When I talk to friends about investing in solar power, they love the idea but not the cost. It’s true, even with rebates and incentives, the up front cost of solar can still be anywhere between $5,000 and $20,000 depending on the size of the solar system. Fortunately for the state of New Jersey, more and more New Jersey solar companies are beginning to offer third party ownership models to help ease the up front cost of solar.
What is a third party ownership model? It’s a complicated way of describing a lease program or any financing mechanism where the actual beneficiary of the solar system is not forced to come up with a large amount of money to enjoy the benefits of solar power. Fortunately, for New Jersey residents, more companies that specialize in this type of solar financing are serving the state.
Companies like Solmentum, Inc., a San Francisco solar-marketing company, just launched operations in Mount Laurel, New Jersey to target New Jersey homeowners who own homes that are ideal for solar. More importantly, Solmentum works with SunRun, who just opened a Philadelphia office. SunRun is one of the largest solar financing and leasing companies in the country.
It is true that solar companies have been offering leasing packages for a long time to consumers. However, the leasing arrangements have become far more creative and competitive. Many solar companies offer a variety of leasing options ranging from $0 down to a couple of thousand dollars as a down payment. In each scenario, they factor in what they expect your new electric bill will be in addition to the lease fee and the total amount is still lower than what most consumers are paying without solar. Then when the rate of inflation for electricity is factored in, the savings over time can be even bigger.
However, the real innovation has been with the development of the power purchase agreement (PPA). A PPA is an arrangement similar to a lease where the solar installer secures funding on their own for the solar project, installs the solar system in your home and then sells the electricity from the solar system to the home at a fixed contractual price for a set length of time.
What helps make the arrangement work for the solar installer is that since they own the solar system, they are the beneficiaries of all the solar rebates and tax incentives. The consumer essentially turns their roof into a mini-utility and enjoys a fixed rate for their electricity over a 20-25 year contract term. And since utility rates in New Jersey and southern Pennsylvania are much higher than the rest of the region, PPA’s and other lease arrangements have much more potential value to the consumer.
Like a lease, a PPA is designed to appeal to those who want to go solar but cannot come up with a large cash outlay to pay for a system upfront. Basically, PPA’s are designed to bring solar to the masses and it is working. According to the Solar Energy Industry Association, third party ownership plans represent the fastest-growing segment of the residential solar market. “They’ve kind of taken the market by storm,” Shayle Kann, managing director at GTM Research in Boston, said last month during an industry briefing with reporters.
What is even more exciting is that PPA’s and leasing arrangements can help offset the reduction in available state rebates and incentives. In the heavy solar states like California and New Jersey, the demand for solar has been so great that it has depleted the available funds for rebates and other incentives, thus making it harder for a homeowner to finance a solar system. But with a PPA or lease, homeowners do not have to worry about rebates or incentives…their electricity rate is based on a contract. And for solar installers, the cost of installing solar is declining as the cost of the modules has decreased by around 30% along with non-module costs such as inverters, labor, marketing etc. As a result, they can still make their margins with a PPA or lease.