Read Notes from the Solar Underground at http://www.spvmarketresearch.com

In January, SunPower announced a $220-million loan from Bank of America Merrill Lynch to support expansion of its solar lease program.  In December, Bank of America Merrill Lynch was the lead, and one of six lenders, involved in increasing SolarCity’s credit facility to $200-million.  

Residential solar leases are increasingly looking like a trend and not a fad.  Why?  This model enables homeowners to install PV systems without the high upfront cost of installation thus emulating the traditional utility model of renting electricity.  For solar businesses committed to this particular model the initial hardware investment should be more than offset by the eventual high margins. For investors, there are those eventual high margins to look forward to ensuring (maybe) either a profitable exit or repayment at a profit. 

Though this model looks as if it is a winner for both parties (lessor and lessee) it is too early to make a judgment in this regard.  In the future, lessees may not appreciate the escalation charge that is a part of all the lease structure. Also, in the future the difference between financing a PV system and leasing a PV system may make cost of leasing (as time goes on) seem less and less like a good deal.  

For businesses engaged in the solar lease model, it is too early to assess the costs of unimaginable outcomes such as another US housing crash – foreclosures and abandoned homes and solar leases, or, continued strong growth in the housing market that encourages homeowners to trade up (an owned PV system may be an asset, a leased one may not be an asset). Legislated and thus enforced standardization of escalation charges (among other things) could take a hunk out of margins.  New connection charges from utilities could annoy lessees.  Direct competition from utilities with their own lease models could well make this model less attractive (hint, partner with local utilities now before they figure out how to capitalize on this potential revenue stream). 

Finally, remember that everything changes – everything – and sometimes the changes are swift. The example in this regard is the feed in tariff model in Europe – back in the day (and this day is relatively recent) practically everyone thought that this was the incentive model of the future and investors believed FiT systems provided a safe and reliable investment. Now every investment in a FiT installation is one retroactive change away from going bust.