the business model of leasing pv solar...
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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
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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The Growth of Leased Systems1
Picture Courtesy of DOE
The Business Model of Leasing PV Solar Panels – A. Gilbert
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California Dominates U.S. Solar Market2
n ~ 607,000 homes with PV systems in 2013
Picture Courtesy of SEIA
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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Governmental Support for Solar3
Picture Courtesy of whitehouse.gov
DOE Forrestal Building Rooftop
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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State Level Drivers
n California Solar Initiative (CSI) ¨ Gives estimated performance-based
incentives ¨ Designed to diminish over time
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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CSI-backed PV Installations4
Picture Courtesy of EIA
The Business Model of Leasing PV Solar Panels – A. Gilbert
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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
Picture Courtesy of Climate Policy Initiative
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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Drivers for PV
n Net Metering Programs ¨ Sell back excess electricity generated ¨ Runs the meter backwards ¨ Prevents higher tier usage
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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Price and Value Converge5
Picture Courtesy of Climate Policy Initiative
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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Leasing – Third Party Owner
n The leasing company and its investors receive: ¨ Tax benefits ¨ Rebates ¨ Monthly lease payments
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
How a Solar Lease Works5
16 Picture Courtesy of Climate Policy Initiative
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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.
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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Net Present Value of PV Systems5
Picture Courtesy of Climate Policy Initiative
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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Leasing Company Roles n Lead generation n Sales n Financing n Accounting n Installation n Maintenance n Legal
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
How Leasing Companies Fill their Roles6
23 Picture Courtesy of Greentechmedia
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
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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
The Business Model of Leasing PV Solar Panels – A. Gilbert
© 2014 All Rights Reserved
ENER 553
29
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