In 2012, U.S. installations of
photovoltaic ("PV") solar generation reached
3,313 megawatts, an industry record and an increase of 76 percent
over 2011, according to a
recent announcement by GTM Research and the Solar
Energy Industries Association. The number of solar installations in
the U.S. in 2012 exceeded 90,000, and the rent payment schedule
included 83,000 installations of distributed solar generation in
the residential market. GTM Research and SEIA expect that the
residential market for solar generation will surge in 2013 and
beyond, as third-party solar financing options become more widely
available.
Third-party financing of residential PV systems is typically
provided through either a power purchase agreement
("PPA") or a lease. In PPA financing, a customer
pays a specified rate to a solar developer/installer for the
electricity generated by a PV system installed at no up-front cost
to the customer on the rooftop of the customer's home or
elsewhere on property owned or leased by the customer. In lease
financing, the customer pays the solar developer/installer rent for
use of the PV system. The rent payment schedule may be structured
so the customer pays none or a portion of system costs up
front.
In either PPA or lease financing, because the developer/installer
pays all or most of the up-front costs of the PV system, the
developer/installer retains ownership of the system throughout the
term of the PPA or the lease, subject to any early buy-out rights
the customer may have. From the perspective of a traditional
electric utility, the ownership of the electric generation system
by a third party (i.e., neither the consumer of the
system's output nor the utility itself) conflicts with
the utility's monopoly on providing electric service
within its specified service territory, as historically granted
under state laws. According to a
summary map in the Database of Incentives for
Renewables and Efficiency, third-party solar PV PPAs were
apparently disallowed or otherwise restricted by legal barriers in
six states as of February 2013, and their status was unclear or
unknown in an additional 22 states.
Notwithstanding the decreased costs of residential PV systems
(average prices dropped 20 percent to $5.04 per watt in the fourth
quarter of 2012 compared to the fourth quarter of 2011), where
third-party financing is permitted, it is popular. For example, in
California and Arizona, the two largest state solar markets in
2012, third-party financing accounted for more than 50 percent of
new residential solar installations, and GTM Research projects that
the size of the third-party financing market will grow from $1.3
billion in 2012 to $5.7 billion in 2016.
Three additional states may join the ranks of those that permit
third-party solar financing under proposed legislation in Georgia,
Minnesota, and South Carolina, albeit with certain limitations on
total renewable capacity in the case of Georgia and South Carolina.
Minnesota's proposed legislation (H.F. 956 and its
companion Senate bill, S.F. 901), introduced in late February 2013,
is currently under committee review. In addition to allowing
third-party ownership to enable third-party financing options, the
Minnesota bills provide a number of measures supporting renewable
energy growth. They would also prohibit the Minnesota public
utilities commission or any municipal utility's
governing body from limiting the cumulative amount of renewable or
other distributed generation eligible for net metering from a
utility to less than five percent of the
utility's average annual retail sales over the previous
three years, and would require any limitation greater
than five percent to be based on a determination that it
is in the public interest.
Both the proposed Georgia legislation (H. 3425) and the proposed
South Carolina legislation (H. 3425 and companion bill S. 0536) are
more narrowly targeted at enabling third-party financing. The
Georgia bill provides for a single, certified "community
solar provider" to be the sole provider of third-party
financing and limits the utility's obligation to
purchase net-metered energy from renewable sources to a cumulative
renewable capacity of 0.2 percent of the utility's peak
demand in the previous year. The South Carolina legislation would
limit the aggregate capacity of all third-party-owned renewable
energy facilities in a utility's service territory
to two percent of the utility's peak
demand.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.