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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Bursting The Solar Leasing Bubble

The solar industry has been one of the most dynamic sections of the renewable space in the last decade, but many of the biggest changes have actually been financial innovations rather than technological ones. Rooftop leasing of solar for example has made a huge difference in panel penetration rates on residential properties.

Now there is a new competitor that wants to revolutionize the field even more. Yeloha is a firm that some are calling the Airbnb of solar power. Basically, the way the company’s model works is something like SolarCity but with a twist. Related: This Dutch Innovation May Solve The Energy Storage Problem

Under the traditional solar model, individuals who wanted solar panels had to pay for them upfront, and then they owned the solar panels for the life of the system. Electricity generated by the system is essentially free, and surplus electricity, at any given time, could be sold back to the grid. The model is very traditional and thus very limited, requiring that an individual who wants to install a solar power system have roughly ten to twenty thousand dollars to shell out upfront. The government offers some subsidies, but the systems are still costly. Most people do not have that kind of cash, so the model does not work well.

Under the leasing model that has developed in the last few years, all of this changes. The biggest company in this space right now is SolarCity. Under the company’s model, an individual pays nothing for a solar installation up-front. Instead, SolarCity installs and maintains the system at its own cost on the homeowner’s roof. The homeowner agrees to buy power from SolarCity at a predetermined rate (with periodic escalators in most cases) for around 20 years. SolarCity generally sells the power to the homeowner at a lower cost than the utility company, but the homeowner needs to remain connected to the electrical grid for times when the sun is not shining. Related: Saudis Believe They are Winning The Oil Price War

SolarCity’s model works very well, but it still requires the homeowner to have the right type of roof – it has to be located in the right area, have the right sun exposure, be angled the right way, etc. If a house doesn’t meet these criteria, the firm won’t install a system on the house as it won’t generate enough electricity to be economical. By some estimates, 80 percent of the people who want solar don’t have the appropriate roof conditions.

Yeloha aims to get around these issues. The firm wants to put solar panels on roofs and then sell the power to other people on a contract basis. The idea is that if homeowner A wants solar power, but doesn’t have the right roof, then perhaps solar panels can be installed on homeowner B’s roof. Homeowner B gets a percentage of power generated, while homeowner A gets solar power, hopefully at a discount versus grid power.

Yeloha’s model is interesting and innovative, but it is not a panacea for the remaining issues in the solar industry. First, homeowners buying solar power will still have to remain connected to the grid. The sun doesn’t shine all the time, but even if it did, the solar energy has to get to them somehow. As a result, the power-buying homeowner will still need to pay various fees to their utility company resulting in minimal savings. Related: Could Middle East Switch From Oil To Renewable Superpower?

Second, both the host of the solar panel and the purchaser of solar credits only receive a small discount off of their electricity bills. Unless the savings can be much more generous, it is far from clear that people will jump into Yeloha in droves.

Given these constraints, it is unlikely that Yeloha is going to put SolarCity out of business anytime soon.

By Michael McDonald of Oilprice.com

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  • jerry dycus on July 12 2015 said:
    Much more likely is community solar, wind where people buy shares is 1
    solution.
    If one has a space, roof isn't a good place as hard to maintain, expensive, buying your own compared to a shed, porch, awnings, carport, etc adding value
    Even going offgrid if the rates, monthly fee is too much.
    Microgrids of varying sizes will be big.
    Most utilities in 20 yrs will be bankrupt as home, building, factory made power just cost less to much less. Likely goc will run the grid transporting others power to their buyer.
    Especially up north where cogen waste heat comes in handy eff of 80% in simple 2-3kw Rankine heat engine powered by solar, biomass, wastes with cheap heat storage in 10 yrs will be standard in new homes.
    I've been doing wind, tidal offgrid systems for 40 yrs now and just not hard or expensive. You just need 2 sources of power and batteries.
    Wind or solar or tidal/river with a clean fueled generator/ heater cogen and a small, 1day battery bank does fine.
    And the monthly fee usually pays the generator, battery cost.
    Solar provides the grid with 2 big services, it makes peak/expensive power and as important, makes offpeak loads, making the grid much more stable.
    But if utilities don't want to pay for it, going offgrid, microgrid does in savings.

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