The biggest thing stopping the sun is money. Installing a rooftop array of solar panels large enough to produce all of the energy required by a building is the equivalent of prepaying its electricity bill for the next seven to 10 years—and that’s after federal and state incentives. A new innovation in financing, however, has opened up an additional possibility for homeowners who want to reduce their carbon footprint and lower their electric bills: get the panels for free, then pay for the power as you go.
The system works something like a home mortgage. Organizations and individuals looking for a steady return on their investment, typically banks or municipal bond holders, use a pool of cash to pay for the solar panels. Directly or indirectly, homeowners buy the electricity produced by their own rooftop at a rate that is less, per kilowatt-hour, than they would pay for electricity from the grid. Investors get a safe investment—the latest generation of solar-panel technology works dependably for years—and homeowners get a break on their monthly bills, not to mention the satisfaction of significantly reducing their carbon footprint. “This is a way to get solar without putting any money down and to start saving money from day one. That’s a first,” says SolarCity co-founder Peter Rive.
SolarCity is the largest installer of household solar panels to have adopted this strategy. Founded in 2006 by two brothers who are also Silicon Valley–based serial entrepreneurs, SolarCity leases its panels to homeowners but gives the electricity away for free. The net effect is a much reduced utility bill (customers still need utility-delivered power when the sun isn’t out) plus a monthly SolarCity bill. The total for both comes out to less than the old bill. SunRun in San Francisco offers consumers a similar package, except that the company sells customers the electricity instead of leasing them the panels.
Cities such as Berkeley and Boulder are pioneering their own version of solar-panel financing by loaning individuals the entire amount required to pay for solar panels and installation. The project is paid for by municipal bonds, and the homeowner pays back the loan over 20 years as a part of the property tax bill. The effect is the same whichever route a consumer takes: the new obligation, in the form of taxes, a lease or a long-term contract for electricity, ends up costing less than the existing utility bill.
“What we’re really seeing is a transition in how we think about buying energy goods and services,” says Daniel M. Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley. Kammen, who did the initial analysis on Berkeley’s financing model, believes that by turning to financing, consumers can overcome the inherent disadvantage renewables have when compared with existing energy sources: the infrastructure for power from the grid has already been paid for and, in many cases, has been subsidized for decades.
All three approaches are rapidly expanding across the country. Despite the Berkeley program being less than two years old, 10 different states have passed legislation allowing their cities to set up a Berkeley-style bond-financed loan program. With the passage of the Waxman-Markey climate bill, the option for cities to set up these programs would become federal law. SunEdison in Maryland is currently active in nine states. SolarCity, which has more than 4,000 customers, is active in California, Arizona and Oregon and has promised to announce additional states after the new year.
Right now it is not possible to lower the overall cost of rooftop solar to “grid parity,” that is, to the same price as electricity from local utility companies, without federal subsidies such as the investment tax credit, which lowers the tax bill of banks financing these projects. Those subsidies, which amount to 30 percent of the cost of a solar installation, are guaranteed for at least eight years. By then, SolarCity and its competitors claim they won’t need them.
“Grid parity is driven by multiple factors,” says Attila Toth, vice president of marketing at SunEdison, including the cost of capital, the cost of panels and their installation, and the intensity of sunlight in a given region. “It will occur in different states at different times, but, for example, we expect that California will be one of the first states in the U.S. to get to grid parity, sometime between three and five years from now.”
While the cost of electricity from fossil fuels has increased 3 to 5 percent a year for the past decade, the cost of solar panels has fallen on average 20 percent for every doubling of its installed base. Grid parity is where these trend lines cross—after that, solar has the potential to power more than just homes. It’s hardly a coincidence that Elon Musk, head of electric car company Tesla Motors, sits on SolarCity’s board of directors.