One of the biggest developments in the U.S. residential solar photovoltaic (PV) market over the past few years has been the significant growth of residential solar PV systems not owned by homeowners. These are often referred to as third-party-owned systems.
Data from the California Solar Initiative (CSI) program, the largest and longest-running residential and commercial solar incentive program in the United States, show that third-party-owned residential installations grew rapidly as the solar industry created and refined the third-party ownership model. In 2012 and 2013, more than two-thirds of residential installations in the CSI program were third-party owned. Industry reports have indicated that the growth in popularity of third-party-owned residential solar PV systems is occurring in other states as well.
How the third-party ownership model works
Homeowners can contract with a company—sometimes called a solar leasing company, solar finance company, or third-party ownership company—to have a solar PV system installed on their rooftop (or elsewhere on their property). Depending on the agreement, the solar leasing company will often be responsible for financing, permitting, designing, installing, and maintaining the PV system. The contract between the homeowner and solar leasing company is typically structured in one of two ways:
Both of these contract options will usually offer a buyout option at the end of the contract term or during certain points over the contract period that would allow the homeowner to purchase and own the PV system.
The solar leasing company, as the PV system's owner, will generally receive all of the federal, state, and local incentives for which the PV system is eligible. These include additional commercial incentives, such as the federal Modified Accelerated Cost Recovery System (MACRS) incentive for solar equipment, which the PV system would not otherwise be eligible for if the residential homeowner owned the system. The solar leasing company will also usually own the renewable energy certificates (RECs) generated by the PV system, where such incentives are available.
The third-party ownership model is attractive to both parties involved for a number of reasons.
The solar leasing company:
Challenges and limitations
The growing volume of distributed generation, aided in part by the rapid growth of third-party-owned solar PV in some states, is challenging the role that electric utilities have historically played as the sole provider of electricity to customers. This new development has led to debate around what the appropriate level of compensation should be for distributed solar generation fed to the grid and what distributed generation customers ought to pay to utilities for non-electricity services, such as grid maintenance, as well as for electricity when their distributed generation system is not producing power (e.g., when the sun isn't shining).
A 2012 report by the National Renewable Energy Laboratory (NREL) explored the third-party ownership model, along with other residential solar PV financing options, in more depth.
Principal contributor: April Lee