The Business Model of Leasing PV Solar Panels · 1 The Business Model of Leasing PV Solar Panels...

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The Business Model of Leasing PV Solar Panels

Aidan Gilbert March 10th, 2015

The Business Model of Leasing PV Solar Panels – A. Gilbert

© 2014 All Rights Reserved

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Background1 n The Solar Boom

¨ Growth in Capacity for U.S. n 2.3 GW in 2010 n 12.1 GW in February 2014 n Grown more than 5x in 4 years

Picture Courtesy of DOE1



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Drivers of the Solar BOOM

n  Drop in the cost of photovoltaics n  Governmental policy n  Rising energy prices n  Improving economy n  EMERGENCE OF LEASING COMPANIES



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The Growth of Leased Systems1

Picture Courtesy of DOE



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California Dominates U.S. Solar Market2

n  ~ 607,000 homes with PV systems in 2013

Picture Courtesy of SEIA



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Governmental Support for Solar3

Picture Courtesy of whitehouse.gov

DOE Forrestal Building Rooftop



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Federal Tax Drivers

n Federal Investment Tax Credit (ITC) ¨ PV owner can get 30% tax credit ¨ Expires at the end of 2016

n Modified Accelerated Cost Recovery System (MACRS) a.k.a. Depreciation ¨ Can depreciate over 5 years instead of

full lifetime ¨ Only applies to leased systems

Picture Courtesy of Climate Policy Initiative



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State Level Drivers

n California Solar Initiative (CSI) ¨ Gives estimated performance-based

incentives ¨ Designed to diminish over time



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CSI-backed PV Installations4

Picture Courtesy of EIA



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California Drivers for PV5

n Tiered electricity pricing ¨ The more energy

used, the higher the rate

¨ Many never exceed Tier 2

¨ High energy consumers have more incentive to install PV systems




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Drivers for PV

n Net Metering Programs ¨ Sell back excess electricity generated ¨ Runs the meter backwards ¨ Prevents higher tier usage



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Price and Value Converge5




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Still not enough to purchase these systems

¨ Upfront cost still too expensive for many ¨ Difficult to figure out full tax benefits ¨ Installation challenges

n Permitting n Interconnection



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Leasing - Homeowner

n Solar becomes a service for homeowners ¨ Little to no upfront cost ¨ Leasing co. handles installation &

maintenance ¨ Overall bill savings (10-20% typically) ¨ No tax benefits for homeowners

n Enables many to have PV systems n Not available nationwide



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Leasing – Third Party Owner

n The leasing company and its investors receive: ¨ Tax benefits ¨ Rebates ¨ Monthly lease payments



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How a Solar Lease Works5

16 Picture Courtesy of Climate Policy Initiative



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Target Homeowner n Has a good credit score n High energy consumer n Cannot afford upfront cost to purchase PV n Has no plans to relocate

¨ Typically 20 year lease



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Target Investor n Can provides lots of capital n Has high tax liability

¨ Tax Equity Investor ¨ Limited number invest in renewables

Result: n Receives tax credit n High ROI



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Lease vs. Purchase n  Service n  Short term gains n  No upfront cost n  Decreases home

value n  Don’t have to think

about it

n  Home Investment n  Long term gains n  Higher monthly

savings n  Improves home value n  Tax benefits

VS.



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Net Present Value of PV Systems5




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Leasing Company Roles n  Lead generation n Sales n Financing n Accounting n  Installation n Maintenance n  Legal



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Leasing Business Models n Fully-integrated

¨ e.g. SolarCity and Vivint n Partner model financiers

¨ e.g. SunPower n Semi-integrated installers

¨ e.g. Sungevity n Semi-integrated financiers

¨ e.g. Sunrun and NRG



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How Leasing Companies Fill their Roles6

23 Picture Courtesy of Greentechmedia



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High Fixed Costs n From legal, accounting and financing n To be profitable:

¨ Aggregate systems into funds ¨ Can spread out fixed cost over a wider net ¨ Requires quick, large-scale deployment ¨ Keeps lease payments low



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Challenges of Leased System n Decreased home value

¨ Homebuyers are turned off by leases ¨ SolarCity claims 95% of lease transfers occur

without any problems n Split Incentives in tenant buildings

¨ Tenants get the benefits ¨ Property owners get the burden

n Fast growth leads to mistakes



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Effect on the Grid

n Variations in voltage on distribution feeders ¨ Due to variability of generation

n  114-126V range required by ANSI n Voltage regulators are overworked

¨ Leads to shorter lifespans n New electronics are being explored



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Growth of Traditional Loans6

Picture Courtesy of Greentechmedia

•  Companies adding loans to their business model

•  Offer similar

service as leased systems

•  Customer owned

systems



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Conclusions

n  Leasing turns solar into a service, not investment ¨ Not without its challenges

n  Leasing has opened the door for small scale solar systems ¨ Aided by government policy, energy prices, etc.

n Future of leasing is unclear ¨ ITC expiring soon ¨ Shift to traditional loans has already begun



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Thank you!

n Any questions or comments? Bibliography 1. U.S. Department of Energy 2. Solar Energy Industries Association 3. whitehouse.gov 4. U.S. Energy Information Administration 5. Climate Policy Initiative 6. Greentechmedia.com

The Business Model of Leasing PV Solar Panels · 1 The Business Model of Leasing PV Solar Panels...

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