The rise of the third party solar business model, in which a financier owns a rooftop PV system and either leases the array to a home or business owner or sells them the power at a fixed rate – has had a good run. Solar leases and power purchase agreements (PPAs) boomed during a period of expansion for the rooftop solar market, making solar available to a wider range of customers and building the industry’s largest national installers, including SolarCity and Sunrun.
However, this third-party model is being eclipsed again by direct cash purchases and loans. As the latest confirmation of this, installer survey data gathered by EnergySage in partnership with pv magazine shows more installers, particularly small installers, are selling systems on a cash basis and not using third-party finance providers.
This is EnergySage’s 2nd annual installer survey, and of the over 350 installers who responded nearly 3/4 stated that they do not offer leases or PPAs to their customers, up from only around half last year. For small installers this was particularly noticeable, with 95-96% stating that only 1/4 or less of their business came from PPAs and leases, as opposed to 87% of large installers.
But while neither leases nor PPAs were popular among the residential installers surveyed by EnergySage, PPAs did slightly better among commercial installers, with 20% stating that half or more of their customers were using a PPA option.
This data is in line with the conclusions of market analysts. GTM Research states that the portion of the lease and PPA portion of the residential solar market fell in 2015 compared to 2014 levels. While the company has not released final data for 2016, in November GTM Research predicted that the share of third-party solar will continue to fall every year to reach 28% in 2020.
However, EnergySage’s survey data shows that despite the relatively unpopularity of PPAs and leases, loans are not entirely replacing third-party solar. Of all installers surveyed only 8% reported that they don’t sell systems on a cash basis, with 45% stating that more than half of their sales are direct.
Meanwhile, only 44% reported that they offer secured loans, and 63% unsecured loans. For these installers such loans still represent a minority of their business, with only 12% of the total estimating that more than half their sales were through secured loans, and 22% through unsecured loans.
Survey results also found that loans – particularly equipment-backed loans – are more often used by customers of large installers, and more by residential than commercial solar providers.
In general installers are reporting a fairly high degree of satisfaction with loan products compared to leases and PPAS. Among the respondents that used equipment-backed and mortgage-backed loans, roughly half reported that they were satisfied or very satisfied with the option – a much higher rate than for Property Assessed Clean Energy (PACE) financing, government-subsidized loans, leases or PPAs.
This trend of relatively high satisfaction held true across different sized installers and for both commercial and residential installers.
EnergySage and pv magazine will be publishing full survey results in coming weeks.