What does it mean when the solar panels on your roof were purchased by a clothing company? Maybe that you are part of a significant shift in the economics of solar.

Patagonia and a small circle of US companies are making a foray into the electricity delivery service industry, which has traditionally been controlled by utilities and power plant owners. Most businesses that put solar panels on their roofs in order to show support for a cleaner source of electricity, cut carbon emissions and perhaps even lower their energy bills. But these new entrants are treating solar energy as a profit maker, and their investments will help to expand its use in the broader energy market.

Patagonia, the outdoor clothing retailer, announced in March a $35m partnership to install solar panels on more than 1,500 homes in the US. Long known for its focus on environmental issues and having solar panels at its headquarters in southern California, Patagonia will own the solar energy systems. It has contracted with California-based Sungevity to install and manage the panels and handle customer service.



Most of the solar energy generated by the Patagonia systems will power the participating homes. The company and Sungevity earn a small profit on that as well as on the sale of any surplus energy sent to the grid.

“As a company, it very much aligns with the DNA of what we do, and that’s [to] use business to inspire and influence environmental solutions,” says Phil Graves, director of corporate development at Patagonia. “We’re very passionate about moving away from fossil fuels and finite resources in every aspect of our supply chain.”

The new venture isn’t the company’s first investment in solar. In 2014, Patagonia set up a $27m fund to install solar on 1,000 rooftops in Hawaii, which depends on imported petroleum fuels to run its electricity-generating plants. The company saw the project as an opportunity to help swing the state toward a carbon-free alternative.

Graves declined to reveal Patagonia’s earnings on solar so far, except to say it has been “good” for the company.

“Let’s just call it a double-digit return,” he says.

Patagonia isn’t alone in branching out from its core business. The company that started the trend is Google, which received a federal license to sell energy in 2010. The company has since invested hundreds of millions of dollars in solar energy ventures, from rooftop projects to massive power plants within the US and in Germany and South Africa, as part of a plan to use more renewable energy and profit from these investments.

Apple seems to share the same interest. Earlier this month, the company applied for a federal license to sell any excess electricity from the solar panels that will grace the roofs of its future headquarters and other existing buildings around the country. In recent years, Apple has been building giant solar power plants near its data centers and offices in North Carolina, Nevada and California. Electricity from these projects will flow into local electric grids and offset the fossil fuel-generated electricity Apple draws from the same grids.

The falling cost of solar and implementation of government incentives have made it attractive as an alternative – and cleaner – source of electricity to businesses. Walmart, Costco, Kohl’s, Ikea and Macy’s are the top solar customers as measured by the megawatts installed, according to GTM Research. The Top 20 list also includes manufacturers such as Johnson & Johnson and General Motors and publisher McGraw-Hill.

GTM Research predicts the megawatts of commercial solar will grow 30% this year and nearly triple by 2020, reaching $3.8bn.

Lining up business customers takes more time and energy than residential customers, however. The solar market that serves commercial customers has been flat in recent years, partly because every commercial project starts with a blank sheet of paper: customers each have unique power demands and installation issues, and expect their own contractual terms, says Justin Baca, vice president of markets and research at the Solar Energy Industries Association.

In residential, on the other hand, every customer signs the same contract and usually gets very similar equipment. That simpler process makes the residential market more appealing to companies that are interested in earning a profit from solar.

But the industry is filled with competitors, from big players such as SolarCity and Sunrun to local roofers and contractors who have experience installing electrical equipment. Patagonia’s entry brings new money to the space and helps to promote solar energy use among homeowners.

“If they found a way to do small deals economically, that would be interesting because it could greatly increase the available capital pool,” Baca says.

Patagonia’s interest in solar began with a personal connection. The company’s CEO, Rose Marcario, is a friend of Timothy Ball, the co-founder and former chairman of Mainstream Energy, a solar company in California. Ball urged Marcario to consider investing in the clean energy.

A generous federal tax credit certainly helps to nudge the clothing company – and other businesses – to consider solar as a financially viable option. The tax law allows Patagonia to own the energy systems and claim 30% of their costs as an income tax credit. In effect, the rules permit Patagonia to spend some of its federal taxes on solar energy systems.

Patagonia has more plans. One idea is to install mini solar power plants to serve up energy to nearby communities, where residents can buy a stake in those projects or sign a long-term contract to pay for solar electricity.

Such larger-scale projects, called community solar, are a fairly new and growing area for the industry. They require millions of dollars in capital, and the permitting hurdles can be daunting for most companies. But according to GTM Research, community solar is expected to grow fivefold this year, a result of more states enacting legislation to permit such projects.

It may be another area where Patagonia encourages other environmentally minded firms to paddle along in its wake. Graves has had several conversations with chief financial officers at other companies to walk them through the solar deal-making process. Some are beginning to line up their own partnerships.

“It’s too preliminary to name names,” he says. “But several of them are companies you’ve heard of.”

San Diego homeowner Gene Loucks is one of the first customers under the new Patagonia-funded program. His new solar panels went live earlier this month, and he expects them to help him save $150 per month on his power bill. Loucks doesn’t own the system, so he’s paying only for the electricity. That works out just fine because it also means he doesn’t have to maintain it.

“It seems like a good deal for everybody,” says Loucks, 57, who works in law enforcement. “We’re in southern California, and there’s sun all year round here, so it’s really silly for somebody in San Diego to not take advantage of it. It’s just good for the planet.”