Sunny Money: How are People Paying for their Solar Systems?

David Feldman's picture

U.S. residential and commercial solar systems are increasingly purchased through creative financing structures, such as third-party power purchase agreements (PPAs), solar leases, and mortgage refinancing.  Determining what structures are being used (and how often) will help the industry promote the financing structures that are working. It will also help identify what priority barriers should be targeted to accelerate distributed solar deployment on a larger scale.  Additionally, understanding the different financing structures will help better quantify the costs of installing solar and help determine potential ways to lower the total cost.

Currently, solar photovoltaics (PV) can be economic in some parts of the country with state or local incentives or policies.  But the large upfront cash needed to purchase a system has dissuaded potentially interested parties.  Creative financing structures help get around this problem.  The types of structures vary by state and sector and can be as simple as wrapping the cost of a system into an existing mortgage or as complicated as having a third party own the system and sell the power to the host.  Unfortunately, because of the rapid growth of the solar sector and the relative newness of the industry, there is not robust data on what type of structures are being used and how often. 


California Solar Initiative Database

California, which holds a 61% market share as of 2009 [1], has a fairly detailed database for solar systems participating in its state incentive program, the California Solar Initiative (CSI) [2].  As of February 24, 2011, CSI had received just under 45,000 applications and recorded over 475 MW of solar PV since 2007 (utility-scale projects do not participate in the program) [2].  The database includes many fields including: system owner, installer, panel manufacturer, and whether the system is third-party owned.

The California dataset suggests that third-party financing is on the rise for residential and small commercial systems (less than 10 kW) and on the decline for larger systems (greater than 10 kW) (see Figure 1). 

In Figure 1 we see total PV installed in California under the CSI program and the percentage that were owned by a third party, on a per-year basis (2007–2011). The figure is divided into systems greater than 10 kW and less than 10 kW.  The total megawatts of systems less than 10 kW has increased each year and the percentage of third-party ownership has increased the past three years in contrast to systems larger than 10 kW, which has decreased by total megawatts in 2009–2010 and by the percentage of third-party ownership the past four years. Source: CSI Database.

Figure 1. PV installations in CSI database (total installations and percent third-party ownership) [2].

Unfortunately there are three problems with using this data to make an informed decision.  First, the rate of use of third-party financing structures in California may not reflect the rate of use in other parts of the country.  Although California is the largest market in the United States, using its data to make judgments about the industry as a whole may skew actual trends.

Second, a number of analysts in the solar industry have noticed discrepancies in the data suggesting that some of the records are incorrect.  An example of this is a record reporting the sector of the owner as “residential” when the record also indicates that it is third-party owned.  An analyst from CSI reported that they are looking into this and estimates that the percent of third-party owners may be off by about 5% to 10%.

Last, although it is very helpful to know if a system is third-party owned, if it is not, there is no information on how the system is being financed.  For example, in Figure 1, the graph of systems larger than 10 kW, is there a different financing structure that owners are using instead of third-party financing to mitigate the initial cost of installation, or are more owners simply deciding to use cash?


Solar Electric Power Association Survey

The Solar Electric Power Association (SEPA) conducted a survey [3] to gather information on how systems are paid for.  Six-hundred participants in a residential utility or state solar incentive program, from six different states, answered detailed questions relating to themselves and their solar installations.  One question was: “payment method after incentive.”  The results in Figure 2 show that although cash is the primary source of funds, a homeowner has several other options when purchasing a solar system:

Pie chart showing the responses to the SEPA question: Payment method after incentive.  Participants answered “cash” 67% of the time, followed by “home equity loan” at 21%, “home mortgage refinancing” at 8%, and “signature loan” at 2%.  Source: SEPA Survey.

Figure 2. Payment method after incentive, SEPA survey.

Unfortunately there are several problems with this data.  The surveys were performed in 2007–2008 when conditions in the solar and financial market were much different.  Because of the housing crisis, home equity loans are not nearly as available as they once were.  In addition, third-party leases and PPAs were just being introduced into the residential market, so they do not even appear in the survey results.  Also, because of the introduction of new incentives and laws in various states, several large markets exist now that did not in 2007.  For example, New Jersey, currently the second largest solar market in the United States, was not surveyed.  Last, this survey only covers the residential market.  There are other financing methods in different sectors that also need to be identified and explored.



From the SEPA survey and the CSI data, it appears that there are several methods of deferring the costs of solar to better align with its lifetime.  Third-party ownership appears to be involved in a large part of solar systems, growing rapidly for systems less than 10 kW.  Loans, particularly ones tied to an existing asset (like a person’s home), have also been used to help pay for the upfront cost.  However, much of the data we have is currently dated or narrow in scope.  There is a need to gather current data so that we can better understand how solar has been and has the potential to be financed, allowing the public and private sector to better support these structures and make them easier and cheaper in the future.    


More Information

[1] IREC 2010. U.S. Solar Market Trends 2009.

[2] California Solar Statistics. State Government Webpage.

[3] Solar Energy Power Association. Photovoltaic Incentive Programs: A Survey of Residential Participants.

mikecoder's picture

It's obvious how popular

It's obvious how popular solar panels have become in this era. The hike in cost of utility is driving everyone high and Americans are switching over to solar systems. The only downside I see to this is that it involves huge capital inlay to get the system up and running. Not a lot of Americans can afford this. It's safe and because it's green, our environment is secured for real. The govt should put eye into this source of renewable energy in order to make it affordable. Thank you.

The leading residential solar

The leading residential solar companies (Sungevity, SunRun, and Solar City) all offer solar leases and this accounts for the vast majority of their business. If a company like Sungevity offers to put solar on your roof for zero down and then you make monthly payments that are the same or less than what you used to pay for electricity, the decision to go solar becomes, to use an obnoxious expression, a no-brainer.