Third-Party Ownership of Distributed Solar Power Systems
Historically, the up-front cost of solar has discouraged many residential and commercial customers who may otherwise wish to generate their electricity with solar power. The provision of this initial investment through traditional financing arrangements can often lead to prohibitively high interest rates on loans for a solar system rendering the economics of the investment unfavorable. In the late 2000s, solar installers and developers began to develop the concept of providing solar electricity to a customer — or, the service of generating electricity from solar panels — without requiring that the customer own a solar electric system.
Similar to the manner in which a customer may lease a car or an apartment, or a company may lease manufacturing equipment, solar installers and developers have created a financial arrangement to allow customers access to solar power through third-party ownership of the solar electric system. There are currently two popular forms of third-party solar ownership: leasing and power purchase agreements (PPA). In the case of the former, a customer will contract with a solar provider to purchase the use of a solar system and the system's consequent electrical generation, without purchasing the system itself. Similarly, a PPA model allows a customer to purchase the electrical production of a solar system without having to purchase the system components that produce the solar electricity.
In addition to avoiding the up-front cost of solar, third-party ownership models may also offer installation, operation, maintenance, and often performance guarantee services along with solar electricity at a monthly rate that is designed to be competitive with a customer's historical electricity bill. Typically, a customer will have the option of putting no money down on the initial installation of the system and will then pay a monthly fee to the owner of the solar system over the course of the solar agreement. Alternatively, a customer can often also opt to make an initial down payment in exchange for lower monthly payments over the duration of the third-party ownership agreement, in much the same type of arrangement available to customers of auto leases.
In the Western U.S., third-party solar ownership has grown dramatically in prominence in the residential solar market. Local rebates and other incentives have declined with the growing popularity of solar, and the consequent increases in the up-front investment in solar have helped drive third-party ownership models because of the model's ability to directly address the up-front investment concerns of solar customers.
In some Western states, the percentage of third-party owned solar electric systems has steadily increased since 2010. In Massachusetts, that trend has been repeated starting in 2011. Third-party ownership statistics for California, Arizona, Colorado, and Massachusetts are provided below. These statistics demonstrate the trend towards third-party solar ownership in some state solar markets.
Source: U.S. Solar Market Insight Report, Q3 2012
Which states allow third-party ownership?
According to the Database of State Incentives for Renewables and Efficiency working in conjunction with IREC and Keyes and Fox, LLP, 22 states plus Washington D.C. and Puerto Rico have allowed third-party solar ownership in at least some jurisdictions. Typically, the determining factor to allowing third-party ownership is the state's definition of a "utility" in statute. Given the relatively new development of the ownership model, the matter has not been explicitly settled in many US states, as evidenced in the map below.
Click on your state below to find out which companies offer third-party financing in your state. The results will also include utility green pricing programs, retail green power products offered in competitive electricity markets, and renewable energy certificate (REC) products sold separate from electricity. For additional information about these distinct products, see our Overview of Green Power Markets.
For more information on state laws and regulations, see:
3rd-Party Solar PV Power Purchase Agreements (PPAs). February 2013.