THE EVOLUTION OF SOLAR LEASING
The concept of solar leasing has brought in a significant revolution in the residential solar consumer patterns in the United States. The solar lease financial framework has made fundamental transformations in the business opportunities of several integration companies that aim at catering to the enormous demand for solar solutions for both residential as well as commercial purposes.
THE HISTORY OF SOLAR LEASING
The introduction of the concept of the residential solar lease may be attributed to two young business graduates of the Stanford University, who worked together to build a financial start-up named Sunrun. These graduates were Ed Fenster and Lynn Jurich and they visualized that the major obstacle to the growth of the solar lease model was the initial investment required for their business. Their premise was simple and involved PV system purchases through investor funding and tax equity. These systems were then leased out to the residential homeowners at negligible upfront costs. As per this framework, the lease provider was obliged to bear the depreciation, tax credits, and rebates, while the homeowner enjoyed the benefits of a solar at minimum costs. Over a lease term of 20 years, the lease provider is obliged to offer a comprehensive warranty and system monitoring for the solar panel to the homeowners. Typically, most of the lease providers offer a choice of two different payment plans for their customers.
The plan offers a 20-year lease term free of charge to the homeowners who make a large down payment, mostly around 65 percent of the system cost, prior to the term initiation. The plan ensures that the customer need not be worried about his/her tax liabilities throughout the 20 year period of lease. To cite an example, the prepaid plan is a great option for retired individuals who are willing to make a large one-time investment on a solar but do not qualify for the maximum advantage of 30% tax credit allowed by the Federal government. In addition to this, the homeowner enjoys the fruits of an extended warranty, system monitoring, and O&M over a 20-year period.
MONTHLY PAYMENT PLAN
The plan requires the homeowner to make zero down or a fairly negligible upfront payment, typically on the lines of $1000 to $4000 as the initial investment. The homeowner signs an agreement that requires him/her to purchase all of the electricity generated by the PV system for a 20-year lease term at a rate equivalent to or lower than the local rate of power. This approach provides the homeowner the facility of tapping the solar power for his/her personal use without having to bear the exorbitant costs of purchasing the whole system from the market. The plan further eliminates the hassle of making the 30 percent tax credit claims.
With the continuous transformation of residential lease solutions, the lease providers are coming up with highly developed and advanced models for their business. At present, the providers are using three different kinds of solar leasing models.
THE IN-HOUSE MODEL
As per the strategy of the in-house model, there is one single company which manages and operates throughout the various segments of the solar leasing chain. Right from initiating investment funds to bringing the lease contracts to the market and even performing the system installation, the firm does it all. The fact that in this model the lease provider has to bear the entire cost of the lease value chain itself implies that there is a requirement of an enormous initial investment for the business to become lucrative.
DEALER NETWORK MODEL
A majority of the solar lease providers operate on the dealer network model which requires the company to raise funds and develop tools which will aid the other small time integration firms in generating proposals. The dealers develop lease contracts which are funded and owned by the lease provider through an investment fund. In many of the cases, the dealers who are attributed with the sales segment do not provide installation services themselves. The lease provider company then hires subcontractors to carry out the final system installations at the customer’s residence. Some of the companies are going ahead with the residential leasing business by expanding their dealer network to roofing contractors as well. Many of the solar financing companies provide their authorized dealers with attractive offers.
OPEN SOURCE MODEL
According to the open source model, the lease companies concentrate only on specific segments of the value chain and outsource the remaining aspects to be fulfilled by others in the industry. There are various companies that raise their own funds, indulge in the sale of the solar lease to the homeowners through a creative virtual sales framework, and then hire a network of competitive subcontractors for providing the after sales facilities to the customers such as system installation and O&M services. The other firms offer the installation companies tools for proposing their lease financing, while the former raises the investment fund for the project.
Owing to the unprecedented growth and competition in the solar lease market, the open source model offers the lease providers with the leverage of selectively managing those segments of the value chain, which they are comfortable with. The core companies can be utilized for carrying out the tasks wherein the finance providers are inept. Given the fact that a high number of specialized firms that deal with O&M, installation, and system design are mushrooming all over the country, the open source model has an extremely promising future ahead.
The solar leasing industry can be rightly touted as one of the biggest transformations in the history of US market ever, since the introduction of high voltage string inverters back in the year 2001. With the growing demand for clean and renewable electricity, the solar industry is seeing an unprecedented high of all times. In order to deal with the enormous concern of a huge initial investment that inhibits the residential homeowners from embracing the technology, the solar finance solutions aim to provide the systems at a fraction of the actual costs.
The evolution of solar leasing has grown and changed over the years and continues to be a beneficial and cost-efficient way to add solar to your home. If you are interested in leasing solar for your home, or if you are interested in other financing options for solar power HES Solar can help. Take a look at all of our solar financing options.