Third-Party Solar Financing
Third-party financing allows more Americans to “go solar” by lowering the cost of solar installation and maintenance of a system. Companies continue to develop new products and services to meet growing demand for solar. SEIA is committed to supporting policies that enable this innovation to continue and lower costs for consumers.
- Third-party financing is an established financing solution in the United States, and it has recently emerged in the solar industry as one of the most popular methods of solar financing for consumers to realize the benefits of solar energy.
- Third-party financing of solar energy primarily occurs through two models. A customer can sign a traditional lease and pay for the use of a solar system or the customer can sign a power purchase agreements (PPA) to pay a specific rate for the electricity that is generated each month.
- More than 90 percent of New Jersey’s residential solar market has consisted of third-party owned systems since Q2 2013.
- In Q1 2014, more than 50 percent of New York’s distributed generation systems were third-party owned, and in California, Arizona and Colorado, 69 to 81 percent of installed distributed generation systems were third-party owned.
Solar Power Purchase Agreements and Leasing Models
Third-party financing of solar energy primarily occurs through two models: power purchase agreements (PPAs) and solar leases.
In the PPA model, an installer/developer builds a solar energy system on a customer’s property at no cost. The solar energy system offsets the customer’s electric utility bill, and the developer sells the power generated to the customer at a fixed rate, typically lower than the local utility. At the end of the PPA contract term, property owners can extend the contract and even buy the solar energy system from the developer.
In the lease model, a customer will sign a contract with an installer/developer and pay for the solar energy system over a period of years or decades, rather than paying for the power produced. Solar leases can be structured so customers pay no up-front costs, some of the system cost, or purchase the system before the end of the lease term. Similar leasing structures are commonly used in many other industries, including automobiles and office equipment.
Market Adoption and Policy
Although an established method of financing in the economy, third-party financing in the solar industry is less than a decade old, but it is quickly becoming one of the most popular methods for consumers to realize the benefits of solar energy. Unfortunately, the PPA model faces regulatory and legislative challenges in some states where third-party developers would likely be regulated as electric utilities. In these states, some third-party developers are still able to offer solar leases.
Third-Party Financing Links
- Solar PV Project Financing. National Renewable Energy Laboratory (NREL) – this report from NREL on third-party financing PPA models identifies the challenges and alternatives to such a model
- States and PPA Financing. NREL – this article details how states can attract third-party PPA financing
- EnergySage Marketplace – pros and cons of leasing vs. buying solar panels