By Dana Blankenhorn | January 10, 2011
If you’re trying to install solar systems for a living, getting the customer to say yes is a struggle. Business models can help by lowering the financial hurdle the customer has to jump.
The two most popular models in the residential solar market this year will be solar leasing and Power Purchase Agreements (PPA), sometimes called Solar-as-a-Service.
REW.com editor, Stephen Lacey, provided a good history of them in November.
Last month I wrote about one leasing company, Sungevity. The business model is powerful, I wrote. The execution looked good to me as well. Their Web site is elegant and easy to use.
Sungevity is far from alone. SolarCity is in the same business, calling itself “America’s Number One Choice.” BrightGrid was profiled here in September by managing editor Jennifer Runyon. SunRun was profiled by Lacey in November. (It’s also available as a podcast.)
In a lease the solar company builds on your property and you rent it. The lessor gets the tax breaks, the depreciation, all that. You pay a monthly fee, collect what power is generated and the total of that bill plus what you still have to pay the power company should be lower than the power bill itself was.
Leasing is not the “right” way to get a car, or a corporate jet, or (over the long haul) a place to live. It usually makes the most sense for those who have short-term goals. It makes sense to rent if you know you’re going to turn over the property, if you don’t want the maintenance hassles, or if you want to replace a long-term asset in a short amount of time (as in the car example).
Still, leasing can put expensive, or complex, property into the hands of ordinary people. When it’s called rent to own, companies like Aaron’s, which is based in my own home town of Atlanta, make money hand-over-fist, getting furniture, appliances and computers into the hands of people with little cash and no credit. It’s bad business for the renter, but it works.
The other business model you’ll hear often is the Power Purchase Agreement.
This model was pioneered in the commercial space by companies like SunEdison, Solar Power Partners, and MMA Renewable Ventures, now owned by Fotowatio of Spain, over the last decade. In fact, just today, Fotowatio annnounced that it signed 120 MW of solar PV PPAs with the California utility Southern California Edison. SCE also signed some PPAs with SunPower, bringing this latest procurement round to 800 MW.
Many companies that began in solar leasing are now offering this model to consumers. In a PPA, you agree to buy the output from the solar system installed by the lessor. Instead of your leasing a system, they’re leasing your roof. This removes a lot of pain points – tax credits, depreciation, Renewable Energy Certificates, net metering, etc. – not to mention installation and maintenance.
SunRun, which offers both models, calls this is a distinction without a difference, just a question of what states are allowing.
I disagree. A PPA acknowledges in advance the value of your solar power. A lease agreement only implies it. A PPA sees the residual value of an installation that has been in place for years. A leasing agreement leaves that open to later negotiation. A PPA also lets the customer participate in the rising value of solar power, compared with utility rates. That’s why commercial customers have long preferred PPAs, and it’s a good sign for the industry that they’re advancing down-market.
A third financing model is also coming on-stream. SunRun calls it Total Solar but I like to think of it as a solar mortgage.
Essentially, you pre-pay for your solar electricity, which pays off half the cost of your system. There is no monthly bill, you collect the government incentives. It’s a combination mortgage and PPA. You’re financing most of the construction. Instead of SunRun’s banker being the money, you’re the money.
These are all models that can work, depending on the size of a roof, its location, and local government conditions, so if you prefer working in an office to working on a roof, becoming a solar banker like Clean Power Finance may be the job for you.