August 2013

Uncommon Energy From SunCommon

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Duane Peterson and SunCommon lower the cost of solar

by Joyce Marcel

James Moore (left) and Duane Peterson, Co-Presidents of SunCommon.

Photo: Kevin Lehman

aybe its because solar energy is his business, emails from Duane Peterson often close with Have a sunny day or Hoping the sun is shining on you. These little homilies show that Peterson is not only a preternaturally cheerful person, but that the former environmental activists first foray into business the uncommon SunCommon appears to be booming. When it comes to residential solar, everybody knows the problem: solar energy is sexy right now, yes, but it is also expensive, confusing and time-consuming. What rebates are available? Are there tax credits? What permits are needed? Can your roof support solar panels? Or should they be on the ground? What kinds of solar panels? Where should they come from? Who will install them? Who will service them? And the big one: residential solar can cost upward of $20,000 a home, so how will you ever pay for all of this? Peterson and his business partner

James Moore understand these problems. Were a Vermont-based benefit company who believe folks have a right to a healthy planet, Peterson said. We can make solar available for no up-front cost and a monthly payment that is actually less than what you pay your utilities. So with us you actually save money by doing the right thing. The old, expensive business model wasnt working, Peterson said. Let me get this straight, he described it with a touch of sarcasm. The solar industry expects the consumer to aggregate capital which is a fancy term for coming up with a large wad of cash and plunk it down on some kind of payforward notion that essentially says, Here solar company. Heres eight years worth of my electricity payments, and Im going to figure out the payback time? I just thought it was nutty. What other consumer product uses that economic model? When you go to buy a new car, they dont rub your

nose in the fact that it costs $25,000. No, its low monthly payments of $157.50. You want to turn the extraordinary cost of a cell tower network into a low monthly payment? So lets do it with cell phones. If theyd said they needed seven years of cell phone payments up front, not one of us would have a cell phone. I didnt come out of the solar industry, so Im not steeping in the conventions. Instead, working inside the Vermont Public Interest Research Group (VPIRG), Peterson and Moore figured out an unconventional solution. They market SunCommon using techniques honed by nonprofit community organizers. Theyve done the research. They have arranged the financing. They buy the systems from a California company called SunPower. They arrange for the panels installation. And for no money upfront, the homeowner is making his or her own electricity and paying one monthly bill to SunCommon that is often lower than

their former power bill. Whether the homeowner contracts for a 20-year lease or a 20-year buy-in, the bill never fluctuates and utility companies cant make that guarantee. The model Peterson and Moore created was successful at VPIRG, so a little more than a year ago the two idealists entered the business world for the first time. They split off VPIRG Energy and formed SunCommon, a for-profit, socially responsible company that takes the sting out of residential solar heating. Government alone will not solve our problems, Moore said. Or will nonprofits. Or will business alone. But I do think that businesses have the ability to create positive social change really fast. And thats why my business partner and I started SunCommon. It was based on a fundamental belief that everyone deserves a healthy environment and a safe world. Our aim was to knock down the barriers that were keeping most people from

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meeting their own electricity needs with clean energy. Although Peterson wont reveal how he raised the money to start SunCommon, the company was well-capitalized from the start. The money came from individuals who knew James and me and respected our work over the years, Peterson said.That allowed us to achieve minimum effective scale, a factor in our earning 50 percent statewide market share our first year. Governor Peter Shumlin is a big supporter of the company. SunCommon is a great company finally making solar power available at a price that any Vermonter can afford, he said. Peterson is often called a visionary. When he explains SunCommon, the idea sounds new, unique, creative and oddly simple, like why hasnt anyone thought of this before? But they havent. And he and Moore did. On a sunny day a few months ago, Peterson was explaining his business model in the companys headquarters in The Energy Mill in Waterbury, a new, elegant, spacious building constructed out of locally milled wood. The offices are filled with light, and the building takes light seriously. On the grounds are huge mounted solar installations that look like something that flew in from a high-tech Easter Island. The solar displays provide all the energy for the building, which doesnt even have a furnace. It is the largest net-zero building in Vermont. It will come as no surprise that Peterson and Moore drive electric cars, or that the bulk of the companys fleet is composed of Toyota Priuses, or Prii, as Peterson likes to call them. (Theres also a Subaru Impreza for the mud and, for some reason, possibly aesthetics, a Mini Cooper.) Peterson and I were in the conference room, facing each other over a long table made up of two solar panels joined together. It was hard not to comment on it. The purpose of this enterprise is positive change, so every business decision is an opportunity to reflect our values, Peterson said. We want the office to be more than presentable but not elegant. We dont want to spend all our money on swanky digs, Silicon Valley style. We bought these panels on eBay. Theyre very cheap. We would never sell these to a customer. The whole table cost $400. Peterson, 57, a tall, whimsical and witty man, took a roundabout route to business. Where else can you find a life story that includes the Los Angeles Police Department, Jane Fonda and Tom Hayden, and Ice Cream Icon Ben Cohen of Ben & Jerrys? Duanes an upbeat guy who's a fun guy to hang out with, Cohen said. Hes Incredibly smart and incredibly committed to progressive social values. He came into this business from an environmental perspective, a common sense perspective, from the idea that theres all this free power coming from the sun and instead of using it were just letting it go to waste. Instead, were polluting the environment with all this other fossil fuel crap. Its absurd. Its unlogical. Its unreasonable. Its a waste of money. And on top of that,

its having to use oil that gets us into all these wars. I think Duane was feeling like theres a lot of people who are intrigued by solar, who see the sense to it, but they understand theres a high up-front cost. So its hard to figure out how to work the tax credits and get the right system and find the right reliable installer. At VPIRG, Peterson and Moore made solar a one-stop-shop, easy decision, said Cohen, who acknowledges that he is a company investor. Then they realized it made more sense to spin it off and do it for profit, Cohen said. And thats what Duanes doing. He has made solar affordable in Vermont. The amazing financing deal that he was able to figure out allows someone to get their electricity from solar for no upfront costs and not have any additional costs. Now hes just trying to keep up with all the business. Peterson and Moore share SunCommons presidency. Duane and I work really well together, Moore said. I love the details of the energy world, the numbers, the nitty-gritty, the technology, the design and the sales aspect. I love putting together an offer that really works for Vermonters. And Duane revels in education and public relations getting out into communities to educated people on clean energy solutions as well as having a really solid grasp on the inner functionings of the business. We split the work evenly and we both think we have the better half, which is perfect. Peterson and Moore must be on the right track, because SunCommon is growing rapidly. It just hired employee numbers 28 and 29, and has nearly three dozen contract installers. It has already installed 350 residential solar systems, closing in on 500 sold, and had a profitable second quarter this year. When we started, at beginning of last year, I think there were 1,500 homes with solar panels in the whole state, Peterson said. So last year there were 500 sold in the state and we sold about 250 of them. So our little business sold half of all the new solar in the state and kind of moved the needle of what happened in the state. So I think were on to something. If you figure a residential solar system costs about $25,000, on average, then the companys gross in its short existence so far would be $8,750,000. Peterson said that was correct, with reservations. While we don't disclose our detailed financials, you did some math to estimate revenues at 500 x $25,000, Peterson said. The resulting number more appropriately describes sales. SunCommon doesn't book the entire revenue from all sales. For the systems leased, the bulk of the sale proceeds go directly to SunPower the owner of the system and SunCommon is paid a portion. For systems we sell for cash, SunCommon books all the revenue, from which we purchase the equipment. So the entirety of the revenue from your estimate would not have flowed thru our business. Yet the estimate as sales is not unreasonable. The business model is ingenious, said Cairn Cross, co-founder and managing director of the Vermont venture capital fund Fresh Tracks Capital, who sits on

SunCommons board of advisors. First, theyre applying something thats very different from normal sales and marketing activity, Cross said. Its unique and differentiated and harder to replicate because those guys came out of nonprofit advocacy. Thats not a normal background for sale and marketing folks. Second, the solar business can be a never-ending and ever-changing series of financial challenges, Cross said. But SunCommon has got the payment system down. Monthly car payments cost the same as these monthly solar installation payments, he said. For almost everybody, there are tried and true finance programs to put almost everybody in a car. But the solar industry has had trouble figuring out what the message is. Essentially, it boils down to most customers not wanting to want to pay more than what theyre paying today. So if theyre paying $100 a month for the electric bill and now theyre paying that amount for the solar, theyre OK. Theyve fixed their bill for the next 20 years. And unlike a car, if you dont make your payments its not easy for the company to take it away. A repod solar system is, of course, not really an option according to Peterson. With tens of thousands of residential solar systems now in use across the country, the default rate is minuscule, he said. Folks need electricity. It's not a discretionary purchase. So if they were to quit paying on their panels, we'd turn them off and then they'd have to pay more for the same electricity from their utility its an irrational act that isn't done. Many of SunCommons clients are in it to save the planet, not to save a few dollars on energy, said Peter Plagge, the pastor of the Congregational Church in Waterbury. Hes an early SunCommon client. They came here when they were first getting started, he said. I was fascinated by it, in part because we need to be doing a lot of this and because were not going to do it until someone figures out an economic model thats affordable. So I said, Put us on your list. We were the first ones in the village and the second in the pipeline. We were put on line last July and weve been running for about a year now. The installers first used Google Earth to check Plagges exposure to sunlight. Then they came out to his house to see if the roof could handle the weight of a system. Plagge then signed a 20-year lease the document was so new, original and complicated that he hired a lawyer to go over it with him. The lawyer said it looked good, Plagge said. So the system was installed. To be honest, for a while I was fascinated that I was generating my own electricity, Plagge said. But it doesnt change anything for us. Our electric bill was around $70 a month, and SunCommon said they could do this for $70 a month for the life of the lease. All I know is that for the first winter, we were not generating enough electricity, so we had a bill from Green Mountain Power and one from SunCommon. And now we are generating much more electricity than we can use, so next winter well use that credit to get

through the winter. The exciting thing is anybody can do it, if you have a house with the right exposure. At the end of the 20-year lease, SunCommon will come and remove the panels. The panels lose their generating ability slowly, Plagge said. And Im hoping that 20 years from now, there will be some other system. A Political Career Peterson may be the only person youll ever meet who is actually from Las Vegas. He loves the Southwest and wears a turquoise bracelet to remind himself of it. He still visits the desert every year. He was the youngest in a family with four children, but as he describes it, it was not an ideal childhood. My father died when he was very young, so I wasnt especially parented, he said. My mom was hardly around. But because my father died when I was young, I was eligible for Social Security survivor benefits. So I had the money to go to good schools. The benefits covered tuition for four years at Dartmouth College, where he majored in government and minored in economics. After that, Peterson went west and became a policeman in the Los Angeles Police Department. He also started working in politics. In 1982, I worked on the successful campaign that elected then Los Angeles District Attorney John Van de Kamp as California Attorney General, Peterson said. He appointed me to a leadership position in his California Department of Justice, which had 3,600 employees spread across 20 offices at the time. I served there eight years, until Mr Van de Kamp ran for governor and I helped run that campaign. Poorly. We lost the primary to Diane Feinstein who later lost the general election. Thats where Peterson first started paying attention to alternative energy. One of our primary campaign gambits was to put our platform on the ballot in the form of initiatives, he said. One of them, Prop 128, was nick-named Big Green, as it encompassed all the environmental legislation that had been thwarted by an anti-environment governor. After we lost the primary for governor, I worked for the initiative campaign. It was supported by many in Hollywood, organized by Jane Fonda and her then-husband Tom Hayden, who then was a state assemblyman. So I worked with him closely during that campaign, and afterwards he appointed me his chief of staff in the state capitol of Sacramento. I managed his campaign for state senate, which he won by 380 votes, and he named me chief of staff in his senate office and for the committee on natural resources. It all makes perfect sense: LAPD cop. AG Office. Jane Fonda and Tom Hayden. Ben & Jerry's. SunCommon. Can't you see it? Coming To Vermont Peterson came to Vermont in 1996 to be Ben Cohens assistant at Ben & Jerrys. I was looking for a very top level person to assist me, said Cohen. I happened to be at a dinner for The Nation magazine

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in California, and I happened to sit next to Tom Hayden. I mentioned that I needed a guy, and he said he had a really good guy who was looking to relocate to New England. It was a match made in heaven. At the time Petersons wife, Laura Peterson, was in television news. My career made her downwardly mobile in her career, Peterson said. We went from LA, the number two market in the country, to Sacramento, the number 19, to Burlington, the number 96. Here she was bureau chief for WPTZ-TV news. Laura Peterson is now the corporate communications manager at Green Mountain Coffee Roasters. Since Peterson had been Haydens chief of staff, the ice cream company gave him the title Chief of Stuff. And after Ben & Jerrys was sold to Unilever, Peterson continued working for Cohen and Jerry Greenfield. Working for Cohen had introduced Peterson to the Vermont Business for Social Responsibility network and the Social Venture Network, and he had joined the board of VPIRG, where he served as president for many years. VPIRG is a three-legged stool: advocacy, research and citizen activism, Peterson said. With 30,000 supporters out of 220,000 households in the state, its really an organization of tremendous depth. VPIRG members appreciated the work the organization did around renewable energy policy, Peterson said, but they said, We want clean energy for ourselves, but we cant figure out how its done. So Peterson teamed up with Moore, who for seven years had been the director of the Clean Energy Program at VPIRG and was one of the states leading experts on renewable energy. Moore first came to Petersons attention when he wrote a peer-reviewed study on how Vermont could replace Vermont Yankees nuclear energy after it closes with renewable, instate energy. I was intrigued by that and started talking to him about what was beyond the theory, Peterson said. Wed actually have to do a lot of stuff to bring about an advanced energy economy, and he and I started kicked around ideas on how to get it done. We launched a pilot project inside VPIRG called VPIRG Energy. Their incubator project was almost too successful. It started wagging the VPIRG dog, Peterson said. Its awkward to have a for-profit inside a nonprofit. And in order to scale up to meet the growing demand we would need to raise start-up capital, and its awkward for a nonprofit to raise start-up capital. We saw opportunities to improve sales, design, the permitting, the installation, even the financing pieces. We thought if we could apply more innovation to those, we could drive the price down even further. So we created an entirely separate entity as a benefit corporation and weve been in business ever since. Starting SunCommon A benefit corporation combines making a profit with a mission to be socially

responsible. The central ethos of the American corp, enshrined in statute, is the fiduciary responsibility of the board of directors to maximize shareholder profit period, Peterson said. So that causes great pressure on companies to chase short-term corporate profit at the expense of, I dont know, everything else. In the statute we organized under, it puts our stakeholders, including our shareholders, on notice that were a for-profit business, so we can hire more people and open more offices and do more of this good stuff, but thats not our be-all and end-all. If we attend to the triple bottom line people, planet and profit if we pay our people good wages with full benefits, if we do right by the communities we have our business in, if we do right by the habitat that sustains our very lives, then you cant sue us. Its that simple. Vermont was the second state to pass a statute enabling businesses to organize under this public benefit model, Peterson said. Now many states, including California and New York, offer it. Theres also Certified B Corps, Peterson said. Not every state has this law. But Certified B Corp is growing into a certified standard a certification of responsible businesses. And there are now 700 of us across the country, and I was struck by how rigorous its 42 page assessment was. There are probably10 or 20 of us in Vermont. Were that as well. Were certified under this national certification program, and we are legally structured in our corporate filing as a benefit corporation. The Process SunCommon began operating in Chittenden and Washington counties and has since expanded into Addison, Franklin and Grand Isle. One of the many ways we keep the cost down is we operate community by community and get efficiencies and economies of scale, Peterson said. We start by hiring community organizers. They start a couple of months before we expand to each territory. They say, Well, who do we know there? Well, we know some of the state reps. Some of the select board members. Theres a town energy committee. One of the churches has a social mission committee. I know Bob over at the Rotary. So our organizers start meeting with people. Brown bag lunches. A talk to the Rotary. They start identifying community leaders and putting on community presentations. A lot of people have some interest but cant get their heads around how to do it. The company isnt competing with other solar installers, Peterson said, because his customers arent their customers. One of my favorite customers is a couple in Milton, a rural Vermont community, Peterson said. The husband is on disability. The wife is a schoolteacher. They went solar for no upfront cost and their monthly cost is $10 less a month than they were paying for utilities. Theyre over the moon that we were able to help them save money and do something good. I dont think they were ever a solar customer before we made this available. This

makes me really happy that something that was just out of reach is now the norm. Financing can be done two ways: lease or loan. Either way, its a 20-year term and fixed, while power costs fluctuate, usually up. After 20 years, if its loan, then you own the system. About 60 percent of residential solar across the US is now third-party ownership, Peterson said. This lease model is fueling the explosion in residential solar. Some other entity is buying the equipment and paying for the installation. They own the system, which means they guarantee output, so all the maintenance is on them. The home owner doesnt put up anything up front. It doesnt tie up home equity. The government pays for 30 percent through an income tax credit. The leasing entity takes care of that. So leasing entities bundle all these financial attributes, harness them and pass them along to the consumer. SunCommons main equipment and lease supplier is SunPower, a Silicon Valley-based solar manufacturer. Its analogous to GMAC financing, Peterson said. General Motors didnt intend to make money off the financing, but it wanted to lubricate the sales. In the same way, SunPower created a lease program. SunPowers panels dont come from China, which supplies panels for most of the world. SunPowers systems are assembled in Mexico, Peterson said. Another supplier makes them in Germany. We want the highest quality stuff bolted onto the roofs of our friends and neighbors. And SunPowers warranty is as good as gold. We did the due diligence and went out to find the partners we wanted to bring to this venture. The lease is transferrable if the house is sold. Studies show that solar panels are an amenity which holds value unlike a granite counter top, Peterson said. Theres financial value too, because the power prices are locked in. SunCommon arranges the financing with New England Federal Credit Union. It gets all the necessary permits. For installation, Peterson borrowed the business model of electrical contractors. It occurred to me that electrical contractors hire trained workers, put them in the branded shirt, put them in the branded truck with consistent equipment, and find work for them, Peterson said. So they can scale up. So I searched around for the biggest and most respected electrical contractor, and I heard that could well be Peck Electric. So I call this the Peck Electric Model. I lobbed a call into them and talked to Jeff Peck, and he had already started a solar division. We had an interesting first meeting, but he wasnt sure we were for real. After we both did due diligence, we formed a partnership. So Peck electric has done all our roof mounted installations and I think theyve got seven crews going this week. From Pecks perspective, the deal has worked out really well. His company installed 240 solar systems in 2012, and by June of this year they had about 180

in the works. Before he hooked up with Peterson, he said, his company had maybe 12 or 15 employees doing this work. He now has 45 on the solar side. We were doing a lot of roof installs when Duane popped into the office and said, Got this idea to put solar on roofs on every home where it works in Vermont. I need a contractor who can handle a fast work load and work quickly and scale when we needed to. Peck said. When you sell somebody something, especially something of that value, they want it today. Scalability and consistency was really important, and it brought Duane to our office. At first Peck wasnt sure Peterson could pull it off. Yes, the word crazy might have entered my mind, Peck said. But the longer we spoke and the more details he came up with, the farther along in the process we got, it was pretty clear that Duane and James Moore and their team really had the horsepower to get this off the ground. We were thrilled to be part of it. The whole deal has been very fastpaced. The people at SunCommon have developed a process so these projects go smoothly, Peck said. When youre doing several hundred of these installs, its important to remember that each of these homeowners is only going to do it once. We and SunCommon want to make sure each project is done well and with a consistency of work. Duane is a great guy. Hes a visionary. He understands what people want. I think the average homeowner in Vermont would love to have their homes electricity come from renewable energy. Duane put together a great program to ensure that. Hes made it affordable to anyone with the right roof exposure. SunCommon recently hooked up with a second contract installer, Headwaters Construction in Cabot, to do ground installation. So its been something like 55 jobs after a year, Peterson said. Im really proud of it. The Future Eventually, Peterson wants to expand to cover all of residential Vermont. He also sees a big future in nonresidential nonprofit solar schools, hospitals, town halls, churches. They dont pay taxes, Peterson said. So they have never gone solar in much numbers, because they cant access the 30 percent income tax credit. Well, what if we could figure out a way for investors to access the tax credit and lower the price on these systems to these tax-exempt entities? Farms are another area of potential growth. Theyre not exactly cash flush, but what if we can do it without cash upfront and save them money? Peterson said. SunCommon is also looking at group net metering. Vermont is one of the few states in the country that requires utilities to accommodate group net metering, he said. Since I, with my east-west roof, cant bolt solar panels onto my roof, could

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SunCommon arrange for a larger system out in a field? Or on the Aubuchon Hardware lot? Were investigating that as well. Theres a lot to do. It is possible that there may come a time when there is a glut of renewable energy in the state. Along those lines, in July, VTDigger.org ran a story about smaller Vermont utilities rebelling against paying the premium price the Legislature mandated for kilowatts from renewables. At issue is a law that compels utilities to credit customers for the solar power they produce, Digger wrote. Some small utilities want to change the funding arrangement because they say it kicks the cost of maintaining the grid to other customers, while developers argue the policy places an accurate value on solar production and should remain intact to continue growing jobs and Vermonts renewable energy portfolio. Two weeks ago, the Vermont Electric Cooperative became the third utility in the state to hit the cap for funding its so-called net metering clients. Peterson does not think this will represent a problem. As the story documents, Green Mountain Power aggressively supports distributed energy production broadly and Vermont's solar businesses including SunCommon specifically, he said. With 70 percent of the state's electricity customers, GMP territory provides ample space for continued growth in solar. Our business will be fine, but I regret that we'd have to turn away Vermonters who seek our help going solar but whose utilities are standing in the way. And given the official state policy to generate 90 percent of our energy from renewable sources by 2050, I believe the utilities who seek to choke off renewables will face an angry Legislature come January. Right now SunCommons business is booming. But solar has always been a boom-or-bust kind of thing. SunCommon is a young company, and Peterson knows he has to be careful. Weve got to watch that were not growing too fast and getting our expenses ahead of our revenue, he said. Were in five counties now, and people sign up on our Web site to become customers. We have hundreds and hundreds of people around the state waiting for us. Sober business planning is in order. But from a business point of view, how cool is that?
Joyce Marcel is a journalist who lives in southern Vermont. She is currently writing a memoir covering six generations of her family caught in the sweep of history across the 20th Century. She is writing another book about Vermont businesses. More of her work appears at her Web site, joycemarcel. com.

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