PHOTO: SERGIO FLORES/BLOOMBERG NEWS
Falling equipment prices and more availability of loans are making purchasing increasingly cost effective
SolarCity, Sunrun and Vivint Solar Inc. together supplied 56% of the home-solar market in the U.S. last year, primarily with leases, according to GTM Research, which tracks renewable-energy markets.
They are on track to serve just 50% this year, according to GTM, as smaller companies such as Sunworks Inc. and PetersenDean Inc. that offer loans to purchase the panels pick up more business.
Solar leases and similar contracts, known as power-purchase agreements, accounted for 72% of home-solar sales in 2014, but their share is projected to drop to 48% by 2017, according to GTM. The companies also install panels at commercial properties. Leasing became a popular way for customers to obtain home solar panels without having to come up with the large upfront amounts needed to buy a system.
Six-kilowatt systems currently cost between $21,000 and $25,800, according to the Solar Energy Industries Association and GTM.
It is a profitable model for companies, which collect lease payments from customers every month for about 20 years, under contracts that often increase payment amounts each year. For example, a California homeowner might pay $17,500 to buy an average-size five-kilowatt system, whereas a 20-year lease with monthly payments that start at $150 and increase 2.9% a year would have lease payments totaling about $36,600.For consumers, owning the panels can bring greater long-term savings, and more companies have begun offering loans, making buying more achievable and cost effective.
Dozens of lenders now offer consumer loans for solar panels, with interest rates between about 3% and 9%, whereas a few years ago, such loans were more difficult to find. SolarCity—whose chairman is billionaire entrepreneur Elon Musk, who also leads Tesla Motors Inc. and Space Exploration Technologies Inc.—has been unprofitable each year since it went public in 2012. The company has a market value of about $2.3 billion, according to FactSet.
The San Mateo, Calif.-based company started offering solar loans again in May, in addition to leases, after initially trying them last year before withdrawing them because of a lack of demand.