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The market for residential solar installations has changed dramatically in only the past five years.

Friday, January 27th 2012 2:25 PM
By GetSolar Staff.
The market for residential solar installations has changed dramatically in only the past five years. The market for residential solar installations has changed dramatically in only the past five years. As prices for solar systems drop and electricity rates continue to rise, the appeal of solar power has steadily grown for households around the country, particularly in areas with sizable solar incentives like California and New Jersey.

But, while the costs of rooftop solar installations have declined, they still remain in the tens of thousands of dollars and beyond the reach of many families. Indeed, a recent report from the National Renewable Energy Laboratory in Golden, Colorado, found that the people were substantially more likely to purchase a solar installation if their household income ranged above $150,000 per year.

Moreover, it turns out that the numerous solar incentives that have proven so effective in promoting the growth of the solar industry have actually done little to change the demographics of families choosing to actually purchase their solar installations outright. For that, homeowners have instead turned to the newest form of solar financing known as solar leasing.

"What is so interesting about the southern California data is that the strong decrease in PV prices – from lower retail costs and stronger federal incentives – didn’t pick up a new demographic," NREL’s Easan Drury, the lead author of the report, said in a statement. "But the new business model – leasing – did pick up a new customer demographic."

Traditionally, homeowners have had to accept all the risks involved in adding a solar installation to their houses. They put up the money, potentially making use of a home equity loan or some other form of borrowing, and they are responsible for the system's maintenance as soon as the solar installers complete their work.

For those without substantial resources to fall back on, this was often too much risk to justify. However, residential solar leasing offers an entirely new model to pay for solar energy. Rather than purchasing the system outright, homeowners can instead put down a small amount up-front, and sometimes nothing at all, and simply pay a fixed amount for the length of the lease.

Depending upon the size of the initial investment for the system and installation, this can mean the difference between eventually turning a substantial profit after five to 10 years and saving small amounts almost immediately.

Some have raised concerns about the standard solar leasing model, since it imposes fixed costs regardless of the output of the system, which can cause some frustration even if the solar company is responsible for maintenance. This has already led to the development of power purchase agreements, which function much like solar leases, but instead charge a fixed rate for the electricity that is actually produced.

USAToday reports that residential solar leasing has already had a notable impact on the market, accounting for one-third of all of California's residential solar installations in 2010. However, NREL suggests that the model could prove even more important, expanding the likely income range for solar installations down to $100,000 per year. That amounts to another 13 million Americans, including many younger families who might not otherwise have the money to purchase a system on their own or the assets to leverage.

NREL previously conducted an analysis of the Connecticut Solar Lease Program, implemented in August 2008 through the Connecticut Clean Energy Fund. That study found that the solar leasing program actually emerged as the leading cost-saver when compared to purchasing a solar system up-front with ready cash and financing it through a home equity loan. Even with payments for the lease stretching five years beyond the home equity loan, and of course 20 past the up-front purchase, the savings of the program prove substantially more in many cases.

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