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Can You Use The Investment Tax Credit (ITC) For Battery Storage?

Posted by Sunny Wang on Oct 20, 2020 10:43:11 AM

The Federal Investment Tax Credit (ITC) is arguably the most significant financial incentive for installing solar in the U.S. today. This tax credit has also helped the industry grow by more than 10,000% since it was implemented less than 15 years ago.

This year the ITC is 26% and, unless Congress extends it, it will sunset at the end of 2021 for residential solar. If you’re wondering if the ITC savings also applies to home solar battery storage, this article will walk you through everything you need to know.

Is Battery Storage Eligible for the ITC?

The ITC allows homeowners who buy and own their new solar PV system, and place it in service before December 31, 2020 to recoup up to 26% of the total cost of their solar installation through a deduction in their federal taxes (tax liability).

If a homeowner installs both a solar PV and a battery storage system, would the ITC savings extend to storage? Yes! With one very important caveat: the energy used to charge the battery storage system must come 100% from solar, and not at all from the grid.

Although energy storage devices were not written into the ITC and batteries themselves are not “solar energy properties” (equipment that generates electricity from the sun), the Internal Revenue Service (IRS) has interpreted the tax code in the past to include residential solar storage if it is charged exclusively from solar.

Note: Tax codes are complicated! We at Aurora Solar are solar experts, not tax experts. Please consult a tax professional for your specific situation.

What About Adding Storage to an Existing PV System?

If a homeowner wants to add storage to their existing PV system, it may still qualify for the ITC! In a 2018 private ruling, the IRS clarified that the ITC can still be applied to a battery storage system if it is added within a year of the qualified solar installation.

Important Things to Keep in Mind

  1. Technically private rulings only apply to that specific case addressed by the IRS, but because the IRS has ruled on multiple occasions that solar energy storage (when met by certain conditions) are eligible for the ITC, it’s widely accepted that storage is eligible.
  2. Energy storage systems without a qualified renewable energy source are not eligible for the ITC.
  3. There may be other financial incentives available for solar storage. State and/or local energy providers may also offer storage incentives. If they do, you can couple that with the ITC for additional savings.
  4. Unless Congress renews the ITC, 2021 is the last year residential solar and storage are eligible for this incentive.

Additional Resources

We’ve written about the ITC extensively in the past; most recently in an article about solar incentives in California and how the ITC step down will work for residential and commercial solar projects. If you want to dig even deeper, we have a beginners guide to financial incentives for installing solar and a 5-part article series on solar finance 101.

If you’re looking for resources to brush up on your solar and storage sales, check out our solar sales articles. Here are a few we’d recommend starting with:



Topics: Solar Finance

How to Pay for Commercial Solar: A Financing Guide for Contractors

Posted by Gwen Brown on Sep 20, 2019 2:47:03 PM

Financing options for solar projects can be complicated, and that is particularly true for commercial and industrial (C&I) solar projects. Yet understanding the available financing tools is essential for solar contractors operating in this space. After all, determining how to pay for a solar project of this size is a critical first step to getting the project off the ground.

In this article, Part 4 of our Unlocking Commercial Solar series, we provide an introduction to some of the common commercial solar financing options—including considerations for determining which may make sense in different instances. While the complexity of these financing mechanisms means that a deep exploration of each is beyond the scope of this article, we’ll get you familiar with the basics and include links to other sources where you can learn more.

(Looking for a more introductory overview of solar finance for both residential and commercial projects? Check out our  Solar Finance Primer!)

We spoke with practitioners in the field to get real-world perspectives on these commercial solar financing mechanisms and what you should know about them. We talked with Dan Holloway, VP Origination & Acquisitions at Sustainable Capital Finance, a financier that provides commercial solar PPAs, and Conrad Chase, CEO of Point Load Power, an emerging cleantech company whose flagship technology, PV Booster rooftop solar trackers, is tailored to commercial and industrial building owners.

Holloway is responsible for building and managing relationships with all of SCF’s Developer and EPC Partners. He previously worked at Cobalt Power, a large EPC in Mountain View, California, where he was involved in the origination, development, construction and financing of over 200 solar projects. Chase as well has worked with many commercial clients to help them navigate the commercial solar financing process.

Aurora Solar supports both residential and commercial solar design and sales.  Learn more in a free demo.


In the commercial solar sector, there are a variety of different ways that a project can be financed, but some of the most common are: solar power purchase agreements (PPAs), solar leases, energy services agreements, tax equity financing structures such as sale leasebacks and partnership flips, and cash or loan purchases of the system. Let’s take a closer look at each.

We’ll start off with PPAs and leases, two of the most prevalent options for financing C&I solar projects. As we explain in our primer on solar financing options, under both PPAs and leases, the PV system is owned by a third-party financier—rather than the solar developer or the customer who will use the power it produces.

The third-party owner will receive any tax incentives from the system, such as the 30% Federal Investment Tax Credit (ITC) and depreciation. They can pass those savings on to the customer in the rates they offer, making this a preferred option for customers with low or no tax liability (i.e. taxes owed)—such as nonprofits. However, in both leases and PPAs, the commercial customer may be given the option to buy the PV system at certain points during or at the end of the contract.

PPAs

Under the terms of a PPA, the solar customer agrees to purchase the power the solar energy that is produced by the PV system from the system owner at a certain price over a set number of years. The term length of a PPA typically ranges from 10 to 25 years.

A solar power purchase agreement or PPA has historically been one of the dominant ways that commercial solar projects are financed. Holloway notes that, in the commercial and industrial sector, PPAs are “still the primary funding source that I'm aware of.”

And as noted above, the ability for customers without high tax bills to indirectly benefit from another entity taking tax incentives on their behalf is also a big contributor to the popularity of PPAs. “Nonprofits, and other organizations that do not have the ability to take advantage of the Investment Tax Credit—think schools, municipalities, churches, and charities like Boys and Girls Clubs—is in a position where there's no other way that they can take advantage of the ITC; they need someone to do that on their behalf. And [one of] the only financing vehicle[s] they can use to do that would be a PPA.”

PPAs are popular for other reasons as well. One is that they can be structured so that there is no upfront payment (no money down) required from the customer. Additionally, the long-term nature of some PPAs (e.g. 25 years) can allow for lower payments.

PPAs may also be structured with an escalator—meaning that the price the customer pays for the energy they purchase will increase at a certain rate over time. For customers looking to maximize their savings at the outset, escalators provide a mechanism for lower costs at the start of the contract.

PPA Considerations

If there is an escalator in the agreement, customers should look closely to see how the rate of increase compares to historic rate increases from their utility. While no one can read the future and know exactly how a utility’s rates will increase, it’s important that the escalator is based on reasonable assumptions of future utility rate increases. This minimizes the risk that the customer someday ends up paying more for solar energy than they would have buying power from the grid.

Aurora has partnered with Sustainable Capital Finance to make it easier than  ever to apply for commercial PPA financing!Learn more here.

(You can also learn more about our partnership with SCF in this blog post.)

Leases

Leases are another common way of financing commercial solar properties, and they share a number of similarities with PPAs. As with PPAs, the PV system is owned by a third-party financier and the deal can be structured so that there is no upfront payment.

However, instead of purchasing the actual power produced by the system at a per-kWh price as would be the case in a PPA, under a lease the customer pays a fixed rate over a set number of years. While this fixed rate is based on the estimated production of the system and it’s assumed value, the cost that the customer pays is not directly tied to system production.

Whereas under a PPA, the customer’s solar bill will fluctuate seasonally with lower charges when the system produces less, a customer will a solar lease knows that their payments will always be the same. On the one hand, this provides consistency and the ability to plan costs; on the other, if production is lower than anticipated for reasons other than a problem with the system—for instance, during an unusually rainy year—the customers bill will not be proportionally reduced.

Similarly, due to the fixed nature of lease payments, leases do not include escalators as many PPAs do.

Types of Leases: Operating vs. Capital Leases

There are two types of solar leases, with different accounting implications for companies: capital leases and operating leases. While an exploration of the full accounting implications of operating versus capital leases is beyond the scope of this article, a primary difference between the two is that operating leases are not held on the balance sheet of the company, while capital leases are.

As Holloway explains, “Most companies primarily use operating leases in the [C&I solar] space, as capital leases end up on your balance sheet. Most companies prefer to keep as much of their financing off balance sheet as possible for the simple reason that it decreases the amount that they can borrow.”

In essence, an operating lease acts more like renting equipment, whereas a capital lease acts more like a loan and includes some of the benefits and risks of ownership.

Lease Term Length

The length of a solar lease can vary widely, from as few as seven years to as many as 25. However, commercial solar leases are often shorter than commercial solar PPAs. “While it's possible to offer longer term Operating Leases, this is not currently the industry norm,” says Holloway. “In my experience, the vast majority of operating leases still fall into the 7-10 year term length category.”

The length of the lease will impact how much the customer pays. As Holloway explains, “If you only have seven or 10 years to amortize those payments, those payments are going to be considerably higher” than a longer-term agreement.

Energy Service Agreements

Another type of commercial solar financing that is similar to an operating lease is an Energy Service Agreement. As the American Council for an Energy Efficient Economy explains, “Under an ESA, a service provider delivers energy-saving services using equipment it owns and operates.” Like an operating lease, this is a type of off-balance sheet financing, making it popular with businesses.

While legally distinct from leases, in practice, ESAs are similar to operating leases in that the customer pays a fixed rate for the “service” of solar energy (though ESAs can also be used to finance a variety of other building energy upgrades). In many cases, the ESA provider guarantees a certain level of energy savings.

Chase explains that many companies—especially ones with multiple sites or portfolios of properties—“often use energy service agreements as a no-risk way to finance a number of energy improvements, and essentially receive a guarantee of savings.”

Tax Equity Project Financing: Sale Leasebacks and Partnership Flips

As you can probably tell from our coverage of leases and PPAs above, the “tax equity” of a solar project—or the ability to reduce taxes owed by taking advantage of certain policy incentives like the ITC—is a valuable commodity for entities with high enough tax bills to make use of it.

While tax equity is important in many types of solar financing like PPAs and leases, there are other types of financing agreements that have been developed specifically for the purpose of allowing certain groups with high tax bills (tax equity investors) to utilize the tax equity of a project in exchange for investment.

These tax equity deals are a special category of solar project finance. They include partnership flips and sale leasebacks, among other structures. While these arrangements are too complex to cover fully in this article, we’ll provide a brief introduction to them and the basics of how they work.

Partnership Flips

In a partnership flip, a deal is structured so that the tax equity investor receives the majority (e.g. 99%) of income allocation of the project for a certain duration of time—specifically until the ITC recapture period has elapsed.. Following that point, the contract specifies that their allocation “flips” such that they can be bought out, or stay in the partnership while being allocated a minority (e.g. 1%) of the project’s income & cash allocations, with the majority then being allocated to the project sponsor.

As Holloway explains, “The tax equity partner’s goal is to monetize virtually all of the tax benefits. Their goal is not to own the asset for the long term... [just to] be a partner in the deal until the benefits of the tax equity—the ITC, depreciation, etc.—have been monetized.”

“At that point the tax equity partner “flips” out of the deal; they go from being [for example] a 99% income allocation partner to 1%. Then the sponsor has a 99% allocation, and they are in it for the long haul.”

A partnership flip is one of the most common forms of tax equity financing in solar.

See how Aurora helps solar companies grow revenue, cut costs, and impress their  customers!

Sale Leasebacks

In a sale leaseback, the tax equity investor purchases the PV system from the project sponsor. They then lease the system back to the project sponsor who retains the right to use and operate the system and receive revenue through its operation. The sponsor has the option to purchase the system at some point.

Transaction Costs Impact the Use of These Financing Options

Solar project finance deals like these bring together several parties with different interests and goals in a project. Negotiating legal terms that are acceptable to all can be costly. As Chase explains, “because there are so many parties involved, there are high transaction costs to securing this type of finance.”

These high costs typically mean that such deals only make sense for large projects above a certain value. In addition to the large commercial sector, these types of finance structures are well established in utility scale; however, they are impractical for many smaller commercial projects.

Debt Financing (Loans)

In addition to the variety of financing options discussed above, in which ownership of the PV system is held by someone other than the user of the solar energy (at least for a period of time), a commercial solar customer can choose to purchase their PV system—outright (cash) or through a loan.

In these cases, the tax benefits go to the customer. Since cash deals are straightforward, we’ll restrict our discussion to loans. Solar loans are similar in many ways to other types of loans that you may be familiar with in your daily life.

Types of Debt Financing

There are multiple types of loans, including secured loans, which are “secured” by the lessee’s assets, and unsecured loans, which are not. For customers comfortable using their assets—like their real estate property—as collateral, secured loans can enable customers to get a better rate or to get a loan that they might not otherwise qualify for. To do that, the customer must own their building.

Additionally, another form of debt financing that has emerged in some areas is Property Assessed Clean Energy (PACE) financing. In PACE financing, the loan for the solar installation (or other property improvements, like energy efficiency upgrades) are repaid in the property taxes of the project site. PACE is only available in areas that have enabling legislation, but can be another good option of financing solar—particularly since in some cases the loan can be repaid over as many as 30 years.

Debt Financing Considerations

A key limitation when comes to solar loans is whether the project owner (commercial customer) has strong enough credit to get a rate that makes this option financially feasible—or to get a loan at all. For large companies this may be straightforward, but for others, especially small businesses, it can be a challenge.

Chase explains why asset-backed lending can be a good option for some customers. “Say your commercial solar customer is a building owner—a family business that's been around for 20 years and they don't have investment grade credit. They still may qualify for a loan, but they may have to have a very high interest rate. Ultimately, they may determine it's not worth it, depending on how much they're saving.”

“The benefit of PACE or a real estate loan is that their credit rating is not an issue because the loan is backed by the actual asset value of the property. That directly opens up project financing for solar and other energy upgrades to a whole group of customers that didn't have access before.”

Of course, whether this option is a fit depends on the goals of the commercial property owner. For instance, the lower borrowing rates of a real estate-backed loan may be appealing companies that plan to own the project site for the long-term—particularly if the solar project increases the value of their property. However, it would make less sense for a customer interested in selling their property.


As you can likely tell, commercial solar finance can be complex! In this article we’ve only scratched the surface of the details of each of these common solar financing methods: solar PPAs, solar leases, energy service agreements, tax equity financing structures including but not limited to sale leasebacks and partnership flips, and debt financing.

Depending on the role your solar company takes in C&I solar projects, you don’t need to be an expert in these kinds of solar financing mechanisms. However, it is important to understand the diverse financing options available and their implications. This will let you guide your commercial customer in understanding what options may be available to them and what questions they may want to ask.

Determining how to pay for the system is a critical first step to closing the sale, so the more you can do to help your commercial customer navigate this (sometimes daunting) process, the more likely you’ll be able win commercial solar business.

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Topics: Solar Finance, Commercial Solar, Unlocking Commercial Solar

Changing the Game of Commercial Solar Finance—A New Partnership

Posted by Gwen Brown on Jul 21, 2019 1:33:31 PM

Commercial solar can be a lucrative sector for solar companies, but access to financing can be a significant challenge. Obtaining the necessary capital can be particularly difficult for certain classes of customers and projects—like nonprofits and small projects below a certain kW size.

This barrier is one of the reasons that the commercial solar sector has been slow to take off; despite significantly larger projects, the installed capacity of commercial (C&I) solar is currently far less than residential PV in the U.S.

Aurora Solar’s new partnership with Sustainable Capital Finance aims to tackle this challenge and make commercial solar financing more accessible in the industry. Through this partnership, Aurora customers can view live PPA rates and apply for commercial solar PPA financing for projects over 100kW located in the U.S.—without leaving their Aurora solar sales and design platform.

Learn more and get access to Aurora's commercial solar financing tools!

There are several key benefits this offers to solar contractors:

1. Increased transparency about financing rates

One key benefit of Aurora and SCF’s Financing Integration is increased access to information on financing rates for solar contractors, through our Quick Quote functionality. Quick Quote allows you to view real, actionable solar PPA financing rates that SCF is offering for your project.

As you explore different financing options for your commercial project using Aurora’s financial analysis tools, you can add “PPA Finance by Sustainable Capital Finance” and a PPA rate will be instantly generated for your project.

This allows you to set clear expectations for your customers about what rates they may be able to access. This can be particularly helpful for customers who are concerned about the availability of financing options for them.

Additionally, because you’re presenting rates that you know are available to qualifying customers, there is a lower likelihood that the actual rate is significantly different than the assumptions you presented—thus reducing the likelihood that the sale falls through.

Quick Quote, one part of Aurora Solar’s partnership with Sustainable Capital Finance, makes it possible to immediately view real commercial solar PPA ratesQuick Quote, one part of Aurora Solar’s partnership with Sustainable Capital Finance, makes it possible to immediately view real commercial solar PPA rates that SCF is offering.

2. Improved access to capital—particularly for projects and customers that have a harder time accessing financing

Another key advantage of our financing integration with SCF is increased access to capital. Rather than searching for financing partners that serve projects like yours, you have one at your fingertips.

Further, solar PPA financing from SCF is notable in that it is accessible to customers and projects that have traditionally had a harder time accessing capital: nonprofits and small commercial projects.

Aurora solar gives companies the tools to design and sell commercial AND  residential solar projects more efficiently and accurately! See what our  customers are saying.

As Dan Holloway, VP Origination & Acquisitions at SCF explains, “most companies that offer PPA financing do not offer financing for projects smaller than 1 MW, and almost none that will go below 500 kW. Sustainable Capital (SCF) believes that this is a vast and very under-supported part of the overall solar PV market. We offer PPA financing for projects as small as 100 kW and happily support nonprofit organizations.”

At Aurora, our mission is to create a future of solar energy for all; increasing the accessibility of financing through this partnership directly supports that goal.

Aurora Solar users can now apply for commercial solar financing without leaving the software, making solar PPA financing faster.Aurora users can now submit an application for commercial solar financing from SCF without leaving the Aurora software. All of your relevant project information will be automatically transferred to SCF for review, saving you time and effort.

3. Access capital faster to close more sales

An additional significant benefit resulting from this financing integration is the ability to reduce the time it takes to finance your commercial solar project. Not only can you see live commercial solar PPA rates with Quick Quote, as an Aurora customer you can directly apply for solar PPA financing without interrupting your solar design and sales workflow.

Instead of spending time rounding up the documentation and production data needed for a financing application, you can automatically transfer all of your design information from Aurora to SCF.

This Aurora information also helps allow SCF to efficiently process financing applications because they can be confident in the energy production data and other solar design information you are submitting. Aurora’s remote shade analysis has been validated by the National Renewable Energy Laboratory (NREL) as statistically equivalent to onsite shade measurements and our shade reports are accepted as bankable by financing and rebate authorities across the U.S.—including NYSERDA, CT Green Bank, and the Energy Trust of Oregon.

As a result of software tools like this, SCF is able to price and underwrite projects in hours instead of days, allowing you to respond faster to your leads. Faster turnaround time has significant sales benefits—allowing you to respond to inquiries while the lead is hot or apply to RFPs more quickly and accurately.


Whether you’re new to commercial solar or have hundreds of commercial projects under your belt, it is our hope that this new partnership, and the resulting commercial solar financing options, give you additional resources to close more sales.

We’re particularly excited that this partnership makes solar PPA financing accessible to smaller projects and customers like nonprofits that have historically had a harder time getting financing.

At a macro level, this new partnership aims to make commercial solar PPA financing more accessible and more transparent. (That’s something solar finance expert David Arfin highlighted as a key opportunity when we interviewed him in 2017!) This is an important step to advancing the growth of the commercial solar market.

Though commercial solar has grown more slowly than the residential or utility-scale sectors, it’s a market with great potential. In fact, NREL has estimated that commercial solar on offices, hotels, and warehouses has the potential to reach 104 GW in the U.S. if current barriers are addressed! We consider this partnership one way of chipping away at those barriers to help commercial solar grow.

Learn more and get access to Aurora's commercial solar financing tools!

Topics: Solar Finance, Commercial Solar

Sunnova CEO John Berger on Solar Finance, Tips for Success, and More

Posted by Gwen Brown on Nov 15, 2018 6:49:07 PM

Sunnova Energy Corporation is one of the leading residential solar and storage service providers in the U.S. The company offers a broad portfolio of solar and solar plus storage offerings, including multiple PPA, lease, and loan financing options designed to help solar customers find the choice that works best for them. Sunnova pairs these product offerings with long-term service and maintenance agreements–which they see as fundamental to ensuring long-term customer satisfaction.

Sunnova operates in 18 states around the country, as well as several U.S. territories including Puerto Rico, Guam, and Saipan, and utilizes a dealer model, working with a select number of qualified regional partners that have first-hand knowledge of local markets.

We recently had the opportunity to talk with Sunnova Founder and CEO William J. (John) Berger to learn from his two-plus decades of experience in the energy industry. Prior to Sunnova, Berger was Founder and CEO SunCap Financial, a residential solar system lease provider. He also founded Standard Renewable Energy (SRE), a top-10 provider of renewable energy and energy-efficient products and services.

In our interview, Berger offered insights into what solar financing options work best for customers and some of the trends he expects to see in solar finance, what Sunnova looks for in its installation partners, and tips for success in the solar industry. We’re excited to share those perspectives with you today. 

John Berger candid 1-sm-1

Based on your many years of experience in solar finance and Sunnova’s wide area of operations, do you notice any trends in what types of solar financing options are most appealing to customers in different contexts?

John Berger: Yes, I do, and I think the industry is going to see some movement on the financing side in the market as it reverts back to better reflect the balance of what financing options are best for each customer.

What we have seen and continue to see is that lease and PPA options are the most viable for most consumers–somewhere between 70 and 80% of the population. We see the proportion of customers with leases and PPAs trending back up and think the market will balance itself back out to a 70-30, maybe 80-20, split between customers with leases or PPAs and customers with loans.

To be clear, Sunnova is neutral about sales of loans, leases, and PPAs. It doesn’t matter to us what people choose; we're indifferent to that. But in terms of where I expect the customer base to balance out, that's my best estimate at this time–which points to roughly a 20% or more pick up in lease and PPA sales over the next few years.

Sunnova is unique in its model of working with a network of regional installation and maintenance partners that have firsthand knowledge of local markets. When Sunnova evaluates potential partners, what qualities and processes do you look for?

John Berger: That's a great question. I would say that what we're looking for above all else in our partners is honesty. They must understand the rules, in terms of consumer protection laws and the various geographic rules, and abide by them. I expect members of my company and our dealers and partners to adhere to the highest ethical standards, not just meeting the letter of the law but meeting the spirit of the law.

The second thing we're looking for is someone who can run a business. For example, partial payment for jobs in progress is not profit–don't spend it! We see that mistake over and over again.

Third, we also avoid partnering with companies that are trying to grow too fast. The telltale sign is somebody is who's trying to do a multi-state expansion without proper equity capital–which is usually far more than they think they need–all within the same year or two.

It's really problematic, and frankly, I have yet to see it really work. And I built a multi-state contracting business and sold it, so I understand the difficulties of doing that. The problem is you're trying to scale something, in terms of people, that's not scalable.

The most successful dealers that we have are methodical about their growth. Some years that growth is bigger than others, but they're methodical. This is a business where you're going to have to do a lot of hard work and build over a period of time. You're going to have to earn your reputation with customers, with communities. Nobody's perfect, and we’re no exception, but over a period of time you can be successful. It will not be overnight success.

“Get rich quick," has got to get out of people's heads. That's something that we've seen repeatedly in every market. We frown upon that quite a lot because we've seen the outcome and it's not good for the customer, for us, or for them. And, overall, it's not good for the industry.

Those are the top three things that we're looking for from partners: honesty, being able to run a business, and understanding that growth is something that occurs over years–not months. Beyond that, competency to install and sell solar is a given.

What's one piece of advice that you would give to every solar contractor?

John Berger: I think it goes back a lot of what we look for in those contractors. I would say that if you can run a good business, if you're an honest person, the thing that I would recommend is don't go out there with a "go big or go home" mentality. That's not the way it works, it ends in ruin.

I've seen heartache, heartbreak, partner bankruptcies over and over again for people that chase the flavor of the month, whether it’s a service provider they're teaming up with, a financing relationship, or something else. Nine times out of ten that ends in tears. Don't do it.

Focus on running the business, keeping your costs low, satisfying your customers, and pick long-term partners. Don't jump around all over the place; when you jump around, you can't meet your long-term customer relationship obligations.

So I would end with that, maybe that’s the bullet statement: think long-term. If you can do that you'll be successful.

 

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Please note that the views expressed in our Solar Spotlight interviews are those of the interviewee, and do not necessarily reflect the views of Aurora Solar.

Topics: Solar Spotlight, Solar Finance, Solar Business Tips

The Green Bank Programs Making Solar Financing More Accessible, Part 2

Posted by Gwen Brown on Jan 17, 2018 11:55:25 AM

The high upfront cost of solar PV systems has remained a major barrier to the growth of the solar industry. This is due in large part to the fact that it is difficult for customers to access loans and other financing for solar installations, compared to other big purchases like a car or house. However, green banks—a new type of financing institution created by governments to increase private sector investment in clean energy—are beginning to change this. In this two-part series, we explore green bank programs around the U.S.

We spoke to officials at green banks around the country to understand the programs local solar installers should know about. In Part 1 of this series, we explored east coast green banks, which currently include banks in Connecticut, New York, and Rhode Island. In this article, we delve into the programs of green banks on the west coast and in Hawaii, and examine recent indications that the green bank model is gaining traction and may be coming to other states soon.

Interested in a particular green bank? Choose a state to jump ahead to its green bank programs: Connecticut, New York, Rhode Island, California, Hawaii

Speaking about the role of green banks in making solar financing more accessible, Gwen Yamamoto Lau, Executive Director of the Hawaii Green Infrastructure Authority (the green bank of Hawaii), likened them to another type of institution: “About 27 years ago, community development financial institutions (CDFIs) were formed all over the United States to finance low-income housing tax credit projects, because at that time banks considered these projects too risky. CDFIs were formed to mitigate risks for commercial lenders. Today, banks are very comfortable lending to these projects and CDFIs can help incubate other near-bankable projects. Green banks can play a similar role in helping clean energy projects get to a point where conventional lenders are comfortable supporting them.”

California Lending for Energy and Environmental Needs (CLEEN) Center

Like Rhode Island, California operates a green bank as division of the state’s infrastructure bank (“IBank”). The California Lending for Energy and Environmental Needs (CLEEN) Center  provides financing for municipalities, universities, schools, and hospitals (“MUSH” borrowers) as part of the state’s efforts to reduce its climate impacts.

IBank explains that “In 2014, IBank Executive Director Teviea Barnes successfully launched IBank’s CLEEN Center, to help meet the State’s goals for greenhouse gas reduction by offering practical and sustainable financing solutions for public clean energy projects.” 

Of relevance to solar contractors is the Statewide Energy Efficiency Program (SWEEP), which provides loans for solar projects (as well as many other projects including energy and water conservation efforts). In the last year, IBank approved nearly $4 million in direct loans under the CLEEN Center.  Among these was a $2,870,000 loan to the Monterey County Housing Authority for rooftop and carport solar installations, as well as energy efficiency and HVAC upgrades.

Get Involved

California solar contractors who work on commercial and industrial scale solar may want to highlight this potential funding source when talking to MUSH customers. The CLEEN Center does not maintain a registry of approved contractors for SWEEP projects; however, technical assistance is available for solar and other contractors who are interested in providing services under the SWEEP program.

The California Lending for Energy and Environmental Needs (CLEEN) Center is a green bank housed within the California Infrastructure Bank (IBank). It offers loans for solar projects.

Hawaii Green Infrastructure Authority

Hawaii’s green bank, the Hawaii Green Infrastructure Authority (HGIA), focuses specifically on solar PV. Hawaii has the highest electricity prices in the nation and a state commitment to reach 100% renewable energy by 2045 , so HGIA’s mandate includes supporting the growth of solar energy and making it more accessible to underserved communities who can most benefit from energy savings. HGIA pursues these goals through a solar loan program (Green Energy Market Securitization, or GEMS), which facilitated $30 million of solar projects in Hawaii over the last year.

Green Energy Market Securitization (GEMS) Program

HGIA’s Green Energy Market Securitization (GEMS) Program offers both residential solar loans  and commercial solar loans , which serve small businesses, nonprofits, and multifamily rental projects. GEMS loans have a number of unique features to make them more accessible—especially to lower-income customers. First, the bank offers up to 20-year loans at a fixed interest rate. This is much longer than loans offered by most banks, allowing for lower monthly payments. Further, the bank has no pre-payment penalty and will consider customers with credit scores as low as 600 (traditional banks typically require at least a 640).

Additionally, while most banks consider a customer’s debt-to-income ratio when determining whether to approve a customer’s loan, HGIA does not. Instead, HGIA requires that projects result in a 20% savings for the customer (post-solar utility bills + loan payments must be 20% less than the customer’s pre-solar utility bills). This provides a good assurance that loans will be repaid, while making it possible to approve more customers.  

GEMS residential solar loans are directly financed by HGIA, while GEMS commercial loans are offered in partnership with conventional banks. For these commercial loans, HGIA co-lends alongside the customer’s bank of choice and its loan is subordinate to the bank loan (i.e., it has second priority for repayment). This mitigates risk for private lenders, allowing them to offer better rates than they normally might.

Commercial solar loans may be made directly to building owners to install and own a PV system.  Alternatively, for nonprofits or other organizations that can’t take advantage of solar energy tax credits, the loan can be made to a “project sponsor.” In this case an investor purchases and owns the PV system with a GEMS loan and sells the energy to the nonprofit via a long-term power purchase agreement.

A unique feature of this solar financing structure is that HGIA offers nonprofits the option to eventually take on the loan from the project sponsor (typically after year seven, when the project sponsor has utilized tax credits and depreciation benefits). This provides non-profits a mechanism to own their own PV systems and have free solar energy after the loan is repaid.

Hawaii Green Infrastructure Authority is the state's green bank. Its Green Energy Market Securitization (GEMS) Program offers both residential and commercial solar loans.

Possible Future Programs

HGIA is also seeking approval to offer on-bill financing for solar, which would allow customers to repay their solar loans through their utility bills. Executive Director Gwen Yamamoto Lau explains that “Having an on-bill financing option will really allow us to benefit the underserved—especially the low-income ratepayers and the renters, who have not previously been able to participate....  we receive calls from contractors and landlords on a regular basis asking about its status, because... this program will enable contractors to serve so many more homeowners and renters that they have not been able to serve before.” 

Get Involved

On its website, HGIA maintains a list of approved installers who can offer GEMS-financed projects. To enroll , contractors must attend a training, have appropriate licenses and insurance, and at least a “B” rating from the Better Business Bureau. There is a $100 application fee.

What Does the Future Hold for Green Banks?

Given the success of early green banks, and increasing leadership of states and cities in responding to climate change , this model is likely to play a growing role in driving clean energy market growth. Already a number of other states are exploring the creation of a green bank including Delaware, Virginia, Colorado, Missouri, Massachusetts, Washington DC, and, most recently, New Jersey .

Additionally, existing green banks are working to expand the model by sharing their insights. In 2017, the Connecticut Green Bank was awarded the Innovations in American Government Award by Harvard University. With the $100,000 prize and a matching amount of its own funds, the Bank has committed to creating a Green Bank Academy, to support other jurisdictions in replicating the green bank model.

“NY Green Bank will also work with other States and philanthropic entities to help establish local green banks in other states. In support of these new green banks, NY Green Bank may provide financing along with mid- and back-office services, due diligence, underwriting and general technical support,” says COO Caroline Angoorly.

In other exciting news, New York Governor Andrew Cuomo recently announced that NY Green Bank will explore options to raise at least an additional $1.0 billion in private sector funds, allowing it to consider investable projects that extend beyond the boundaries of New York state!

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As a solar contractor, if there’s a green bank in your area it can present valuable opportunities to connect with new customers. If your state doesn’t have a green bank, keep an eye out for the expansion of green bank activities in your area. Or—if you’re interested in taking a more active role in advocating for the creation of a local green bank—organizations like the Coalition for Green Capital  and the Green Bank Network  offer resources and expertise.

Topics: Solar Finance, Green Bank, Green Bank Program Profiles

The Green Bank Programs Making Solar Financing More Accessible, Part 1

Posted by Gwen Brown on Jan 10, 2018 5:04:48 PM

The solar industry has come a long way since its early days when solar PV was a rare novelty. Robust markets have sprung up in many U.S. statesbut solar is still far from mainstream. As any solar contractor knows, solar installations remain out of reach for many interested customers due to the high upfront cost.

For other expensive purchases, like a car or house, financing is relatively accessible, putting these resources within reach for much of the population. But financing for solar is often hard to secure because many private lenders are unfamiliar with and hesitant to finance clean energy transactions. This lack of capital has been a major barrier to the growth of the industry. But that's starting to change in some states, through the work of green banks.

Green banks are a new type of finance institution established by governments to accelerate the growth of clean energy markets, as discussed in our overview article. For this series, we spoke with staff at green banks around the U.S. to determine what programs solar contractors in different states should be aware of and offer insight into the diversity of approaches green banks are applying to help solar markets grow.

Interested in a particular green bank? Choose a state to jump ahead to its green bank programs: Connecticut, New York, Rhode Island, California, Hawaii

A core characteristic shared by green banks is that they use limited public funds to drive greater private sector investment in clean energy projects. They do this by offering a variety of services that mitigate risk for private lenders to provide financing for solar and other clean energy projects, since these sectors are relatively new to most traditional banks. While green banks share a common purpose, the structure of their programsfrom the types of products they offer to the customers they servevaries depending the local context.

In this article, we dive into green banks on the east coast of the United States, highlighting the types of products they offer, and the programs solar installers should know about. In the second part of this series, we explore the programs of green banks on the west coast of the U.S. and in Hawaii.

Connecticut Green Bank

Established in 2011 by Connecticut Governor Dannel Malloy as the first green bank in the country, the Connecticut Green Bank has had dramatic success growing the state’s clean energy markets. It reports that for every dollar of public funds invested  at least $6 of private investment in clean energy have been deployed, totalling over $1 billion of cumulative investment in more than 20,000 clean energy projects. This has enabled  over 215 megawatts of clean energy, 2.6 million tons of avoided of emissions, and reductions of 20-30% in the cost of renewable energy in the state! It has also driven the creation of an estimated 13,000 clean energy jobs.

The bank offers two key solar financing programs of relevance to contractors operating in the Connecticut: its “Smart E-Loan” for residential customers, and its “C-PACE” program for commercial customers. By covering the upfront cost and offering low interest rates, these programs can make a solar purchase much more feasible for prospective customers.

“Smart-E” Loan Program

Through its Smart-E Loan program , the Bank partners with local banks and credit unions in the state to offer low-interest, no money down loans for homeowners to cover the cost of a solar installation (as well as other home energy upgrades).

C-PACE

Connecticut’s Commercial Property Assessed Clean Energy (C-PACE) program  offers loans to commercial property owners to cover 100% of the cost of installing solar or other clean energy technologies. Eligible projects must have a savings-to-investment ratio greater than onemeaning that bill savings exceed loan payments so customers save money immediately. This is made easier by the fact that the loans can be repaid over up to 20 years. Like other PACE loans, the loan is repaid as part of property taxes on the site and if the property is sold the loan transfers to the new owner, requiring no pay-off upon sale.

Get Involved

Connecticut Green Bank maintains a database of contractors that are approved to offer Smart-E  or C-PACE  projects. Registration is simple; contractors must attend a training, be properly licensed and insured, and have no negative Better Business Bureau ratings. Additionally, the C-PACE program is introducing badges that acknowledge a contractor’s level of experience  with the program, giving experienced contractors an edge in connecting with prospective C-PACE customers.   

Connecticut Green Bank offers programs to increase the accessibility of solar financing, including residential solar loans and C-PACE loans.

NY Green Bank

The green bank of New York state, NY Green Bank, was established in 2013 as the second in the nation. Its approach to growing clean energy markets differs from the programmatic approach of many other green banks. It does not have set programs, rather it operates an open RFP process  and has flexibility and discretion in the types of financial services it can offer depending on what strategy would be most advantageous in a particular case.

Explaining her institution’s role, Caroline Angoorly, Chief Operating Officer of NY Green Bank, notes: “NY Green Bank is positioned at the near-frontier of clean energy financing markets,” working to address market barriers and financing gaps in clean energy investment. “These types of gaps and barriers exist where clean energy financing structures diverge from traditional project financing approaches and may involve structures, parties, credits, technologies and transaction sizes which may be less well known or common.”

NY Green Bank focuses on multi-million dollar transactions  with businesses, such as solar developers and financiers, alongside private sector lenders. To be considered for funding, projects must have the potential to drive market transformation, in addition to reducing the state’s greenhouse gas emissions and providing a positive financial return for the bank.

Explaining how the bank evaluates potential transactions, Angoorly notes that projects must meet three minimum investment criteria:

  1. "Transactions will have expected financial returns such that revenues of NY Green Bank on a portfolio basis will exceed operating costs and expected portfolio losses – i.e., products are provided at market rates;
  2. Transactions will contribute to financial market transformation (e.g., multiples of capital mobilized to fund total project costs and potential to drive the type of volume, including scalability and replicability, that can materially and sustainably expand markets); and

  3. Transactions will have the potential for energy savings and/or clean energy generation that will contribute to greenhouse gas (GHG) emissions reductions in support of New York’s clean energy policies.”

As of the last fiscal quarter, NY Green Bank had committed over $440 million in clean energy investments in the state, including loans of $20 million to Vivint Solar to expand power purchase agreements (PPAs) in New York, $12 million to Cypress Creek Renewables to finance interconnection fees for up to 72 community solar projects, and $50 million to Solar Mosaic to offer solar loans.

Get Involved

Because NY Green Bank operates at a wholesale level, they do not offer retail-level solar financing with which small and medium-sized solar contractors can connect customers. However, large solar companies may want to consider applying for NY Green Bank funding  to expand their operations in New York state when they encounter gaps in the financing available from private lenders.

NYGB_overview_graphic-1.jpg

Rhode Island Infrastructure Bank

The Rhode Island Infrastructure Bank (RIIB) was created by expanding the responsibilities of an existing state institution, Rhode Island’s Clean Water Finance Agency, to include clean energy financing. As Michael Baer, Managing Director of the Rhode Island Infrastructure Bank, explains, “We have a broader mandate than typical green banks, such as those in New York or Connecticut; we provide structured financing to a handful of sectors.” In addition to its programs that fund clean energy projects like solar PV, RIIB financing supports projects for drinking water and wastewater treatment facilities, transportation infrastructure, and the restoration of brownfields (contaminated land).

RIIB offers two programs of relevance to solar contractors in Rhode Island: its Efficient Buildings Fund (EBF) and its Commercial Property Assessed Clean Energy (C-PACE) program.

Efficient Buildings Fund

The Efficient Buildings Fund  is a financing program for the purchase of solar PV and energy efficiency projects. The program provides long-term loans (up to 15 years) for municipalities and quasi-public entities, such as public housing, school districts, and public universities. In addition to the cost of a solar installation the loans can also cover related upgrades needed for the project, such as a new roof for an old building. Like Hawaii’s solar loan program, projects are required to result in at least a 20% reduction in utility bills for the property to be eligible for funding.

Because these tax-exempt public customers can’t take advantage of tax credits or accelerated depreciation that make solar more accessible to other types of customers, RIIB’s programs are designed to help put solar within their reach. Additionally, as Baer explained, municipalities are often disproportionately impacted by the high cost of energy in Rhode Island because they tend to have many old buildings. Solar contractors in conversations with prospective municipal customers may want to highlight this source of funding.

C-PACE

Like Connecticut’s Commercial PACE loan program (discussed above), Rhode Island’s C-PACE program  provides a means for owners of commercial buildings in participating municipalities  to install solar with no upfront payment and long-term repayment over up to 25 years through the building’s property taxes. (The program can also provide funding for other types of projects like energy efficiency and water conservation upgrades or electric vehicle charging stations.) Through this program, RIIB connects eligible projects with funding from private lenders, providing oversight and standardization so that lenders can be comfortable with the quality of the projects.

Get Involved

Any appropriately licensed solar contractor in Rhode Island can act as the contractor for an Efficient Buildings Fund project. To become an approved contractor for C-PACE projects , companies can submit an application , which includes demonstration of appropriate licensing and references. Companies must also complete a training before being listed in the program’s contractor directory.

RIIB_Overview_graphic.jpg


Green banks provide important opportunities for solar contractors to serve new customers who might not be able to consider a solar installation without financing options. If there is a green bank where you work, it’s a good idea to get familiar with its programs. In Part 2 of this series, we detail additional green bank programs in California and Hawaii. We also examine indications that the green bank model is just getting started—including important announcements from Connecticut Green Bank and NY Green Bank about their efforts to support other states interested in launching their own green banks!

Topics: Solar Finance, Green Bank, Green Bank Program Profiles

What is a Green Bank? How These Institutions Are Catalyzing Solar Markets

Posted by Gwen Brown on Nov 29, 2017 3:06:56 PM

Green banks, a new type of financing institution for clean energy and energy efficiency, are spurring dramatic growth in solar. Here’s how they work and why solar contractors should get to know their programs.


It’s a scenario that replays over and over again. You sit down with a customer who’s eager to power their home or business with solar and save on their electric bills. They love the idea of installing solar, but then you hit the roadblock—the upfront cost of the project is a major sticking point.

In the best cases, financing is available to cover or reduce the upfront costs. But all too often, that's not the case—especially for certain groups like non-profits and low-income customers. If financing is available, it may only be available at interest rates that are so high that the project becomes undesirable, because the customer will be unable to achieve immediate savings.

These gaps in financing have long closed off the solar market to many interested consumers. But this is starting to change through the work of green banks, a new type of financing institution emerging around the country and around the world.

Want to learn about green banks in your area?
Check out our articles highlighting the programs of green banks on the east coast and in California and Hawaii

What Is a Green Bank, Anyway?

Green banks are government-affliated banks that use limited public funds to drive greater investment in clean energy by the private sector. The goal of green banks is to “accelerate clean energy market growth while making energy cheaper and cleaner for consumers, driving job creation, and preserving taxpayer dollars,” according to the Coalition for Green Capital, a nonprofit that has supported the development of numerous green banks around the country.

This mandate of driving greater investment in clean energy from the private sector is central to a green bank’s approach. Given the relatively short track record of renewable energy projects and limited data to assess risk, private financing partners are often apprehensive about funding projects or will only offer financing at high interest rates. This presents a major barrier to the growth of clean energy markets. Green banks help make private financiers more comfortable investing in clean energy by using public funds to reduce real (or perceived) risks, and by providing the security of a government partnership.

Other core characteristics of green banks are the use of innovative financing structures, a focus on cost-effectiveness, and the fact that they are “independent authorities with a degree of latitude to design and implement interventions,” according to the Green Bank Network (a knowledge-sharing network of green banks around the world). Compared to commercial banks, green banks are able to invest with greater flexibility, allowing them to bridge the gaps in financing available from private lenders.

Green banks focus their work on mature, commercially-viable clean energy technologies—like solar—rather than early-stage technologies in the R&D phase, focusing on addressing the market barriers that limit their access to capital.

Green_Bank_Figure1.jpg

What Services Do Green Banks Offer?

Some of the financial services offered by green banks include:

  • Credit enhancements (typically through loan loss reserves or loan guarantees)
  • Co-investing alongside private investors (in the form of senior debt, subordinated debt, or project equity)
  • In some cases, directly offering loans for clean energy projects

Credit enhancements, such as loan loss reserves or loan guarantees, can increase private lending by reducing the perceived risks. Co-investment can fill gaps in available financing and, in some cases, also acts as a form of credit enhancement.

Where private lenders are unwilling to provide project financing, even with credit enhancements, green banks may lend directly. This may be the case when private banks find individual projects too expensive to underwrite, as is often true of small projects like residential energy efficiency projects. The green bank may eventually bundle many individual loans together, making them more attractive by diversifying risk and achieving scale, and then sell them to private lenders. (These services are also referred to as warehousing or securitization.)

Figure2-financing_techniques.pngGreen Bank Financing Techniques. Source: Coalition for Green Capital, "Growing Clean Energy Markets with Green Bank Financing."

An important characteristic of green bank services is that for each public dollar spent, much more private capital is made available. For instance, the Connecticut Green Bank reports that for every $1 it spends, $6 of private investment in clean energy is committed.

Green banks have been established with a variety of different structures and strategies depending on their local contexts. For instance, whereas the Connecticut Green Bank offers retail programs that connect individual solar customers with loans from banks and credit unions around the state, New York Green Bank operates only at a wholesale level—working with project developers and financiers on multi-million dollar investments.

In Hawaii, which has the highest electricity prices of any state, solar energy is affordable compared to utility electric prices so many residents have installed solar. However, access has lagged for low-income communities that most need the cost savings. As such, the Hawaii Green Infrastructure Authority has focused on solar for low-income customers.

Benefits of Green Banks

Unlike state agencies that offer rebates and other grant-based incentives for clean energy projects, a green bank can make public funds go further. Whereas grants are used up as soon as they are distributed, green banks focus on services like loans in which public dollars are repaid to the bank and can then be recycled to drive further growth in clean energy markets.

In addition to making government funds go further, green banks are focused on driving economic growth in the regions where they operate. By making clean energy investments more accessible to citizens, they put money back in the pockets of households and businesses through energy savings. By growing the customer base for solar companies and other clean energy businesses, they also contribute to job growth.

For instance, since the creation of the Connecticut Green Bank—the first green bank in the nation—solar employment in the state has grown by 30%, and clean energy investment in FY 2015 alone exceeded all clean energy investment in the 11 years prior to its establishment.

As the dramatic economic and environmental impacts of green banks become clear, many other U.S. states and jurisdictions have expressed interest in establishing their own such banks. Among the states exploring green bank creation are Delaware, Virginia, Colorado, Missouri, Massachusetts, and Washington, DC.

Both New York and Connecticut Green Banks have committed to helping other states replicate the green bank model—and New York Green Bank has recently announced plans to expand its lending operations to the rest of the country!

States_with_Green_Banks-1.jpg

Why Green Banks Matter to Your Solar Company

Clearly, green banks represent an important new tool for driving growth in clean energy and energy efficiency markets. As more and more states eye options to meet climate change commitments, increase resilience, and drive economic growth, it is likely that green banks will play an increasing role around the country.

This is great news for solar contractors because green banks increase the accessibility of financing to cover the upfront costs of a solar installation—typically the biggest barrier for prospective customers.

If there’s a green bank in your state (or city or county), it’s an excellent idea to get familiar with its programs and the benefits they can offer to prospective clients—because it may make the difference in closing the sale. (The Coalition for Green Capital maintains a list of current green banks which is a helpful starting point.) Many green banks also manage databases of approved contractors to help guide interested solar customers on choosing a company—so you should look closely at those programs and consider getting involved.

We’ve been talking with green banks around the U.S. to understand their programs and what local solar contractors need to know. Check out our two-part series sharing what we’ve learned!

  1. Coalition for Green Capital White Paper: Growing Clean Energy Markets with Green Bank Financing, p. 12 

Topics: Solar Finance, Green Bank

The Importance of Discounting Future Solar Savings

Posted by Samuel Adeyemo on Nov 15, 2017 9:30:00 AM

[This article was originally published in SolarPro .]

On May 7, 2016, Pearlie Mae Smith, the winner of the New Jersey Lottery Powerball, had an enviable decision to make: Should she accept $429 million in payments over 30 years or accept a smaller amount, $284 million, up front? Though it was 34% lower, Ms. Smith chose the up-front payment. While Ms. Smith was more than 70 years old at the time she won the Powerball, her choice was not unique. Powerball data show that all five winners in 2016 chose the up-front payment versus taking payments over time, forfeiting more than a third of their nominal earnings.

Going back as far as 2003, you will find cases where Powerball winners were willing to sacrifice half their winnings to claim them up front versus spreading them out over time. If sacrificing almost half of one’s nominal winnings in exchange for an up-front payment does not sound totally crazy, you already have an intuitive understanding of the concept of the time value of money, also known as discounting.

Time Value of Money

The time value of money means that a dollar promised at a future date is worth a discounted amount compared to a dollar guaranteed today. This is because there is no guarantee that whoever promised you the dollar will be around or will deliver it in 25 years. Even if the person does deliver the dollar, due to inflation, it will not buy as much in 25 years as it does today. In addition, if you get a dollar today, you can invest it and grow that dollar over time. For all of these reasons, money promised in the future is worth less than money guaranteed today.

Discount rate. In the context of solar, the value of electric bill savings in the future should be similarly discounted relative to cash in hand today. The amount that a dollar in the future is discounted relative to a dollar today is referred to as the discount rate, which the American Heritage Dictionary defines as “the interest rate used in determining the present value of a future payment or series of payments.” In plain English, this is the rate of return at which it makes no difference to you whether you receive the payment today versus sometime in the future.

For the mathematically inclined, you can calculate the discount of future to current savings using the following formula:

Discount Rate Formula: d=(S sub n divided by S sub zero to the power of 1 over n minus 1) where d is the discount rate, Sn is the savings in year n, S0 is the current value of these savings and n is the year of evaluation. The discount rate is typically expressed as a percentage.

Modeling Financial Returns

If you are not applying a discount rate, or if the software you are using does not do so, you are likely misrepresenting the financial returns of going solar. You may also be making suboptimal solar design decisions or recommending the wrong financing option to your client. Let us examine what the application of a discount rate does to some of the more commonly quoted solar financial metrics—lifetime savings, internal rate of return (IRR), levelized cost of energy (LCOE), and payback period—across two financing options: cash and loan-financed purchase.

Model of a house created in Aurora, showing irradiance map of the roof, system design, and projected energy production. Aurora estimates that the 10 kW array shown here has a weighted total solar resource fraction of 86% and will generate 12.85 MWh of energy in year 1.

Figure 1. Aurora estimates that the 10 kW array shown here has a weighted total solar resource fraction of 86% and will generate 12.85 MWh of energy in year 1.

Case study. For this example, I used Aurora both to design the 10 kW system in Figure 1 and to perform the financial analysis. The case study assumes the following: The customer is on PG&E’s E-1 baseline utility rate for Region S; the assumed utility inflation rate is 3%; the system cost is $3.50 per watt; the loan terms require 20% down and 4.9% interest; incentives are limited to the 30% Investment Tax Credit; and the project service life is 25 years. The financial results presented in Table 1 (below) show that applying a discount rate leads to a reduction in the present value of lifetime savings and the LCOE, as well as a slightly longer payback period. These results have implications for both the recommended financing option and the optimal system design.

comparison of common financial metrics for a solar system purchased with cash versus a 2-year loanTable 1. A comparison of common financial metrics for a cash purchase versus a 2-year loan-financed system (20% down, 4.9% interest), with and without discounting.

Customer financing: With a 2.5% discount rate, this client’s discounted lifetime savings are greater with a loan-financed system compared to a cash deal. The discount rate acts as a penalty for tying up the cash that the client might have invested in another asset. It is also interesting to observe the changes in LCOE. With a discount rate applied, the LCOE for a cash purchase increases by more than 30%, whereas the LCOE for the loan structure increases by only about 7%. We have already established that a dollar guaranteed today is not the same as one promised in 25 years, and it is equally true that a dollar owed 25 years from now is worth a lot less than one in hand today. Thus, a loan-financed system generally starts to look more favorable relative to a cash purchase as discount rates increase.

Design optimization: Designers can also use LCOE to determine whether a proposed solar installation generates a financially optimal amount of energy. If, on one hand, the effective utility rate is higher than the project’s LCOE, then the homeowner is leaving money on the table by not generating more solar energy. In this case, you should seek to design a higher-producing system to capitalize on the higher utility compensation rate. On the other hand, if the effective utility rate is lower than the LCOE, then the homeowner is losing money on each incremental unit of energy generated. In this scenario, the appropriate design response is to generate less energy, perhaps by specifying less-costly components with lower energy yields.

Analyzing results. While nobody wants to show lower financial returns, the discounted values in Table 1 more accurately reflect the financial returns of going solar. Furthermore, by performing this type of analysis, you can now credibly compare the returns on solar to other asset classes. Even with the 2.5% discount rate, the homeowner is saving more than $58,000 over the project’s life in today’s dollars and is earning an annualized return of 14.8%.

To put a 14.8% return for solar in PG&E service territory in context, State Street Global Advisers forecasts that the US bond and stock markets will have long-term annualized returns of 2.5% and 7.7%, respectively. However, financial markets are volatile, whereas solar provides savings as long as the sun shines (and assuming that regulators do not retroactively change policies). Furthermore, unlike income from the stock or bond markets, solar savings are tax-free. This means that if you provide an apples-to-apples comparison of financial returns, going solar is a no-brainer investment for this particular homeowner, as illustrated in Table 2.

Table_2_SP_9_5_QA_no_caption-1.jpgTable 2. Applying a discount rate allows for an apples-to-apples comparison of potential investment opportunities.

Accuracy and credibility. Applying a discount rate when assessing investment decisions is a well-established practice for financial and economic analyses. Many analogous industries have adopted this as standard practice. For example, realtor.com offers an online Rent vs. Buy Calculator where the discount rate—identified as the investment rate of return—is a required input. The U.S. government’s Office of Management and Budget uses discount rates when calculating the financial returns associated with investing in clean energy or energy efficiency projects, as well as for general budgeting purposes. Within the solar industry, the National Renewable Energy Laboratory (NREL) System Advisor Model (SAM) includes a discount rate when calculating financial metrics. In fact, NREL’s user guide for SAM states that the “discount rate acts as a measure of time value and is central to the calculation of present value.”

It is well established that the cost of acquiring customers is one of the major obstacles to making solar ubiquitous. Consumer education is one of the reasons commonly cited for the high cost: Consumers are often confused about the economic benefits of going solar. Perhaps one way to help alleviate this is to speak to homeowners in familiar terms. While most homeowners are unfamiliar with terms like azimuth or solar access, they likely have had to assess how much money to put into a 401k or whether to buy or rent. Moreover, they almost certainly understand that a dollar will not be worth the same in 25 years as a dollar is worth today.

Applying a discount rate as part of your financial analyses not only will improve your design and financial decision-making processes, but will also increase the accuracy and credibility of your results and allow you to make an apples-to-apples comparison between the returns of solar versus other asset classes. 

Topics: Financial Analysis, Solar Finance

Can Solar Offer Better Returns than the Stock Market?

Posted by Gwen Brown on Aug 9, 2017 12:00:00 AM

While the cost of installing solar panels has fallen dramatically (more than 70% since 2010, according to the Solar Energy Industries Association ) and continues to decline, cost is still—understandably—a major consideration for customers.

However, when assessing the price of a solar installation, it’s important to evaluate that expense like an investment and consider the value it will provide over time, compared to other ways you could use the money.

One way to think about the value of installing solar is in terms of how it compares to investing in the stock market. A 2015 study by the North Carolina Clean Energy Technology Center explored the financial returns from residential solar systems around the country compared to typical returns from the stock market—and you might be surprised by the results. In many areas, the study found that the 25-year returns from a home solar system exceed those from an equivalent investment in the stock market!

In today’s article, we delve into the study’s findings to give prospective solar customers a better sense of how adding solar can help your bottom-line.

How Solar Returns Compare to the Stock Market

The study, Going Solar in America: Ranking Solar’s Value to Consumers in America’s Largest Cities, finds that "in 46 of America’s 50 largest cities, a fully-financed, typically-sized solar PV system is a better investment than the stock market.” It also found that in 20 of those cities, paying cash upfront for the system is also a better investment than the stock market.

Cities where financed solar installations outperform the stock market Figure 1: The 46 cities (of the 50 largest cities) in the U.S., where the financial returns from a fully financed 5kW solar system outperform 25-year returns from the stock market.

The study used a metric called Net Present Value (NPV) as the basis for the analysis. Net Present Value presents the value of future cash flows from an investment in present-day dollars. This is very important because money that you receive in the future is worth less than cash in hand today (a principle known as the time value of money).

Example of cash flows from a solar installation Figure 2: An example of cash flows over time from a solar installation. Net Present Value, calculated as the sum of discounted future cash flows, indicates the present-day dollar value of this future income.

The study’s authors calculated the Net Present Value for a 5 kW solar installation in each of the 50 largest cities in the US and compared this to the 25-year return of the Standard & Poor’s (S&P) 500 stock index. The authors note that they selected the S&P 500 stock index for comparison because of its status as one of the “most well-known and well-diversified representations of the U.S. equities market.”

For each city, the NPV of a solar installation was calculated under two scenarios:
1) if the system was fully financed (based on a loan for the full cost with an interest rate of 5%), and
2) for an upfront cash purchase.

Because loan financing distributes the cost of the purchase over time, allowing customers to keep more of their income in the short-term, the financed systems had higher NPVs and outperformed investments indexed to the S&P 500 in many more areas of the country.

In 92% of the 50 cities examined, a financed solar system outperformed the stock market (see Figure 1 above). Systems paid for upfront outperformed the stock market in only 40% of those cities (Figure 3). This makes the important point that different financing options can have a big impact on the value you get from your solar installation.

Cities where a cash financed solar installation outperforms the stock market Figure 3: The 20 cities (of the 50 largest cities) in the U.S., where the financial returns from an upfront cash purchase of a 5kW solar system outperform 25-year returns from the stock market.

While the study makes a number of assumptions, including that current favorable policies—like net metering—will continue, it provides a handy illustration of the fact that solar can be a very smart investment in most areas of the country.

And, this value doesn’t even include the potential increase in the value of your home as a result of installing solar, which studies have found can be significant. Another study, by the U.S. Department of Energy’s Lawrence Berkeley Laboratory , found that a typical PV system can add a premium of about $15,000 to a home’s value!

The financial returns of a particular solar installation will vary depending on a number of factors including the cost of the panels, your local utility rate, and the way that you finance it. Your solar installer should be able to give you a clear picture of the value a proposed project will provide. If they use software like Aurora’s, they’ll be able to easily generate projections of the financial returns from a specific solar design under a variety of different financing scenarios.

Key Takeaways:

  • While installing solar can be a big expense, in many cases the value it will provide over time exceeds the rate of return from the stock market.
  • Net Present Value (NPV) provides a way to quantify the present value of the future savings a solar installation will provide.
  • It is important to consider different financing options for your solar installation because the NPV of the purchase will change under different financing scenarios. This is because money today is worth more than money you receive in the future; financing options that reduce your initial cash expense by distributing over time can help improve the value of your investment.
  • In 46 out of 50 of the biggest U.S. cities, investment in a solar installation provides a better return than an equivalent stock market investment indexed to the S&P 500 (for a 5 kW installation fully financed by a loan with a 5% interest rate). In 20 of those cities, an upfront, cash purchase of a 5 kW system also provided greater returns than the stock market.

Topics: Financial Analysis, Solar Finance

Commercial Solar Financing: Three Bottom-Line Benefits to Going Solar

Posted by Marion Wellington on Jul 12, 2017 12:00:00 AM

Why are more and more businesses going solar? For one, being eco-friendly isn’t just good for the earth, it’s becoming increasingly good for the brand; more than two-thirds of consumers prefer to do business with environmentally responsible companies. Moreover, as PV prices drop, businesses are increasingly attracted to the strong financial benefits of going solar as well.

Financial Benefits of Solar to Business

Save on Electricity Bills: According to the Environment America Research & Policy Center, if all of the big-box stores in the US installed solar, they could collectively save $8.2 billion annually on their electricity bills. Additionally, in certain states such as Massachussetts, performance-based incentives such as Solar Renewable Energy Certificates (SRECs) directly translate energy production into increased utility bill savings.

example of bill savings for a commercial solar customer An example of a commercial customer's savings after installing solar, estimated in Aurora.

Save on Taxes: The Investment Tax Credit (ITC) allows owners of newly installed PV systems to receive a federal tax credit for 30% of the system cost. The full 30% credit will last until 2019, after which it will incrementally decrease through 2021 but will remain at 10% thereafter for commercial projects. Solar equipment is also eligible for accelerated depreciation thanks to the Modified Accelerated Cost Recovery System (MACRS), which allows an 85% deduction of the system value from property taxes for five years of purchase. For solar installations that are financed with a loan, the interest paid on the loan also lowers a client’s tax liability.

Protection against Inflation: Aurora’s study of EIA data shows that commercial utility rates increased an average of 2.4% per year between 2000 and 2015. Fortunately, the cost of producing solar energy stays largely constant over time. By investing in a PV system, a company can protect itself from hikes in electricity costs by offsetting its consumption in part, if not entirely.

Financing Options

Of course, not all businesses want to—or are able to—pay upfront. For those who cannot purchase the system upon installation with cash, other financing options can enable businesses to reap the environmental, social, and financial benefits of solar—sometimes without putting a penny down. However, there are long-term tradeoffs to consider.

Cash: In purchasing the system upfront, the business reaps the full benefits of savings on electricity bills, tax reduction, and hedging against inflation. However, owning the solar installation does mean that the business is responsible for all maintenance on the system.

Loan: Paying with a loan also ensures that the benefits of utility bill savings, lower taxes, and inflation hedging accrue to the business. A loan will result in less cash being paid up front for the solar installation, at the expense of interest accruing over the loan’s duration. However the interest payments on the loan are typically lower than the savings on the electricity bill, making this an attractive financing mechanism. Furthermore, interest paid in a solar loan is a tax deductible event.

Lease/PPA: Leases and PPAs are unique in that the business does not own the PV system. Instead, the system is owned by a third party which sells the electricity produced by the system to the business. With a lease, the business pays a fixed monthly amount for the right to use the PV system. With a PPA, the business purchases the power generated by the system at a pre-determined price per unit of energy the system produces ($/kWh). This lease payment, or the PPA rate, are often lower than the businesses bill savings or the prevailing utility rate respectively. This allows companies to save money on their electricity bills, and they do not have to worry about maintaining the system. However, since the system is owned by a third party, businesses do not get the tax savings, and they may not get the full inflation protection.

With so many nuanced financing options, it is critical to be able to analyze the best choice for your customer. Given the correct financial analysis tool, commercial installers have the power to bring any business to a greener and brighter bottom-line.

Topics: Financial Analysis, Solar Finance

Financing Tips for Solar Installers: Insights from David Arfin

Posted by Gwen Brown on Apr 13, 2017 12:00:00 AM

David Arfin is the inventor of SolarCity’s groundbreaking SolarLease, which has enabled over 300,000 residential, commercial, and government customers to adopt solar power and save money, without having to make a large upfront payment.

Aurora had the privilege of talking with David Arfin to learn from his years of experience in the industry, and we are excited to share his insights in a two-part series. In Part 1, he shared his expectations for the development of the solar finance industry. In today’s post, Arfin offers some advice for small and medium-sized solar companies on financing best practices.

photo of David Arfin in front of a solar installation

What steps do you think small and medium-sized installers can take to gain more financing options?

Small to medium-sized installers need to have more than one supplier so that they are not completely dependent on one loan product, one third-party owned product, or one PACE product. In that way, the "long-tail" as we think of it, can — individually and collectively — can hold the bigger companies more accountable.

For instance, consider if you are a local installer and you're selling to your provider—you only have one—at, say, $3/watt. If they come to you and say, “We have a problem and have to lower your rate. The most that we can pay you is $2.60/watt,” then you have just lost your margin, and you don't have an easy second choice.

In the medium- and long-run, we should be able to grow as an industry into something that looks a lot more like the real estate industry. Solar customers should be able to get financing from a lot of different sources. Just as in the mortgage industry buyers are not dependent on the real estate broker that sold you your house to get your mortgage. Financing should be much more transparent and much easier.

What are your three biggest pieces of advice for solar installers trying to expand their financing options?

1) Have your customers' interests at heart. BTC—“Be the Customer”—as they used to say in business school. Really understand what's in it for the customer and don't just accept what the financial provider is providing to you. There may be some inaccurate assumptions out there.

2) Diversify. Have more than one financing partner for each product line that you want to offer.

3) Be very careful of cash flows and try to lean on financing partners to help with cash flow requirements as much as possible.

What advantages, or disadvantages, do you think large firms have when accessing financing options?

I had the benefit of joining SolarCity early and watching the growth over the first amazing four years. When we were small, nobody paid attention to us. We couldn’t buy panels in 2008 from some vendors because they had a certain amount of panels and they only sold to their bigger or longer-term accounts.

As we grew, however, and became the dominant player and eventually the leader in market share by a wide margin, we had a lot of advantages. We were able to get meetings and capital easier than smaller firms could. There are high transaction costs in any of these tax equity deals or securitizations, which makes these kinds of deals harder for smaller firms to access.

Larger firms have always had an advantage in terms of getting capital—and they always will have an advantage—until the point comes where there is too much concentrated risk on one firm. If Wall Street thinks that a large solar installer is overexposed, then that becomes a problem.

A big risk for large companies is this: when you have a solid footprint in a place and regulations change, the whole thing can go down. We saw this in Nevada last year, where overnight the industry got crushed [when the Nevada Public Utilities Commission eliminated one-for-one net metering for residential solar customers, moving solar from compensation at the retail rate to the wholesale rate]. Companies had invested in warehouses, trucks, and, most importantly, employees and then that market dried up. These companies tried to move these “assets” to their other installation centers, but there is a huge cost to doing so.

In a low margin industry, taking on a huge cost hit is hard. We saw some of that in Arizona as well [when Arizona replaced net metering compensation for solar customers with compensation at a lower “export rate”]. So, when your company is big and has a big footprint in a lot of different jurisdictions, and one or two of those jurisdictions goes bad, it might affect five to ten percent of your business. In a low-margin industry, that five to ten percent can spell really hard times.

What are some good resources for solar professionals to educate themselves on solar finance?

I recommend going to conferences with sessions on clean energy finance.

You need to understand a bit about the Investment Tax Credit, depreciation, and SRECs- but you can pick that up pretty quickly if you're motivated.


We hope you found these insights helpful! Do you have your own solar finance tips? Let us know in the comments below.

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Topics: Solar Spotlight, Solar Finance

The Value of Green Button Data for Solar Customers

Posted by Gwen Brown on Apr 4, 2017 12:00:00 AM

Green Button data — if you’re not familiar with it, it might sound like something that a Marvel comic book villain would enjoy reviewing. But, in fact, Green Button data is actually a very valuable tool for understanding a home or business owner’s energy usage. In this post, we’ll explore what Green Button data is and what benefits it provides for solar designers and customers.

Green Button data gives utility customers — both residential and commercial — timely access to energy use data in a standardized, computer-friendly format.

What is Green Button Data?

Green Button data refers to an option provided by some utilities that enables customers to download detailed data on their electricity usage with just the click of a (green) button from the utility website. Specifically, Green Button data gives utility customers — both residential and commercial — timely access to energy use data in a standardized, computer-friendly format. The Green Button Initiative emerged as a voluntary, industry-led response to a 2011 call-to-action from the White House to make energy data more accessible to consumers.

Beyond showing how much energy a consumer uses, one of the greatest benefits of Green Button data is that it also provides insight into when energy is being used. Historically utility bills have only shown how much energy was used over a monthly period. However with the increased deployment of “smart meters,” which track energy usage at intervals of one hour or less, much more granular energy use data is becoming available. If a customer has a smart meter, Green Button data will allow a customer to see exactly how much energy they use at specific intervals.

The measurement interval available to customers depends on what their utility offers, but many utilities — especially in California and Texas, where utilities are required to provide customers with their energy usage data — provide this information in 15-minute increments. Currently, more than half of American households have smart meters and they are increasingly being deployed by utilities around the country as part of utility efforts to modernize the electric grid. Smart meters and Green Button data go hand in hand as methods to give customers’ greater insight into and control over their energy use. The Green Button program is helping to make the improved data from smart meters more easily accessible.

Beyond showing how much energy a consumer uses, one of the greatest benefits of Green Button data is that it also provides insight into when energy is being used.

Why Is Green Button Data Important?

Green Button data offers numerous benefits to energy consumers and for solar professionals looking to design and sell high quality solar installations. Green Button data helps consumers better understand when they are consuming energy, and save on their utility bills. For instance, for residential customers in areas where Time of Use (TOU) rates are standard (like California), Green Button interval data can show how changing the timing of certain energy-intensive activities can result in reduced energy bills.

Green Button data is particularly useful for customers who are considering solar, because it makes evaluating projects and savings faster and more accurate.

Green Button data offers additional value for commercial customers. Beyond the insights it provides with regard to Time of Use rates (which are more common for commercial customers), Green Button data can also help commercial customers better understand demand charges, which are fees a utility charges based on the maximum amount of power a commercial customer consumes over a given time period.

Example of a load profile based on uploaded green button data An example of a customer's hourly energy usage based on Green Button Data uploaded in Aurora.

Green Button Data and Solar: A Perfect Combination

Green Button data is particularly useful for customers who are considering solar, because it makes evaluating projects and savings faster and more accurate. Having a clear picture of a household’s energy consumption is critical to determining the appropriate size of a solar array. Furthermore, precise data on energy consumption at different times throughout the day is important in enabling accurate evaluation of the financial returns of the solar design.

For instance, if the customer is billed under Time of Use rates, in order to understand how much a solar installation will reduce their utility bill, it is essential to understand how much energy they consume during peak demand times when energy is more expensive, and how those usage patterns intersect with the amount of energy their solar array is likely to be producing at different times. A customer’s savings will be greater if the energy produced by their solar installation coincides with and can offset much of their electricity consumption during hours when electricity is most expensive (typically in the afternoon). Furthermore, this consideration might influence the ideal location or orientation of a solar design (such as siting the design where it will get more afternoon light, and thus offset energy when electricity prices are higher, rather than where it would produce the most energy overall).

For commercial customers, whose utility bills include demand charges, the benefits of using Green Button data in the solar design process are a little more nuanced, so we will cover them in a later post.

With a customer’s Green Button data, you can save time by automatically importing the exact details of the customer’s energy consumption and Aurora will use that to model the customer’s electricity usage throughout the day and throughout the year (their load profile). Combined with Aurora’s simulations of the solar design’s energy production (the industry’s most accurate), you and your solar customer can be confident in the expected financial return on the installation.

Key Takeaways:

  • The Green Button Initiative is a program through which participating utilities provide customers with detailed data on their energy usage, in a standardized, machine-readable format.
  • Green Button data gives utility customers greater insight into the amount and timing of their energy consumption, helping them to understand how they can save energy and reduce their utility bills.
  • Green Button data is particularly useful in helping potential solar customers accurately evaluate the financial return on a solar installation.
  • Aurora’s software can automatically import and interpret Green Button data enabling faster and more accurate development of detailed solar sales proposals.

Are you using Green Button data? How has it impacted your solar business? Join the conversation on Twitter , Facebook , and LinkedIn with the hashtag #GreenButtonData.

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Topics: solar design, Solar Primer, electricity bill, Financial Analysis, Solar Finance, energy load profile

The Future of Solar Finance: Insights from SolarLease Inventor, David Arfin

Posted by Gwen Brown on Mar 23, 2017 12:00:00 AM

David Arfin is the inventor of SolarCity’s groundbreaking SolarLease, which revolutionized the U.S. residential solar market. This unprecedented solar financing program has enabled over 300,000 residential, commercial, and government customers to adopt solar power and save money, without having to make a large upfront payment. In November 2009, the SolarLease was named by Scientific American as the first of twenty world-changing ideas to build a cleaner, healthier, and smarter world. Arfin also received the first ever Innovation in PV Financing Award from the Solar Energy Industry Association in 2009.

Today, Arfin continues to create innovative financial solutions and structures to accelerate the adoption of clean energy technologies. He is the co-founder of Certain Solar , a cleantech startup harnessing the power of big data and behavioral economics to make solar energy more affordable. He is also the founder and CEO of First Energy Finance , which provides products and services to accelerate the growth of renewable energy-generating projects. 

We had the pleasure of sitting down with David Arfin to learn from his years of experience in the industry. In today’s post we’re excited to share his take on where solar financing is today—and where we may see innovations in the future. In the second article in this series, we continue our exploration of solar finance by sharing Arfin’s advice for solar companies on financing best practices.


David Arfin

How has solar finance evolved since you created the first lease at SolarCity?

Solar financing has evolved in a few small ways, but today’s product does not look all that different from what we had in 2008. I think that’s a shame. There are still evolutions of the product that we need to see.

“...there is still asymmetric information between the solar provider and the solar adopter. Very few people know much about how electricity rates work, where their rates have been, or where they likely to go...”

Third-party financing grew at an exceptional rate for several years. It proved that there is a large appetite for homeowners to adopt solar if you make it easy and affordable for them, and if they believe that they will save money by going solar.

Other products have come into the markets, like solar loans and Property Assessed Clean Energy (PACE) loans, but they are still not priced very well and pass off a lot of risk to homeowners. I don’t think we’ve hit the “Holy Grail” yet for solar.

Why do you think we haven’t yet hit the “Holy Grail?”

Good question. I think it’s partly that current product pitches still sell reasonably well. Leases, PPAs, and loans are still moving the quarterly needle for sales teams’ objectives so the installers and developers don’t have a great incentive to reinvent their offerings.

The other reason is that there is still asymmetric information between the solar provider and the solar adopter. Very few people know much about how electricity rates work, where their rates have been, or where they likely to go over a period of decades. That makes homeowners subject to believing whatever representations a zealous solar salesperson chooses to present to them in the sales process.

I think we need adopters to become much better educated about what they are signing up for—much in the same way that other industries evolved. If you look at car loans, home loans, and credit cards—they have all gone through cycles whereby poorly informed buyers get oversold on the offering, followed by a backlash, which in turn is followed by investigations and data gathering initiatives. This may lead to consumer advocacy, followed by truth-in-selling regulations that end with improved consumer-facing offerings. Sometimes these can crush companies and even industries.

As an advocate for proliferation of solar and other forms of Distributed Energy Resources (DER), I’d like to see the industry short circuit the process by self-regulating its selling practices and coming up with better consumer offerings.

Where do you think we are in that arc that you see in other industries?

We are still really early and I hope we are still on the upward trajectory of adoption of all DER. We are no longer in the phase of the earliest adopters, as there are a million American homeowners that have already adopted solar. A lot of these adopters can look at precisely how much energy their PV system has produced, but it’s very hard to do the math to know whether they are actually saving money by having gone solar.

“To use a baseball analogy, we’re in the top of the third inning for innovative solar financing. A million U.S. homes that have adopted solar, but there are 60 million or more residential dwellings that are ripe for switching to clean energy.”

As an industry, we have to be very careful of overzealous selling. For example, Aurora’s software enables one to accurately know how much solar radiation there is going to be on every panel, on every spot... and you’re only going to be off by a couple percentage points. But when it comes to the other side of the equation, which is not how much systems generate but the economic value of the energy generated—which is dependent on local policy makers’ decisions 15–20 years into the future—it’s not possible know what that’s going to be for any net-metered system.

What evolutions in solar finance would you like to see?

I would like to see shorter-term obligations. I think 20 years is a terribly long time for someone to sign up for an obligation like a solar installation. I would like to see solar installers and developers–and I will disclose that I have an interest in this—guarantee savings to homeowners who sign PPAs, loans, leases or make cash purchases. It’s a very different sale if you said to the customer, “Sign this contract and we hope that over 20 years you’re going to be saving money.” It would be much better to say, “We guarantee you’re going to be saving money.”

One company that I’m involved in called Certain Solar, which has a grant from the U.S. Department of Energy’s SunShot program, is looking to do just that. By using unique data and analytics, it allows financiers to be comfortable with the risk of having long-term cash flows from a portfolio linked to future utility rates. Today homeowners take on risk when they sign a 20-year agreement to lease or purchase and they cannot have a very good visibility of future electricity prices. However, this risk could be shifted to investors with the benefit of good data and analytics.

What we want to do is transfer utility rate risk from homeowners to investors who have the data to understand how prices are going to move and can also invest in a large national portfolio—whereas every homeowner makes one decision at one point in time for their roof within their utility.

In addition to shifting the utility rate risk, energy storage is going to become an important part of the story. We are going to see more time-of-use rates apply to when one is generating and consuming electricity. I think there are still a lot of interesting services and contracts that will be built as a result of these changes.

“I think you will see PV generation, storage, smart meters, demand response, and EV financing starting to blend together in creative ways. It’s an exciting time to be in cleantech...”

To use a baseball analogy, we’re in the top of the third inning for innovative solar financing. A million U.S. homes that have adopted solar, but there are 60 million or more residential dwellings that are ripe for switching to clean energy.

Where do you see the future of solar financing over the next 5 years?

There will be a lot more and better data. Hopefully there will be better consumer education and better consumer protections. I think you will see PV generation, storage, smart meters, demand response, and EV financing starting to blend together in creative ways. It’s an exciting time to be in cleantech—especially on the business model side to create and deliver innovative “energy as a service” offerings.

On the challenging side, energy is delivered within a regulatory environment and mere humans are making a series of policy decisions; politicians and regulators are motivated by different political agendas. A key enabler for solar and DER adoption will be having a positive and stable regulatory environment. Without this regulatory stability investment in clean assets will suffer and so will our transition to a cleaner energy world.

Any other final thoughts about solar financing?

I’m a born optimist. We've seen game-changing successes in the United States as we evolved from “solar as a sale” to “solar as a service” and I think that will turn into “distributed energy as a service,” “storage as a service,” “EV-by-the-mile,” etc.

As costs to manufacture and deliver systems decline, while data, software and analytics improve, we will create an ecosystem that will make it easier for energy consumers, investors and financiers to be able to invest in solar and other DER. All of that then generates more data and innovation, which further de-risks adoption. It’s a virtuous circle.


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Topics: Solar Spotlight, trends, Solar Finance

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