Solar Leasing: Solar's Next Big Thing

The concept of leasing solar-energy systems is catching on with both consumers and investors.

Amanda Alix
Amanda Alix
May 7, 2012 at 12:00AM

If you thought the solar industry was dead in the water, think again. A fairly new concept is catching fire, and it's attracting moneyed investors: leasing residential solar energy systems to homeowners who pay a monthly fee to enjoy clean energy, without the up-front costs.

Big money has gotten behind solar leasing
Sunrun pioneered the idea of the solar lease in 2007, and still controls most of the market. Depending on where a customer lives, the program entails either a solar lease, which consists of the consumer paying a fixed amount monthly regardless of how much power the system produces, or a power purchase agreement, whereby the customer is billed only for the amount of power his system generates. The solar company owns all the equipment, and the leases generally span 20 years.

This concept has become increasingly popular, and Sunrun claims to have installed $1 million worth of these systems each day since January of last year. Other solar companies are popping up to take advantage of this new solar market, and big investors are seeing the light as well. US Bancorp (NYSE: USB) has partnered with Sunrun for several years, and just recently announced another renewable energy tax equity fund that will help purchase $150 million worth of residential solar energy systems. The two entities have teamed up for five previous equity fund initiatives. US Bancorp also has teamed up with Sungevity, an online solar energy provider, to offer 10-year residential solar leases, to the tune of $24 million.

The solar lease/PPA market is growing by leaps and bounds in California, increasing 174% in the first two months of 2012 compared to the first two months of 2011. Sunrun still accounts for one-third of all installations in California, but there's plenty of profit there, and others are jumping in to sop up some of the gravy. Recently, a subsidiary of Morgan Stanley (NYSE: MS), MS Solar Solutions, joined forces with Clean Power Finance to create MySolar. As part of this arrangement, Clean Power will manage up to $300 million in funds that will be invested in solar projects.

Last year, Citigroup (NYSE: C) dedicated $80 million of a $105 million fund for a residential solar leasing project with SunPower, helping the solar company expand its program to eight additional states. The bank also put up $40 million to back a deal with SolarCity, and another $50 million to fund a lease fund with Sungevity.

A win-win situation
Leasing programs make solar more widely available, especially since some key government subsidy programs expired at the end of last year. Since the energy contracts are long-term, the risk factor is low for investors such as banks. As these programs gain popularity, other investors will probably get on board, as Google has. The big G has invested in a leasing program with SolarCity, putting in $280 million, in addition to the project with Morgan Stanley.

If you're looking to get involved in this type of investment yourself, here's some good news: SolarCity has recently announced its plans to go public, perhaps sometime this year. Could this be the new wave of solar investing?

Solar energy is increasingly gaining more attention in the energy market due to its kWh being almost in parity with carbon-based energy sources. However, some investors are hesitant to jump into solar stocks, and for those of you who are looking for other energy stocks to add to your portfolio, take a moment to read our report on energy investing -- it's right here, and it's free!