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Residential solar basks in Wall Street’s cash

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Venture capital is back, and more competition is good for consumers.

SAN FRANCISCO (MarketWatch) — Investment capital has been pouring into residential solar projects, earning a “seal of approval” from Wall Street that analysts believe will help the sector mature faster and offer more opportunities for retail investors and consumers alike.

Residential solar is already the fastest-growing segment in solar energy, and the latest batch of solar financing deals not only point to a strong 2014 but also to a return of venture capital to solar in general.

San Francisco-based Sunrun Inc. last week announced it closed $150 million in equity financing, only $5 million less than its four previous financing rounds combined. Before that, Clean Power Finance, a solar finance company also based in San Francisco, said it had $200 million from Credit Suisse to fund residential solar projects through its platform.

Last month, Oakland-based residential solar developer Sungevity Inc. announced $70 million in equity financing, listing among the investors German utility E.On SE and General Electric’s GE +0.26% venture capital unit. SunEdison Inc. SUNE +0.10% and SunPower Corp. SPWR +0.68% have also announced rounds of equity and debt financing earlier this year.

Most of the money is tied to specific solar projects, making it relatively risk-free for investors since cash flow comes from steady, long-term power-purchase contracts. Some, as with Sunrun’s financing, are not tied to projects but meant to support the companies themselves and their growth.

The scaled-up companies could position themselves to become public, or be acquired by larger players, said Michel Di Capua, head of Americas research for Bloomberg New Energy Finance.

Both types of funding will be needed to keep the market growing, Di Capua said.

Sunrun’s Chief Executive Officer Lynn Jurich told MarketWatch recently that Sunrun’s latest round of equity financing will fuel the company’s aggressive growth goals while still meeting customer needs.

“The money follows the opportunity,” she said.

The latest financing rounds are also viewed in the industry as a sign that venture capitalists are looking at solar again after getting burned a few years ago when the solar panel-makers’ stocks imploded.

“It could be a sign venture-capital investors are coming back to solar given how quickly residential solar is growing,” said Nicole Litvak, a solar analyst with GTM Research. GTM forecasts the residential solar sector to grow nearly 50% this year. It grew 60% year-over-year in 2013.

Venture capitalists invested $1.4 billion in solar in 2008, according to Bloomberg New Energy Finance, but venture capital had dwindled to $300 million by 2013.

Residential solar could present a new investment avenue for venture capitalists — and an emphasis on companies that provide services would put them in a more familiar territory than their earlier investments in solar-panel manufacturers.

For retail investors, most of what’s taking shape in the upper echelons of finance will trickle down in the shape of more public companies to invest in.

So far, SolarCity Corp. SCTY +0.08% , backed by Tesla Motors Inc. CEO Elon Musk, is one of the few options available for individual investors seeking to invest in a company that installs residential solar systems, but there soon could be more.

Sunrun is widely believed to be coming to the market within the next few months. Sunrun’s Jurich said that the company is “obviously well funded” for now, and declined to elaborate.

Existing public companies could also bundle their solar projects, including rooftop residential, into yield companies, or “yieldcos,” which are spinoffs that trade in stock exchanges and that are rising in popularity among energy and renewable-energy companies.

The increased flow of capital into the sector could also be good news for consumers, prompting greater competition for a piece of everyone’s rooftop.

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