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Weekly Trend: New Solar Financing Models Gain Traction

Peter Lougee

Energy Columnist, 1776

Over the past few years, the prevalence of solar energy has expanded greatly in the United States. This was due, in part, to the falling costs of solar panels and associated infrastructure, which spurred utilities to pay the upfront costs of installation and lease the equipment to customers. Now, however, the economy of the solar industry has changed again, allowing for new cost models to arise.

Greentech Media reports that the third-party financing model has reached its peak, and “as solar costs come down, customers want to own their own systems.” As a result a “growing number of lenders” are entering the U.S. solar energy market with loan products. Although Greentech Media remains skeptical of these lenders’ immediate abilities to supplant traditional leasing models, loan-finance solar panel ownership has gained enough traction that loan-based financing models were discussed as a viable alternative as early as September 2014.

So how does this new model work? Jones Day writes that the “third-party-owned” model has developers fronting the initial money for equipment and installation while providing a low, fixed rate through a 20-year purchase agreement. This method allows customers to avoid the costs of outright purchasing solar panels and even defers the costs of installation to the duration of the loan.

In a competing model, USA Today reports that San Antonio-based and city-owned CPS Energy is planning to cut a deal with developers, who will “install and maintain” solar panels on residential and commercial roofs, and pay customers rent for those roofs. This way, CPS Energy says, consumers can participate in a solar initiative without paying anything at all, which would be a net positive for both the solar market and the green movement.

In parallel to the competing models of domestic solar panel ownership, Greentech Media also writes that the pay-as-you-go method is beginning to gain traction overseas. Indeed, with the ubiquity of mobile phones in developing economies, a decentralized and off-grid network of solar energy sources has sprung up in conjunction with the emerging mobile payment methods. This has allowed companies such as Off-Grid Electric to raise $16 million in venture capital to expand its project of solar lighting and energy in Tanzania. Leading the effort was U.S.-based SolarCity, indicating a possible expansion of not only their business model, but possible endorsement of alternative payment schemes as well.

In the end, a dominant pricing model for the solar energy market will assert itself. In the meantime, however, startups entering the market should study the moves of large players in the market such as SolarCity to see where the good bets lie, but always with an eye to the actions of larger municipal players such as San Antonio.

Peter Lougee

Energy Columnist, 1776

Peter is a Washington, D.C.-based freelance writer with a Master's Degree in Public Policy from American University. In addition to startups, Peter likes coffee, books and whiskey.