One Block Off the Grid announced last week that it was now offering leases for solar panel installations in addition to solar system purchases. With the solar leasing market getting more competitive, is there room for more green entrepreneurs to get in on the action?
Starting a solar leasing company is a great green business opportunity that offers entrepreneurs a chance to start a profitable business while helping homeowners save money on energy bills, improve local energy independence, and go green.
How Does Solar Leasing Work?
The average cost of a typical residential solar installation is about $30,000-50,000, depending on the size of the installation. Though this amount can be reduced with the help of tax incentives and other credits, it is still an intimidating sum of money for many homeowners who would otherwise be interested in installing their own solar panels. Solar leasing companies give these homeowners a hand by purchasing, installing, and maintaining solar panels for their home for little or no upfront cost. In exchange, the homeowner signs a contract (usually for 10-20 years) agreeing to lease the solar panels from the company (a solar lease) or to purchase power generated by the panels at a set rate (a solar power purchase agreement). In many regions of the country, the spread of solar leasing opportunities has contributed substantially to growth in the solar energy sector, so solar leasing can be regarded as a win-win-win situation for the leasing company, the homeowner, and the Earth alike.
Thanks to the high demand for solar among homeowners, solar leasing companies have been making headlines in recent years because of their success in attracting funding from investors who recognize a golden opportunity in the expanding clean energy market. A solar leasing startup hoping to attract investment funding must demonstrate that there is enough interest in its area of operation to be profitable. An initial client base of at least several hundred families is recommended.
How Do Solar Leasing Companies Make Money?
So how do solar leasing companies like SunRun, Solar City, and Sungevity provide a zero down or $1000 solar lease, charge less per month than a regular utility company, and still make money? Here’s how it works:
The federal government offers a 30% tax credit for residential solar electricity projects. Since the solar leasing companies own the residential solar panels that are being leased, these tax credits go to the company, not the homeowners. Many solar leasing companies bundle these tax credits together and sell them in the form of a tax equity fund, which can be purchased by other companies as a way to shelter taxable income. The solar leasing company gets funding and the purchaser gets a lower federal tax bill.
Once funding has been found and the first client households signed up, solar leasing companies can take advantage of their need to purchase solar panels in bulk in order to negotiate a lower price per panel. Some solar leasing companies have also partnered with community buying groups and other private or non-profit organizations to lower the costs further. Depending on local rates for contractors, some solar leasing companies maintain a staff in-house to take care of installation, maintenance, and repair of leased solar panels, while others hire third party contractors to do the work for them. It is also important to acquire a high quality renewable energy monitoring system in order to quickly respond to any issues that may arise with leased solar panels after installation.
Solar leasing companies have seen explosive growth in recent years, and the market continues to offer plenty of opportunities for expansion. If you are interested in a profitable green business opportunity that helps both people and the planet, consider a solar leasing company!