Financing Commercial Solar: What is the Best Option for Your Business? (Part 1)

Financing onsite solar, energy storage and other sustainable energy solutions can be complicated. This is part 1 of our series on trends and what’s currently shaping commercial solar financing for the future.
solar financing trends

2020 Solar Financing Trends — Accelerating the ROI of Decarbonization

Want to cut energy costs and emissions? For a fast-growing number of corporations, schools, universities, health and agri-businesses, municipalities, and utilities, the answer is to add solar.

Unfortunately, financing solar has often been a complex and confusing element of the process. However, an increasing variety of financing options and some key market shifts have vastly improved the return on investment (ROI) for both commercial solar and many integrated solutions for resiliency like energy storage, battery backup, and electric vehicle fleets.

In this first half of this two-part series, we’ll explore the trends in commercial solar PV finance. The second part in the series will provide insights and tips for making your solar financing a success for your bottom line.

These are the trends to watch in 2020 (and beyond) when working with solar financing companies:

Commercial Solar Installations Are on the Rise

Solar installations increased more than sixfold globally over the past decade, up from 16 gigawatts in 2010 to 105 gigawatts in 2019. As technologies improve and adoption increases, economies of scale will continue to make commercial solar a top choice for businesses, governments, schools, and universities.

global solar manufacturing capacity graph

The LCOE for Solar Now Beats Fossil Fuel Generation

No other electricity generation source has kept pace with the solar industry’s cost reduction over the past decade. In fact, the levelized cost of energy (LCOE) — the standard for build, use, and operation costs across energy generation sources — for renewables became cheaper in 2019 than fossil fuels for the first time. This is a result of many factors, including solar module prices dropping by about 90 percent and the cost to build solar projects declining substantially with increased expertise. The trend is expected to continue as better technology and materials performance continue to lower solar and other renewable energy LCOE.

More Third-Party Financing for Commercial Applications

Third-party ownership (TPO) is expected to continue to increase for commercial solar due to increasing community solar installs (the vast majority of which are third-party owned,) and an influx of new commercial, industrial, and municipal buyers in the market.

As More Solar Buyers Enter the Market, Deployment Models are Changing

According to Smart Energy Decisions (SED) Distributed Energy Resources Study 2019, current corporate and municipal buyers who have previously invested in onsite solar are more comfortable with directly owning and operating solar assets. They often purchase with cash or finance via a third party, such as through power purchase agreements (PPAs).

solar installer placing ground mount panels

On the other hand, first-time commercial solar buyers said they prefer third party ownership as well as financing. Such agreements allow less experienced buyers to leverage evolving “as a service” models where the third party developer takes on the installation, maintenance, operation, and other factors that often represent risk in projects. Additionally, a lack of experience or familiarity with finance models may inspire uncertainty in a new buyer.

More On Solar Financing Options and Models

Whether it’s a commercial solar buyer’s first time purchasing renewables or the latest procurement effort they’re leading, solar financing is still the top choice. Stay tuned for part 2 of this evolving commercial solar finance story to see how these trends have also spurred new finance models — and how you can leverage more financing options to increase your returns, lower emissions, and reduce risk.

We’ll continue sharing the variety of financing available for commercial solar and tips for making the most of each option in part 2 of this series.

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