Clean Power Iowa rooftop solar

Published on August 21st, 2014 | by Rocky Mountain Institute


Americans & Australians May Disagree On Solar Leasing

August 21st, 2014 by  

Rocky Mountain Institute.
By Robert McIntosh.

On a recent trip to Australia, I noticed that very few residential solar systems are leased. The vast majority are customer owned. Talking to industry experts, some claimed more than 90 percent of residential solar systems in Australia are customer owned. This is in stark contrast to the U.S., where last year 66 percent of residential solar is leased from third-party owners like SolarCity. Why such different approaches to ownership of residential rooftop solar?

Iowa rooftop solar

Iowa rooftop solar courtesy of Eagle Point Solar.

Americans, for one, love finance. The average American household carries nearly $16,000 in credit card debt. We finance almost everything: our homes, our cars, our smartphones. And now we finance our rooftop solar, as well. Leasing—not to own, but to obtain electricity—has been an important driver of solar’s impressive ascent here.

The growth of the solar industry in the U.S. has been exceptional. Just this year we surpassed Germany, the former world leader, in new annual installations (though Germany still has more cumulative installed solar capacity). It is no coincidence that the massive growth of residential solar installations has coincided with the growth in solar leasing. No-money-down, third-party-owned residential solar leases have removed the significant hurdle of upfront costs, making rooftop solar accessible to more homeowners than ever before. Thus third-party ownership is expected to hit a record 68 percent of residential solar in the U.S. this year, with third-party-owned systems accounting for as much as 90 percent of new installs in places such as Colorado.

Two Different Roads Travelled

Australians value ownership and consumer independence. During a survey of potential Australian solar customers, third-party financing was the least popular option for obtaining solar electricity (though attitudes seem to be slowly changing). Upfront purchase was the most popular. It was described as “the Australian way.” Unlike the U.S., where financing and debt are usually a part of everyday life, Australian solar customers were less comfortable with the idea of an outside group being involved in ownership of their energy system. What if the company goes bankrupt? What if I move? What if a better option becomes available? Australians survey respondents enjoyed proprietorship of systems because it provided more certainty.

When the Australian government increased its solar incentive program in 2009, it made sense for customers to buy systems up front. A 4 kW system costing $10,000 (back in 2009 or 2010) could, with rebates and FITs, pay itself back within 2–3 years, providing electricity and making money for the homeowners for decades thereafter. But now that the market has fully developed, those incentives have been rescinded. Things are changing.

The U.S. never offered the level of solar incentives Australia did, so there was no massive growth. Solar prices did not drop precipitously like they did Down Under. Most customers could not afford to wait 5 or 10 years for a system to pay itself back before they started saving money. Banks were wary of loaning cash for solar systems (it was a new market); few options were available. Third-party finance bridged the gap and (arguably) helped save the U.S. solar market; solar became economically appealing to a much wider range of customers.

As solar prices fall, though, the market may shift. In fact, we’ll likely see more Australian homeowners opt for solar leasing, and more United States customers opt for system ownership (some are already speculating that 2014 could be the peak for U.S. solar leasing).

The Pros of Leasing

Solar customers in the U.S. enjoy third-party financing in part because they don’t care about the system itself; they only care about the electricity it produces. Forget the roughly $20,000 sticker price for an average 4 kW system. Forget the 10- to 15-year payback. Owning the system might save more money years down the road, but we’ve historically preferred to save less money today rather than more money tomorrow. Leasing means a customer saves money on electricity today.

Beyond this, there are potential headaches associated with owning solar systems that convenience-minded customers could find a turn off. A system’s maintenance is your responsibility. If it breaks, you pay for it. Obtaining the rebates, renewable energy credits, feed-in tariffs (FITs), or other incentives requires filling out lots of paperwork. And most consumers don’t have enough tax liability to take full advantage of the federal tax credit.

Third-party financing lets the solar company deal with these hassles; they are more experienced and can more fully monetize incentives. As installing and maintaining the system costs less and less, the additional money the retailers save can get back to the consumer through lower-priced contracts. Potentially.

The Pros of Owning

If leasing is so great, then, why isn’t everybody doing it? In the U.S., 30 percent or more of customers still opt to buy their solar systems up front. In Australia, almost everybody does. The potential total savings for customers is greater if they can afford to wait out their system’s payback period. Leasing passes this long-term savings on to the financing company. And homeowners—especially ones with larger tax liabilities—can take fuller advantage of federal and state tax incentives for installing rooftop solar.
Meanwhile, financing through a lease can add to the cost of solar—both the overhead costs to arrange the lease and the added cost of interest over time. This may be a large part of the reason solar systems in the U.S. cost roughly twice as much as Australia and Germany. At this point, almost half the cost of solar systems in the U.S. is consumed by unclear margins and finance overhead, compared to about 10 percent of costs in Australia and Germany. Buying up front eliminates these added costs and makes the price of systems more reasonable.

In addition, financing can reduce incentives for companies to lower costs for customers. The price of solar electricity just has to be lower than the alternative utility bills. If a customer can already—through a lease—obtain solar electricity for less than their previous utility bill, then financing companies don’t have to drop lease prices even as the price of solar falls. Solar system price reductions become added margins for retailers, rather than savings for customers. In Australia, where companies have to compete on purchase price, there has been a drive to drastically cut costs as companies compete for customers. An argument could be made that competition for lease terms would do the same thing, but it has not happened so far in the U.S. Buying systems up front seems a far more reliable way to lower total system costs.

A Blended Future

How might solar markets evolve? Is third-party finance or upfront buying going to put more solar on rooftops?

In Australia, the rapid growth in installations is starting to slow. With declining incentives and increasing average system size, fewer Australian customers are willing to wait for a longer system payback. Though it is impressive that 10 percent of Australian households now have a solar system, there still may be a considerable number who cannot afford to buy up front and would require some leasing option. To continue to make solar appealing to that consumer group, Australian companies will need to offer leasing opportunities. Australia could look to the U.S. for how an effective solar finance market develops (and what problems can occur).

Meanwhile in the U.S., the solar market is also shifting. Prices continue to decline. The federal tax credit for solar finance might expire. Loans are becoming more widely available in the U.S., allowing customers to own their systems instead of leasing them. Like Australians, some Americans may just prefer to own their power generation equipment. Outside of solar leasing to date, Americans tend to finance to own. For example, more than three-quarters of us would rather own than lease our new cars, even if we finance the purchase and pay off the vehicle in monthly payments.

When more Americans are looking to buy systems outright, companies will be forced to compete more on upfront costs and solar system prices will fall. Capitalism in action. These falling prices will open up the solar market to a whole new group of customers who prefer ownership over leasing, and can now afford a system. New customers means more solar on roofs.


Is third-party or customer ownership the solution? Neither. Both. Which one makes sense depends on what the customer wants economically, socially, and culturally. The U.S. and Australia both need to shift the way their markets work in order to make both options viable and give customers the freedom to decide, rather than predominantly favoring one. This is going to ensure the lowest prices, the maximum of customer choice, and (overall) the greatest adoption of rooftop solar. That last point is great for everyone, so we can live in a world where we harvest the limitless (for a few billion years, at least) energy of the sun and have minimal carbon in the atmosphere.

In the meantime, we’ll watch two of the world’s leading nations for distributed solar PV approach residential rooftop solar from nearly opposite ends of the ownership spectrum. What each can learn from the other and how their respective solar markets continue to evolve will be illuminating to watch.

Source: Rocky Mountain Institute. Reproduced with permission.

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About the Author

Since 1982, Rocky Mountain Institute has advanced market-based solutions that transform global energy use to create a clean, prosperous and secure future. An independent, nonprofit think-and-do tank, RMI engages with businesses, communities and institutions to accelerate and scale replicable solutions that drive the cost-effective shift from fossil fuels to efficiency and renewables. Please visit for more information.

  • CaptD

    US Utilities love wind since it allows them to profit from “renewables” while at the same time keep their ratepayers as their energy slaves, since the ratepayers are not using rooftop solar which gives them the ability to generate their own Energy for free (after initial payback) for 30 plus years…

    So look to US Utilities to keep their future Utility Energy costs just slightly above the cost of adding solar to one roof, since that will maximize Utility profits and minimize the number of ratepayers that install their own Solar!

    The one great unknown is if new battery/storage technology will “overnight” change the above calculations since low cost batteries could be yet another reason to keep what you generate, instead of adding it to the Grid, something that Utilities would fight tooth and nail because it would reduce the amount of their profits since they pay only a tiny fraction of what they charge others for Energy put into the Grid by non-Utility Solar generation.


    Good News for all the ratepayers in AU, every PV panel is a big vote for less coal and/or dirty expensive energy generation.

  • Dee Kay

    As an Aussie who has lived in the US 20+ years and also used to write about personal finance, I agree that there is a fundamentally different appetite for debt as well as leases in Australia – anyone who lived through the spiking mortgage rates in Australia in the late 1980s knows that debt is a scary thing (mortgages were variable rate then). And leases just simply aren’t as common. If I asked my friends there if they’d lease solar, they’d probably reply: I would never lease a car – why would I lease a solar system that is being attached to my roof?

    But it’s more than just that. I agree with those pointing out that it’s more than just the Americans’ comfort with leases – the structure of the market has largely been driven by the tax incentives. IF the tax incentives hadn’t been able to be claimed by a third party, I would bet you that third party ownership would not have flourished in the US. As for my countrymen saying Americans are stupid for leasing, remember that the average American owns each house they have in their lifetime around seven years, and many are not in a high enough cax bracket to be able to fully use the tax credit, so building equity in an asset related to their house for a tax credit that they may not be able to use isn’t necessarily the smartest thing.

    • Offgridman

      Thank you for this explanation of the differences between the American and Australian attitudes toward debt and purchasing.
      For myself, for myself my cars, property, home, and solar system were all mostly prepaid, but I know that I am the odd man out here in the US. I don’t really know anyone else that has the same attitude towards debt other than my father and grandfather that taught it to me.
      Perhaps it is our Scotch heritage and fear of losing our property as happened to my great great grandfather. Or some other genetic oddity, but I just don’t feel comfortable buying something with the idea that it can be taken away by a circumstance of fate. But as I said there are none or very few here in the US with the same attitude.

  • Msolar

    The article completely misses the point that the 30% federal ITC makes solar attractive to Wall Street and other investors through tax equity. Without the ITC, leases would be few and far between because wall st couldn’t make their 20%+ ROI.

  • Wayne Williamson

    People in the US have been brain washed for years that the only way to buy something expensive like a house or car or wedding or education is to borrow and then pay back for pretty much the rest of your life. It is actually much, much, much cheaper to save up the money before you buy, just takes a little patience and planning….

  • GCO

    To better illustrate my previous point, a few pictures of solar modules defects, and aftermath of some failures. While no module would be fully immune to those problems, sub-par manufacturing/testing and use of lower-grade components (especially undersized or outright missing bypass diodes) greatly increase the risks.

    A solar PV installation is a high-voltage, high-power system. Proper use of approved and adequately-rated components is critical to maintain safety.

  • inductancereluctance

    That’s because Australians are much smarter than us gullible Americans. Oh sure, Take my 30% tax credit and my cash rebate and charge me far more for the same system. And while you’re at it, throw in a 2.9% annual payment escalator that will raise my monthly payments by up to 2.9% per year, every year for 20 years. Where do I sign ?

  • GCO

    So which is a better deal?
    – 50c/”watt” from some unknown company abroad, with zero guarantee that the products match their ratings nor can be legally installed and operated (UL listing anywhere? Funny-looking CE logo?)
    – 1$/W from a reputable, domestic manufacturer which has been in the business for decades, offer a 25y warranty, and whose products are demonstrably safe and reliable, and reasonably expected to last 30+ years.

    Easy choice if you ask me, or any professional — including your insurance agent.

    • inductancereluctance

      Either way, it’s still far, far less costly than the solar lease or PPA scam. DIY rules !

      • GCO

        Agreed, owning/financing the system will be a better deal than a lease or PPA. I wouldn’t recommend self-installation to anyone without in-depth knowledge of electrical and building best practices, codes and regulations though.
        Play it safe, ask a pro for advice at least.

        • Ken Linder

          I just read an article on solar leasing. In the USA about 2/3ds of the home PV systems are on lease contracts. However it seems Aussies try to avoid personal debt, whereas in the USa each person has about 13,00 in credit card debt (average) and the US folk only look at the electricity costs and the savings.

          ME? We went without fully functional hot water (a thing Aussies often buy through an LPG provider) and did so for three years as the old system died. I waited until I can pay cash. Then again we live in the country. Out here you CAN’T buy a hot water system on a contract and have it installed by a big LPG provider. You buy it all for cash (or put it on your mortgage) and then pay to have it installed by any reliable trades person you can find who will do a call-out that far from town.

          I am also on a pension (wife and I are both disabled) and we live out in the counrty were can can afford a mortgage (a lot less expensive that living closer in and paying rent).

          AND our 30 year mortgage…by being willing to stay at home, wear crappy old sweats, have an old TV and a slow old computer…in 5 years that mortgage is now down under 15 years. I pick pennies until they tell me “if it is safe”

          I consider getting solar on a lease to be about as smart as paying 3 times the normal price (over time) in order to have a no money down huge 3D TV “right now”, instead of waiting – or not buying one you don’t need & can;t really afford. Interest is what you pay for getting tomorrows cash today. My impatience is not worth that much cash difference.

      • Ken Linder

        There is no such thing as a free lunch.

        DIY has a big issue. You can’t feed power into the grid and get paid for
        what you send. You also have to tamper with the grid connect yourself. You can get killed. You can also go to jail. If you TOUCH your connection to the grid yourself without a certified electrician doing it all and with a
        contact with your power provider stating that you have a legal PV system, then you are breaking the law.

        The issue of code compliance really is serious. If wires short and your house burns then your insurer pays you nothing. If they note your illegal install after a bush fire, then can wriggle out of paying you a thing.

        That doesn’t mean you have to get ripped off on price. It is seriously “buyer beware”. Honestly most of the big name “clearing house” installers will use just about anyone to keep their profits up (True Value, Jims, etc). You might get some outfit that has been at it 25 years and are wonderful; less than 2 Km away from you with great service and highly technically competent sparkies… OR you might get some idiot who uses crap inverters, lives 100 km away, and installs the whole thing so that a singe half shadowed panel drops your output by 95%.

        instead of an old company you can easily get ripped off too with bad dodgy inverts, installed wrong.

        When you buy fro a real company here you get panels and inverters that comply and wont catch your house on fire. The same sort of thing (pay less and DIY) has been going on with gas hot water but the system die in 6 months, are unsafe, and a lot of them can only heat water for 5 minutes out of every 2 hours.

        • inductancereluctance

          You’re not making any sense. We’ve been selling DIY installed systems nationwide since 1997. (thousands of grid tie and off grid PV systems all over the country) more than 30% of our current customer base installs their racking, modules power optimizers, and hangs their inverter themselves and saves the connection of the inverter to their main electrical panel for an electrician. In over 16 years, we’ve never had an issue.

          “However you do not get quality for low low prices” More BS. Have you ever heard of Mitsubishi Electric, or Silevo.? That’s the type of quality and performance that we sell for our “low low” prices.

          Maybe in Australia they sell crap. But you won’rt find any crap in our systems. We have a reputation to uphold.

  • spec9

    I’d be careful with many of those Chinese panels . . . many of them have been found to be defective or stop working after a while.

    • Ronald Brakels

      Almost every new install in Australia now uses Chinese panels. Even when people think they are buying German or Japanese panels they are generally buying a German or Japanese brand panels that have been made in China. Overall the story has been one of continual improvement in quality, although it certainly still pays to keep an eye out for rubbish. But we can’t delay. We’re in a race to stop Australia from becoming a villain in a Captain Planet episode. A small risk of panel defects is worth it if lower costs can help us sooner break the back of the coal industry.

  • spec9

    Simply put . . . the Americans are being stupid. Instead of leasing, just take out a home equity loan and give the job to the lowest bidder (or better yet, install yourself if you have DIY skills). Then the consumer can take the full 30% tax-credit. And then you can deduct the interest on the home equity loan. Solar leases are really a bad move when you look at the economics. But some cowards are sold by the ‘well they will maintain the system’ . . . there is virtually zero maintenance on solar PV system. It just runs. In the very unlikely situation you do have a problem, just call an installer for a repair.

    • Offgridman

      To some extent it is not that Americans are stupid but having to deal with the regulatory system that is in place.
      Yes DIY is the cheapest route to go and it is what I did with my offgrid system, but I was fortunate in living in a state that as of that time had not set up any regulations on the installations of offgrid systems.
      For anyone putting in a system that is going to be grid tied or even in some states now for offgrid there are all sorts of permitting and inspection regulations that run from the local building codes, to electrical connection permits that have to come from a licensed electrician, to applications, inspections, and tie in agreements with the local utility that have to be dealt with. It is not just a matter of buying a system, installing it, and telling the utility to give you credit for it, which from what I have read is how simple it has gotten in Germany.
      With all the extra time and effort involved with these permitting and inspection requirements with the government, electricians and utilities and then the paperwork involved with getting a loan if you have good enough credit for it I can see why some people go with the easier route of a couple of conversations and paper signing sessions with a lease company to get their power bills reduced. And that is if you have the skills to do an installation on your own, which with the specialization of skills that has been pushed in this country for quite a while, many don’t.
      This is why with some people I know, in particular single mother’s that are already driving themselves crazy trying to find enough time to work and take care of their children to check out the leasing option. At least their power bills are lower, and the use of solar is spreading, even if a lease company gets some of the benefit.

      • inductancereluctance

        @Solarleaseman, LightStream offers a $0 down no collateral needed low interest solar loan with a simple online application and funding on the same day of the application. What so complicated about that ?

        FHA $0 down, Title 1 solar loans can also be applied for online and they only require a 650 credit score and no equity is needed and the interest is tax deductible.

        PACE/HERO $0 down solar financing can also be applied for online with no FICO score check with an answer in just minutes. Plus you get to make your payments through your property tax bill and both the principal and the interest are tax deductible (the entire portion of your property tax bill that goes to repaying the solar system financing is tax deductible) with no payment due until November 2015.

        And the power bill reduction that the leasing/PPA companies offer sucks. It’s only a 10% to 15% savings. Check the leasing company’s websites, that’s all that they advertise.

        And remember solar lease and PPA payments are never tax deductible for residential installations. Solar leases and PPAs are a joke and a ripoff.

        • Offgridman

          If you have the credit score, and if you have the tax liability to take advantage of those programs.
          I know that it is because I live in a poverty stricken area due to the local mining industry going bankrupt 25 years ago and nothing else coming in to take their place. However an easy two thirds of the people around here don’t have the credit, nor pay enough in income taxes to take advantage of those programs.
          To help you understand, the local school system went to providing free breakfast and lunch to all the students this year, because last year they had over 70% apply and qualify for them.
          The solar revolution is great, but the poor and lower middle class especially around here are unable to qualify for the aid in getting it. Which is very sad because they are the ones that need it most.

          • inductancereluctance

            If they don’t have the credit, then they’ll never qualify for a lease or PPA either.

          • Offgridman

            See the reply to GCO below.
            Maybe it is different where you are, but around here if you have kept up your electric bill payments with no delays for two years, it doesn’t matter the credit score, you can get a lease.

          • inductancereluctance


          • Offgridman

            I am curious, have been waiting to hear just what is so impossible, but there have been no further comments.
            Is it impossible that those with a low credit score, but a very good record of keeping their utility bills paid can get a solar lease?
            Or is it impossible that the largest electricity supplier in the Southeast of the US doesn’t want to invest in grid feed solar farms, so offers this return to those installing rooftop.
            Or is it impossible that in poverty stricken areas that solar leases can actually benefit people that don’t have the money to purchase solar systems on their own.
            Let me know which and I will be happy to send the reference for you.

          • inductancereluctance

            Every solar lease program that I’ve research has had a credit score requirement of 680 to 700 minimum. $0 down FHA solar loans typically only require a credit score of 650. PACE $0 down financing has no FICO score requirement.

            That’s while I said “Impossible” If you don’t have that 680 to 700 FICO, then you will not qualify for any solar lease that I know of. Please do show me a reference for no credit score requirement on a solar lease. I would be quite interested in seeing that.

          • Offgridman

            Another way to help you understand how the leasing companies around here can guarantee power bills at 75% of the utilities for 25 years is because the local utility cooperatives all get their power from the Tennessee Valley Authority. TVA needs to get more renewable energy into their mix to meet federal guidelines and compensate for aging nuclear. So they have a program running where any residential or business solar install gets locked in for twenty years to get a 40% higher credit per Kwh than what they pay. If your solar system is big enough (up to 50 Kw), they will send a check for the surplus hours

      • GCO

        Agreed on most points, except for your suggestion that getting on a PPA is somehow easier than purchasing a system.

        Most (all?) solar installers will take on all the necessary paperwork, permitting, inspections etc the same way a leasing company would, and will arrange financing if requested.

        The only real difference is the kind of contract “single mom” decides to sign on.

        • Offgridman

          I realize that it can be just as easy with a solar company on the paperwork end. The two ladies I know that did go with leasing are so bad off after the divorces that they have to get food stamps due to problems collecting alimony and after initial meetings with solar companies realized that none of the finance options would apply.
          They do have leased systems now where their bills are 75% of what they used to pay and this is locked in for 25 years, none of the 2.9% increase every year that others have mentioned.

    • inductancereluctance

      Better yet, in many areas of the country, get $0 down PACE financing. No credit check and you make your payments through your property tax bill with your first payment not due until November 2015. And just recently approved, you can write off the entire payment, not just the interest.

      You can’t write anything off with a ripoff solar lease. Solar leases and PPAs are for fools.

      • Bob_Wallace

        “You can’t write anything off with a ripoff solar lease.”

        Spoken like someone who runs a solar installation business.

        • inductancereluctance

          Yes, I do work for a solar company and proud of that fact that we won’t offer leases and PPAs to anyone.

      • Offgridman

        Sorry but while PACE financing is spreading it is still far from being in many areas of the country. A more accurate description would be that a few states are now implementing this.
        Yes it is a great way to encourage and finance solar but it is no where near being available to a majority of the people or even a large percentage.

        • inductancereluctance

          Yes, PACE programs are spreading. Here’s a quote from Wikipedia: “PACE-enabling legislation has been passed in 30 states and the District of Columbia, allowing localities to establish PACE financing programs”.

          Visit Wikipedia and you can view a list of all the states that currently have active PACE financing programs. PACE financing will kill the solar lease/PPA financing business model. Time for all those solar lease/PPA lease salespeople to look for a another job.

          • Offgridman

            Enabling is not enacting, but it is further than I thought.
            But just read on the PACE home page, “that just under two dozen states have enacted PACE legislature, and the process in the other states is slowing down”
            So it has happened in more than I had realized, but unfortunately is not yet in a majority.

          • inductancereluctance

            Hopefully soon that will change.

  • matt

    Why would I sign up for a 25 year lease for something that costs about $4000. Solar is cheap these days and getting cheaper.


    • Matt

      People get wide eyed by “zero-down” and start saving on electric day 1. They don’t always look close that the details of later increase, buy back, ….

    • spec9

      $4000? That would be a pretty damn small system. Heck, that would barely cover the racks, wires, disconnects, conduit, breakers, stickers, grounding lugs, grounding wire, flashing, Soladeck penetration/combiner boxes, etc. for my system.

      • matt

        I looked into it 6 months ago and the cheapest i found was a 5kw system for 4200. Thats a resonable size. Amazing how cheap its getting compared to 3 or 4 years ago.

      • Ronald Brakels

        The average price is about $2.25 US a watt in Australia and people are getting it installed for as low as $1 US a watt. It’s not very expensive here.

  • JamesWimberley

    The US has just passed Germany in its annual rate of total pv installation, but it’s led by the utility sector. This has collapsed in Germany with the withdrawal of FITs from new large plants and uncertainty over the EEG reform. Germany therefore still leads in residential installations.

    • spec9

      Even with no incentives, Germany’s residential solar PV sector is going to continue booming. They pay around $0.30/KWH and at that rate, a solar PV system is cheaper than buying from the grid.

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