Peer-to-Peer Solar Network Yeloha Gets $3.5 Million to Launch in U.S.

Yeloha founders, left to right, CTO Idan Ofrat, CEO Amit Rosner and Paolo Tedone, VP of business development
Kfir Ziv

It is now easy for consumers to share cars, homes, and even power tools, with strangers. A new startup Yeloha Inc., found another underused asset that it hopes to open up for the sharing by the American public–sunny roofs where solar energy can be produced.

Yeloha Inc.’s Israeli parent company Generaytor Inc. raised $3.5 million in a Series A round, to launch the solar-sharing network in the U.S., Amit Rosner, co-founder of Generaytor and Yeloha, told VentureWire.

Carmel Ventures, an Israeli venture firm that recently closed its $194 million fund, led the Series A round, at the end of last year, with participation by earlier investors, including Guy Gamzu, a prolific angel investor and entrepreneur.

The residential solar market in the U.S. has growing by leaps and bounds, and fueling the businesses of such companies as SolarCity Corp., a venture-backed startup that went public in late 2012 and has a $4.98 billion market capitalization now.

SolarCity , Sunrun Inc., and others that allow consumers to pay just for the energy produced and not for the upfront cost of a solar panel, openedup the market to more consumers in recent years. Even so, less than 1% of American homes have solar.

“Most people will not go solar, it’s too complicated or expensive,” said Mr. Rosner, who believes that today’s solar market serves only a verynarrow type of customer: those who have a home, don’t plan to move soon, can afford to buy a system or have good-enough credit to lease one, and whose roofs are well-suited for solar.

Yeloha, based in Boston, hopes to bring more people into the equation. It launched its service with limited availability this week, first in Massachusetts, with plans to open it up in other states later.

For the consumers, Yeloha’s service works in this way. A homeowner whose roof is well-suited for solar energy receives a solar system free. As the solar system starts generating energy, the host sees a reduction on his or her utility bill. The host receives credit for about 25% to 30% of the energy produced and pays nothing. Yeloha doesn’t care about a homeowner’s credit score, since the homeowner doesn’t have to pay anything to Yeloha.

Yeloha allows other interested consumers, such as apartment owners and others for whom owning solar systems isn’t a good idea, to pay for a portion of the solar energy generated by the host’s solar system. The subscribers get a reduction on their utility bills, so that in total, they save money, Mr. Rosner said. They can continue to receive utility-bill reductions, even if they move, within the same utility zone.

As Yeloha tries to make solar simple for consumers, it’ has a complicated business to run behind the scenes.

The company created a separate limited-liability company that will pay for and own the solar systems that are installed on hosts’ roofs. It is currently raising $3 million of project finance for the LLC, Mr. Rosner said. The company will get a return on investment by taking advantage of state and federal incentives for solar, and by getting credit for a portion of the solar generation for itself.

Should it raise the $3 million, the company will be able to install about a hundred systems, Mr. Rosner estimated. This points to potential limits on how quickly Yeloha’s network could expand.

“We are going through a huge headache, it’s very complicated,” Mr. Rosner said. “But we want it to be simple for the users,” the CEO said.

Mr. Rosner previously worked as director of marketing at SolarEdge Technologies Inc., a maker of power electronics for solar projects that went public this year. His co-founders also previously worked at or founded other startups.

Project finance for residential solar systems is much easier to receive than it used to be several years ago, but it is still a game where larger projects or larger compilations of projects get much better terms, so Yeloha will have to contend with the costs of being a smaller player at first.

The company must also make sure that billing is set up correctly via a utility partner. Solar hosts and those that pay for the solar energy must be within the same utility. Mr. Rosner said that a regulatory setup called “virtual net metering” that is available in Massachusetts and several other states helps make this a fairly simple process.

Yeloha’s service also comes up against other ways that people can tap solar, such as through community-solar efforts. These are sizable solar projects built somewhere outside of a city that allow consumers to buy a portion of the energy produced. Mr. Rosner said that he hopes to appeal to consumers who want to use spare, available rooftops, instead of new land and who like the idea of a peer-to-peer network, rather than dealing with a central corporate entity.

Other variations on this business model include peer-to-peer lending for solar, such as that offered by Solar Mosaic Inc.

Even as Mr. Rosner and his team have come up with a way that they hope will expand solar customers, their market will still be limited by locations where electricity prices are high enough to justify solar, which is far from everywhere in the U.S.

Write to Yuliya Chernova at yuliya.chernova@wsj.com. Follow her on Twitter at @ychernova