borenstein, so neither are SolarCity's bonds. "While it's a very exciting company right now, I think it's probably in a more volatile business than most people would invest in."

You've got mail! AOL sent out zillions of these.
You've got mail! AOL sent out zillions of these. - 
Follow Dan Weissmann at @danweissmann