The US Energy Department's National Renewable Energy Laboratory (NREL) has published two new reports that explore the economic viability of owning or leasing a solar photovoltaic (PV) system in the United States. The reports examine PV systems in terms of the economic options available when making decisions on financing commercial or residential solar energy systems, and are timely, especially with the market for solar-specific loan financing on the increase, and new loan product announcements and programs being launched all the time.
Their main finding was that companies using low-cost financing to buy PV systems, and households taking out solar-specific loans, can achieve savings of up to 30% compared to leasing a PV system through a conventional third-party owner.
The first report, “Banking on Solar: An Analysis of Banking Opportunities in the US Distributed Photovoltaic Market”, presents a high-level overview of developing US solar loan products, and the consumer and commercial loan products available for financing solar. It looks at both existing and potential solar lending institutions, loan products, loan program structures and post-loan origination options, as well as reviewing the various risks of the solar asset class for lenders.
In addition, the report explains how solar loan financing arrangements differ from third-party ownership, especially for the retention of ownership rights by the system host, and associated incentives, as well as the market players operating in distributed solar loans, and how solar loans with a range of maturities compare against third-party financing.
“Using the lower cost rates provided by the loans could help to make solar power more affordable to more consumers, and more competitive with utility rates in more states.”Travis Lowder
The report demonstrates that the levelized cost of energy (LCOE) for residential systems with solar loans was less than for residential systems with power purchase agreements (PPAs) by as much as 29%, depending on the term of the loan. As co-author Travis Lowder said, “Using the lower cost rates provided by the loans could help to make solar power more affordable to more consumers, and more competitive with utility rates in more states.
The second report, “To Own or Lease Solar: Understanding Commercial Retailers’ Decisions to Use Alternative Financing Models”, investigates the trade-offs involved between financing methods for businesses installing onsite PV systems. It analyses the financial drivers when choosing a PV financing strategy and how they can vary depending on different assumptions based around case studies on two companies: IKEA, who self-finance their PV systems; and Staples, which leases its PV through PPAs.
IKEA’s method suits their corporate culture, as careful process management allows it to own long-term, high-quality assets, while Staples finds leasing its PV systems through PPAs benefits their risk–return preferences, with the expertise the third-party PV owner brings meaning they can deploy PV rapidly.
In terms of the financial considerations, the report concluded that the most suitable PV financing option can depend on the characteristics and circumstances of each business. As lead author David Feldman pointed out, “A company must work across its different business groups to decide what is most appropriate for its situation. With that said, if a company has less expensive sources of financing and is comfortable with the risks, it can often save on its energy bills by owning a PV system.”