How can companies like SunRun, Sungevity, and SolarCity provide a zero down or $1000 down solar lease while charging less per month than a utility company? Here’s a high level overview of how solar leasing companies make money.
The first step is project finance. Because there is a 30% federal tax credit for residential solar electricity projects, the leasing companies, who ultimately own the home solar energy systems that they lease to homeowners, are able to sell those tax credits via a tax equity fund. That is to say, they sell the tax credit to an investor or a bank that has taxable income that they’d like to shelter. By sheltering the taxable income the investor may be able to get into a lower tax bracket. Win win for both parties. The leasing company has money to pay for the installations and the tax equity fund investors get a tax shelter. The only one who doesn’t necessarily win is the tax man.
The leasing company could also raise money by offering a recurring revenue stream for investors. For example, they could provide investors with a 6% return annually for 20 years if they know that their margins from their leasing business will be greater than 6% a year.
Once the leasing company has raised money to finance their projects, they then sign up customers and use the project finance money to cover the upfront costs of buying and installing the solar panels. Customers generally pay between $0 and $1000 down paired with a monthly lease payment that increases around 2.5% – 3.5% a year for 10-20 years (vs a historical 6% annual increase in utility electricity prices)
At this point the leasing company has raised money by selling tax credits and predictable returns, then used that money to pay for and install the solar panels. Other than periodic maintenance of the panels (washing them) and potentially replacing the inverter at some point the leasing company’s work is essentially done after the initial installation. They’ll monitor the system using a reneable energy monitoring system so that they know of any issues with the system as soon as they arise.
The homeowners will pay zero down or some amount of money down depending on what they want their monthly payments to be. More down generally means a lower monthly payment. For the duration of the lease the homeowner who will pay the lease company a monthly fee to lease the panels and will get clean, renewable solar energy for the life of the lease.
20 years of payments will likely add up to be more in today’s dollars than a one time payment today to buy and install a system, and that is in part where leasing companies make money. You are paying them for the ability to pay for solar energy on a monthly basis rather than pre-paying it for the next 20+ years. Also, because of the number of installations they do per year leasing companies are often able to negotiate better pricing on materials and the installations than an individual home owner would be able to, again, an area where they could make money.
So between the lower equipment & installation costs, the monthly lease payments, the investment vehicle with predictable long term returns, and the tax equity fund project finance, the solar leasing companies are able to help home owners go solar for as little as zero money down while still running a profitable business.