Jeff Himmelman makes the case that the “solar revolution” is caused by new financial instruments and strategies in the New York Times August 9, 2012 article “Here Comes the Sell”:
The innovation that has pushed Sungevity and the rest of the residential solar industry straight into adolescence over the past 5 years was financial, not technological. Solar technology is hardly new. In 1954, Bell Labs discovered that purified silicon, doped with arsenic and sliced into thin wafers was capable of converting sunlight into electricity.
The innovation that made this possible — selling solar services instead of solar panels — was pioneered in the commercial market by Jigar Shah. In 2003, he started a company called SunEdison, which offered a solar-power purchase agreement (P.P.A.) to commercial customers.
Instead of having to pay all of the money for a solar installation up front and then having to carry that payment as a debt on their balance sheets, which no publicly traded company wants to do, companies contracted with SunEdison to have solar panels put up at no initial cost. SunEdison then charged the companies for the amount of energy that the panels produced at a fixed rate for a period of 20 years — a rate that was less than what the companies were already paying the utilities, and that would ultimately save them even more money as energy prices inevitably rose over time. The bold stroke was that they were selling the power, not the hardware.
The revenue stream from the 20-year P.P.A. contracts allowed SunEdison to raise capital from outside investors like Goldman Sachs, Wells Fargo and MetLife. The banks pay for the solar systems and then reap the returns on their investment through tax credits and a negotiated share of the monthly P.P.A. payments. SunEdison sells the systems to the banks at a profit and charges recurring maintenance fees and the banks have a reliable revenue stream that also offsets their tax burdens.
Five years ago, third-party-owned systems accounted for none of the residential solar market. In the first quarter of 2012, according to the Solar Energy Industries Association, 63 percent of new solar systems in California were third-party-owned, and in Colorado, that number was as high as 80 percent. The solar lease has been a key driver for the explosive growth in the residential solar market in California and, increasingly, across the country.