Last year a record-breaking 3.3 gigawatts of solar was installed in the US, making it the fastest-growing energy source in the country. My colleague, Josh Lower, recently wrote about the growth in photovoltaic systems in the US.
The country is on pace to break another record this year. The US installed 723 megawatts of solar energy, including residential, nonresidential, and utility projects, in the first quarter this year. That’s a 33 percent increase over the same time period last year, according to a report by the Solar Energy Industries Association (SEIA).
Several elements are contributing to the growth in the solar industry. Improved availability and cost of project financing are major factors. The cost of photovoltaics, which are panels that convert sunlight into energy, also has come down. As costs have lowered and access to financing has improved, more Americans are installing solar.
The SEIA estimates that the market will require $48.5 billion of investment between 2013 and 2017, which far exceeds all project finance provided to date. While project finance could serve as a significant bottleneck to growth, market participants are looking to alternative sources of capital.
Real estate investment trusts (REITs) created to focus on sustainable infrastructure, corporations, and utilities have all gotten in on solar funding.
Crowd funding of solar also is an intriguing trend. One company, Mosaic, offers people the opportunity to invest in solar projects around the country. For as little as $25, ordinary investors can contribute to the funding of a project and then receive interest on its earnings.
Another startup, Clean Power Finance, also recently announced that it raised $37 million in growth equity from Silicon Valley investors. It is one of several companies that offer third-party financing for solar projects. SolarCity, which sells, installs, and finances turnkey energy systems, went public in a $92 million IPO last year.
Third-party financing is becoming a popular method to fund solar projects as opposed to cash purchases. Through third-party funding, customers can sign a traditional lease and pay for the use of a solar system or they can sign a power purchase agreement (PPA) to pay a specific rate for the electricity that is generated each month. With a PPA, an installer builds a solar system on a customer’s property at no cost to the customer.
Solar is growing quickly in markets such as California, which has the most solar power installed. Other top markets for solar include New Jersey and Hawaii. While several states permit PPA third-party solar financing, the financing method faces regulatory and legal challenges in many others. In states without third-party lending options, homeowners and others must fund solar the old-fashioned way, with cash or through small loans from traditional financial institutions.