Solar Leasing Gains Traction in California

Climate Policy Initiative’s latest report, “Improving Solar Policy: Lesson from the Solar Leasing Boom in California,” reveals that 75 percent of new residential solar systems installed in California are being leased rather than bought, up substantially from 10 percent just six years ago. The solar lease model addresses key barriers that currently exist for purchased solar systems, thus making rooftop solar PV systems more affordable and available to a larger percentage of electricity consumers.

In a solar lease agreement, the electricity customer, or lessee, works with a solar leasing company to arrange the financing, installation, and operation of the system. These companies aggregate solar lease projects into funds that will attract outside investors who have the tax liability needed to qualify for tax benefits. Electric utilities must interconnect the installed rooftop system to the electric grid, as required by the California Public Utilities Commission. The price of a leased system is generally driven by its value in energy savings, rather than its cost of installation.

By leasing a solar PV system, customers can overcome several obstacles to widespread adoption of rooftop solar energy. Although a solar lease cannot resolve the issues associated with unsuitable rooftops or the split incentives between tenants and owners, it can help in addressing the informational, temporal, and financial constraints that exist for many customers. Solar leasing companies conduct marketing, research, and outreach to ensure that customers are informed of their options. Leases also avoid long payback periods and high upfront costs due to small, or no, down payments for equipment and installation.
Diagram of purchased solar and leased solar

State and federal policy has played a large role in making rooftop solar PV cost-effective for Californians. The state’s tiered electricity rate structure increases in steps as customers use higher amounts of electricity. However, coupled with California’s Net Energy Metering program, customers can reduce their electricity costs by installing a solar PV system, enabling their electricity use to remain in a lower, less expensive tier. The California Solar Initiative offers an up-front incentive for small solar PV installations based on their anticipated performance. On the federal level, the Investment Tax Credit allows businesses and residential consumers to receive a 30 percent tax credit on solar PV costs incurred through 2016.

California has become the leading state in solar PV, comprising 40 percent of the entire United States’ grid-connected PV capacity. Annual installations of rooftop solar PV in the state have increased by 27 percent on average since 2008.

Featured image courtesy of Sungevity