Google is making its largest investment yet in clean energy, setting up a $280 million fund to finance home solar rooftop installations.

The search giant announced today it was teaming up with the Silicon Valley’s SolarCity—a company chaired by Paypal co-founder and Tesla Motors executive Elon Musk—in an effort to break down the biggest barrier to solar energy adoption: the cost.

"It's a great way to support installations going into more homes," said Google spokesperson Parag Chokshi.

The $280 million fund is the largest fund ever created for residential solar in the United States, according to SolarCity, which has raised a total of $1.28 billion in financing capacity during its five-year history.

Google over the past several years has invested in large, utility-scale wind and solar, enhanced geothermal energy, and other renewable energy projects, for a grand total of more than $680 million in the sector. But today’s deal is not only Google’s largest foray into the sector, it is its first investment in distributed energy.

Leasing Instead of Owning

Based in San Mateo, California, less than 20 miles north of Google's Mountain View headquarters, SolarCity describes itself as a solar power service provider. The idea is that people want affordable, clean energy—but they often can't afford to buy a photovoltaic system upfront.

SolarCity is one of a number of companies that have attempted to help people overcome that cost hurdle by leasing, instead of owning their rooftop solar systems.

SolarCity's leases and power-purchase agreements to homeowners, businesses, and schools promise a lower monthly electricity bill (including a set payment to SolarCity in addition to utility payments) than customers would get with their usual electricity from the grid.

SolarCity not only finances these photovoltaic projects, but also designs, installs, monitors, and maintains the systems. Recently, since buying the assets of a company called Business Solutions last year, SolarCity has also begun offering energy audits and small home improvements (like installing programmable thermostats) that can make a big difference in energy use.

Until now, SolarCity has financed most of its 15,000 projects through banks, Chief Executive Lyndon Rive said in an interview. But the problem is only about a half dozen banks are doing solar financing, he said. So in order for SolarCity's model to achieve "true scale," it must "unleash the available capital of corporate America," he said. Rive is hopeful that Google's move today will set an example for other corporations to make similar investments.

For Google, today's deal is about business as much (if not more than) it is about doing good, Google spokesperson Chokshi said in an interview. The search giant expects to see returns on its investment, and the fund is a way for Google to diversify its cash. Plus, Google's services require huge amounts of energy, and long-term, the company wants to make sure that power comes from clean sources, Chokshi said.

SolarCity is seeking to raise additional funds in the next six months that, combined with Google's investment, will see the company through the next two years. The timing is important. Rive said he hopes the entrance of companies like Google will lessen the impact of an expected change in federal incentives at the end of this year.

Competing on Retail Costs

At a time when many people are convinced that solar remains too expensive, education is one of the biggest hurdles for SolarCity, after financing, Rive said.

"You can go solar with little to no money, and then start saving money on a monthly basis." SolarCity is focused on expansion in the U.S. market for the time being (Google's investment will enable the company to serve one more state, for a total of 11), but he said the model could be replicated in Germany, Italy, Japan, South Africa, France, and other countries around the world—"anywhere the cost of power is high."