Not long ago, it would have been unthinkable for a big utility company to encourage homeowners to put solar panels on their roofs.

If people generate more of their own electricity, after all, utility companies will sell less, they’ll need to build fewer power plants and, at least under traditional regulatory regimes, they’ll make less money.

That’s changing, as evidenced by a deal announced today by PG&E Corp., the $13.4 billion a year utility company based in San Francisco, and SunRun, its much smaller San Francisco neighbor, whose business is providing financing for home solar systems. Pacific Energy Capital II, a unit of PG&E, will provide $100 million in tax equity project financing to fund SunRun’s installation of more than 3,500 new home solar installations across the nation, the companies said.

In plain language, that means that the utility company will, in partnership with SunRun, pay the upfront costs of solar panels in exchange for tax credits and a share of future payments from the homeowners who install them. SunRun is one of several companies trying to take some of the risk and complexity out of home solar by paying the upfront costs (which can mount to $20,000 to $50,000) and managing the installation hassles for its customers. (See my 2009 blogpost SunRun: A new deal for solar for more.)

This is the second investment this year by PG&E in a home solar firm. Back in January, the utility invested $61 million with Solar City, which competes with SunRun. Generally, PG&E is bullish on solar, although most of its investments have been in centralized solar thermal or solar photovoltaic plants, as opposed to distributed, rooftop panels. It’s ranked No. 1 in the Solar Electric Power Association’s utility solar rankings. (PDF, download.)

Nor is PG&E alone in promoting distributed solar. As  I reported yesterday, New Jersey-based PSEG has a solar loan program for homeowners although it doesn’t cover the full costs of installation.

So why would a utility like PG&E Corp. finance a competitor? Partly because it expects to make money on the deal, partly to better understand the solar business and partly because if the utility companies doesn’t get into the home solar business, someone else will.

As Brian Steel, director of corporate strategy and development at PG&E told Forbes:

We’re happy with the financial returns. And by investing in these assets it gives us an opportunity to learn in a way we wouldn’t have otherwise. When you get down in the weeds, the difference in what one learns is stunning.

Ed Fenster, the CEO of SunRun, told me much the same thing when we spoke about the deal: “This is going to happen with them or without them. If it happens with them, they are earning a return on it.”

None of this would be likely, it’s safe to say, if California hadn’t taken a smart approach to utility regulation by decoupling a utility’s financial returns from the amount of electricity it sells. That enables utilities to make money by serving their customers’ energy needs, even if what they are selling is energy efficiency or distributed power.

Still, it’s important to keep all this in perspective. SunRun and rooftop solar are still small businesses. SunRun signed up about 1,000 customers in the first quarter of this year, and it has about 4,500 customers in all, Fenster told me. Still, he said, even though California’s subsidies for solar are declining, the company’s growth rate is accelerating–no small feat in this sluggish economy. The PG&E deal will enable the company to fund solar systems in at least five states, he said, including California, Arizona, Colorado, Massachusetts and New Jersey. All offer solar-friendly subsidies.

Because the Gulf oil disaster is on everyone’s mind these days, I asked Ed if he thinks it will have any impact on his business. Americans don’t burn much oil to make electricity, but we do use natural gas, which may have been a factor in the explosion. What’s more, if electric cars roll out later this year as planned, electricity may become an alternative transportation fuel, albeit on a small scale.

“The BP tragedy may very well lead people to think harder about renewable energy,” he said.

Let’s hope so.