New Financial Models Make Solar Power More Economical

Solar companies are becoming financial intermediaries, leading companies to install solar power that wouldn’t otherwise be able to afford it, The New York Times reports.

Using a “power-purchase agreement” model, many solar power companies take on the cost of installing solar panels on customers’ roofs. In return, customers pay the solar power company for the panels’ output, generally at a lower rate than they would otherwise pay.

HP recently announced that it is installing a 1-megawatt solar power system. It will buy back the power from the solar company at a reduced, locked-in rate. The system will be financed and owned by a third-party financier. Agilent, Hall’s Warehouse Corporation, and Kohl’s have all made similar moves recently.

The power purchase model is also attracting bankers – Morgan Stanley, G.E. Energy Financial Services, Goldman Sachs, Wells Fargo, and MMA Renewable Ventures have all arranged financing for recent solar energy projects.

Besides the financing, state incentives and a federal investment tax credit (worth up to 30 cents on the dollar) are also driving adoption.

The California Solar Initiative, launched in January 2006 as part of the state’s Million Solar Roofs program, provides more than $3 billion in incentives for solar power, according to a recent EL article. The goal is to generate 3,000 megawatts of new solar power statewide by 2017.

But not everything is rosy. While the industry is poised for strong growth, projections outside of California are often tempered as federal tax credits are typically extended on an annual or bi-annual basis. This creates uncertainty in the market for investors, especially as the Senate was unable to add an extension to the solar tax credits in the recent economic stimulus package. What the solar industry trade groups would like to see is an extension of the 30 percent solar investment tax credit for 8 years for commercial and for 6 years for residential installations.