One limitation to the growth of solar is access to cost-effective project financing. A well-designed solar photovoltaic (PV) system can last for decades and provide a relatively low-risk return on an initial investment. However, the cost of money (i.e., financing rates) must be included in order to understand total project cost. A number of organizations and companies are working on innovative approaches to address solar financing and provide financing options. The following introduces some effective approaches and resources.
The Starting Point – Understand Incentives
Evaluating financing for solar electric systems should begin with a review of available incentives, which can greatly alter the economics of a PV system. Such incentives include federal, state, and local tax incentives; renewable energy incentives; and job creation incentives. The Database of State Incentives for Renewable Energy (DSIRE) provides a comprehensive understanding of such incentives for specific locations nationwide.
Residential PV Financing
Some banks will finance solar electric systems for residences, either specifically for solar or as part of energy efficiency financing programs. If a home is eligible for bank refinancing, it is worth investigating the opportunity to add the cost of a new solar home system into a refinancing package. This approach may help lower financing costs as well as including the interest payments in annual tax deductions. In “An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California,” Lawrence Berkeley National Laboratory details its research indicating that homes with PV systems have sold for a premium over similar homes without PV systems; on average, a $17,000 premium for a 3.1 kilowatt solar system. Such potential premiums should be included in financial calculations.
Third-party financing of solar systems – either leasing a system or through a power purchase agreement (PPA) – is increasingly popular. Such arrangements enable the use of residential roofs for hosting a solar system, with economics benefitting the homeowner. This type of financing has removed the barrier of large upfront costs to residential solar systems. Third party financing is discussed on Page 37 of “Solar Powering Your Community: A Guide for Local Governments,” a publication funded by the U.S. Department of Energy (DOE). The National Renewable Energy Laboratory’s (NREL’s) “Solar Leasing for Residential Photovoltaic Systems” provides additional information.
The city of Portland, Oregon, pioneered a model called Solarize Portland. Through this successful program, residents team up to make collective bulk solar purchases. Solarize Portland added 1.7 megawatts of new solar in 560 homes and drove down market prices by more than 30%. Communities across the United States are now replicating the program, which is detailed a DOE publication, ”The Solarize Guidebook: A community guide to collective purchasing of residential PV systems,” and a DOE video, “Purchasing Solar Collectively with Solarize.”
Companies offering third-party solar financing include SolarCity, SunRun, and SunGevity. Companies can also use Clean Power Finance as a third party financier. Solar system installers such as Namaste Solar can offer financing the same way a car dealer finances a vehicle purchase.
Community Solar Gardens and Community Purchasing Programs
Community Solar Garden (CSG) programs are helping provide solar to those who previously could not participate in solar ownership, such as renters, condominium owners subject to association rules, and homeowners who can’t or don’t want to install solar. CSGs allow multiple parties to obtain solar electricity from a remote location. Participants can buy part of the remote system, pay for electricity on a monthly basis, or a combination of both. This approach helps reduce the high capital cost to any one participant of owning a solar system. Two types of financing pertain to CSGs: the financing for the project itself, and subscriber financing, which can be equity or monthly billing based on energy production. Some CSG program examples include:
- Salt River Project in Arizona
- Xcel Energy in Colorado is the first investor-owned utility to make a CSG program available.
- Solar Shares, managed by the Sacramento (CA) Municipal Utility District, is a successful CSG program launched in 2008.
The DOE’s Guide to Community Solar: Utility, Private, and Non-profit Project Development outlines community solar models as well as related tax and public policies and incentives for a variety of project types. The guide was updated in 2012 to include project models, policies, and financing information.
Salt Lake Community Solar’s group purchasing model saved 64 households 40%, reducing the total installed price of solar PV from $5.90 per watt to $3.35-$3.50 per watt. The work is part of DOE’s Rooftop Solar Challenge.
Commercial PV Financing and Innovative Municipal Financing
There are many innovative business models including third party financing that can optimize the tax advantages available in financing commercial solar systems. One example is PPAs, which are often used to purchase power from commercial solar systems and return the incentives to the purchaser. A sample PPA is available from Tioga Energy (must accept disclaimer agreement).
A new commercial financing mechanism includes a public/private partnership for financing municipal solar energy projects. These partnerships include low-interest public bonds and traditional PPAs that still qualify for federal tax incentives. Morris County, NJ successfully spearheaded this model.
Solar 3.0 offers PV Installation Requirements and Codes workshops and webinars that include guidance about financing solar PV. Check the Events Calendar to see when the next training opportunities are coming up.
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In an effort to help standardize the paperwork and contracts associated with renewable energy projects, NREL’s finance team developed the Renewable Energy Finance Contracts Library. The site offers contract examples for interconnection as well as leases, power purchase agreements, and other procurement options.
Purchasing Power: Best Practices Guide to Collaborative Solar Procurement (World Resources Institute, Joint Venture/Silicon Valley Network, and Optony)
Property Assessed Clean Energy financing for residential solar energy systems has been proposed as an alternative to residential loans. California’s Sonoma County has enacted a county-wide program.
Third-Party Financing for Commercial Photovoltaic Systems: The Rise of the PPA (Lawrence Berkeley National Laboratory)
Financing Non-Residential Photovoltaic Projects (Lawrence Berkeley National Laboratory)