Leases and PPAs on the wane in US residential PV market: GTM

In a big milestone for the fast-evolving US distributed solar market, direct ownership – meaning cash sales and loans – will overtake third-party ownership as the leading model for residential solar financing in 2017, GTM Research predicts.

The third-party ownership (TPO) model – centred on long-term solar leases and PPAs – has been central to the meteoric rise of US rooftop solar players like SolarCity and Vivint Solar, with TPO deals overtaking direct sales in 2011 and peaking at a 72% market share in 2014.

Under the TPO model, homeowners receive rooftop PV systems for little or no upfront cost that often bring immediate savings on their power bill, and then pay companies like SolarCity a monthly fee for years or decades to come. The homeowners never take ownership of the solar panels. 

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But US homeowners are increasingly choosing to buy their PV systems outright or through a loan, with the TPO model’s share of the residential market set to fall to 54% in 2016 and then 45% next year, GTM says.

By early next decade, purchases or loans of PV systems will dominate the residential solar business, with TPO deals to claim just a 27% share of the market, GTM predicts.

There are a number of reasons for the rapid shift. PV systems are becoming more affordable, homeowners are growing more comfortable with the technology, and more competitive solar loan options are available today than ever before.

California’s Mosaic – which offers loans to homeowners regardless of who is installing their panels – was the leading solar-loan provider in the first half of 2016, GTM says.

The shift away from high-growth mode at SolarCity and Vivint Solar is also impacting the overall market, with smaller regional players – who are much more likely to focus on outright sales – gaining share. Both SolarCity and Vivint offer solar loans, but they still make up a small, if growing, portion of their business.

The US residential solar market is also beginning to see significant growth in states like Utah and Florida, where the TPO model has not been permitted.

“The solar loan market is much more fragmented than the leasing market ever was,” says GTM Research senior analyst Nicole Litvak. “Installers and homeowners have access to more companies financing loans as well as multiple options for loan tenors, interest rates and dealer fees.”