Skip Navigation to main content U.S. Department of Energy Energy Efficiency and Renewable Energy
Green Power Network
About the GPNGreen Power MarketsBuying Green PowerOnsite Renewable EnergyInformation ResourcesFinancial OpportunitiesHome
On-site Renewable Energy

 
 

On-site Renewable Energy
Third-Party Solar Financing


Third-Party Solar Financing

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.

General Statistics

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.

A chart showing the percentage of total solar installations owned by third-parties in California, Arizona, Colorado, and Massachusetts.

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.

3rd-Party Solar PV Power Purchase Agreements (PPAs)


A map showing states that allow/disallow third-party solar photovoltaics power purchase agreements. States allowing are Hawaii, Oregon, California, Nevada, Utah (limited), Arizona (limited), Colorado, New Mexico, Texas, Illinois, Michigan, Ohio, Vermont, New York, Connecticut, Massachusetts, Rhode Island (limited), New Jersey, Pennsylvania, Maryland, Delaware, Washington D.C., and Puerto Rico. States that are disallowing Florida, Georgia, South Carolina, Kentucky, and Iowa.

AK  AL  AR  AZ  CA  CO  CT  DC  DE  FL  GA  HI  IA  ID  IL  IN  KS  KY  LA  MA  MD  ME  MI  MN  MO  MS  MT  NC  ND  NE  NH  NJ  NM  NV  NY  OH  OK  OR  PA  RI  SC  SD  TN  TX  UT  VA  VT  WA  WI  WV  WY 

Alabama Alaska Arizona Arkansas California Colorado Connecticut Connecticut Delaware Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Maryland Massachusetts Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Hampshire New Jersey New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Vermont Virginia Washington West Virginia Wisconsin Wyoming Washington, DC

For more information on state laws and regulations, see:
3rd-Party Solar PV Power Purchase Agreements (PPAs). February 2013.

Additional Resources

 

Printable Version


Skip footer navigation to end of page.