June 30th, 2014 by Zachary Shahan
Solar leasing and solar power purchase agreements (PPAs)—in which homeowners don’t buy their solar power systems but simply the electricity that comes from them—have become extremely popular in the United States in recent years. The first such residential solar options were introduced in 2007, and they quickly grew and took over the majority of the residential solar market. They’ve risen to nearly 70% of the US residential solar market (as well as a good portion of the commercial solar market), and have reached higher percentages in the states where they are legal. You likely can’t name a residential solar provider that doesn’t offer solar leasing or PPAs (without looking at the following image).
The reason for the rise is pretty clear. Solar power can save homeowners and businesses a ton of money, but solar panels still cost a lot of money up front. Solar leasing companies, however, can offer you solar for $0 down or close to $0 down, and then you save more on your electricity bills than you pay in monthly solar leasing payments.
Why don’t people just get loans, you ask? Well, banks haven’t jumped in and given a lot of trust to solar technology, and the result has been loans for solar that are often worse than solar leasing. Plus, banks offering solar loans haven’t been out aggressively trying to pull in customers and sell them on $0 down pitches.
But with solar panel prices dropping through the floor in the past few years, solar power growth and word of mouth growing in leaps and bounds, and banks getting more and more used to solar power, things are again changing fast. A recent GTM Research report, U.S. Residential Solar Financing, 2014-2018, indicates that 2014 will be a peak year for solar leasing/PPAs in terms of residential solar market share.
According to GTM Research, the solar leasing/PPA market share was 42% in 2011, was 66% in 2013, and will peak at about 68% in 2014.
Attractive solar loan options have been growing a great deal in recent months, and there’s also a revival of PACE financing occurring.
PACE (Property Assessed Clean Energy) financing also lets homeowners and businesses avoid the high upfront cost of solar panels, but it may actually do so in the best way yet. It lets people pay for their solar systems over time via higher payments on their property taxes. The electricity savings should generally outweigh the extra payments, but in this case, the homeowners or businesses get to own their systems once paid off. Also, if you decide to sell your house, passing on this kind of agreement is likely much easier than passing on a solar lease, often one in which much of the financial benefit was provided in the early years.
The lower price of solar power systems also makes it easier for more people to go solar via a simple cash purchase, which offers the best return on investment (ROI).
All of that said, it’s important to note that, with a fast-growing solar market, third-party solar providers will probably still see absolute sales growth. It’s just that other solar options will grow faster.
(By the way, GTM Research predicts that the US residential solar market in 2014 will exceed 1 gigawatt of capacity additions for the first time.)
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