In the past, solar technology has been expensive and solar projects required a large upfront capital investment. In an effort to help lower that cost, Duke Energy and SCE&G are offering South Carolina organizations like yours incentives to help you make the switch to solar. Better still, South Carolina has passed legislation for the first time ever allowing third-party financing for renewable-energy projects. This means that your organization can install solar without upfront costs, save money on day one, and enjoy savings for decades. To learn more about third-party financing, read this blog and its downloadable Q&A Document.
Third-Party Financing is what makes South Carolina's new Solar Energy Program so Attractive.
The Q&A below provides a good overview of what Third-Party Financing is, and how it can give your organization access to the benefits of on-site solar energy generation without capital expenditures.
Q: What is Third-Party Financing?
A: Third-Party Financing is an Arrangement that allows a Customer to host a Renewable Energy System that is Installed and Owned by a Separate Investor.
One of the largest barriers to the deployment of solar energy systems is the high up-front cost. Third-Party Financing is an arrangement that allows a customer to host a renewable energy system that is installed and owned by a separate investor. Third-party ownership can be attractive to entities that lack either initial investment capital to purchase a renewable system, or do not have the desire to own and maintain a system.
Under this arrangement, the transfer of the up-front capital costs to an entity with greater access to capital, lower cost of capital, or greater ability to utilize tax specific incentives has been critical to commercial and industrial (C&I) customers adopting the technology.
Q: What are the Different Models for Third Party Financing?
A: Power Purchase Agreements (PPAs) and Solar Leases.
Third-party financing of solar energy primarily occurs through two models: power purchase agreements (PPAs) and solar leases.
In the PPA model, an installer/developer builds a solar energy system on a customer’s property at no cost. The solar energy system offsets the customer’s electric utility bill, and the developer sells the power generated to the customer at a fixed rate, typically lower than the local utility. At the end of the PPA contract term, property owners and extend the contract and even buy the solar energy system from the developer.
In the lease model, a customer will sign a contract with an installer/developer and pay for the solar energy system over a period of years or decades, rather than paying for the power produced. Solar leases can be structured so customers pay no up-front costs, some of the system cost, or purchase the system before the end of the lease term. Similar leasing structures are commonly used in many other industries, including automobiles and office equipment.
Q: Is Third-Party Financing Offered in South Carolina?
A: Yes and No.
Solar Leasing: Yes.
Power Purchase Agreement (PPA): No.
Unfortunately, the PPA model faces regulatory and legislative challenges as third-party developers would likely be regulated as electric utilities. But in South Carolina, third-party developers are still able to offer solar leases.
ACT 236, passed by the South Carolina General Assembly, opens the entire state to solar leasing. The legislation was enacted June 2, 2014.
Q: Who Owns the Various Incentives for Installing Renewable Energy?
A: An Investor Monetizes Available Incentives.
Under a third-party financing arrangement, an investor monetizes available incentives, such as tax credits, rebates, and depreciation deductions, and provides the customer a lease payment that is typically lower than their utility payment.
Q: When Was Third-Party Financing Established for Solar Energy? Is it Widely Used?
A: Third-Party Financing in the Solar Industry is just over a Decade Old, and is one of the Most Popular Methods
Although an established method of financing in the economy, third-party financing in the solar industry is just over a decade old, but it is continuing as one of the most popular methods for consumers to realize the benefits of solar energy.
More than 90 percent of New Jersey’s residential solar market has consisted of third-party owned systems since Q2 2013.
In Q1 2014, more than 50 percent of New York’s solar generation systems were third-party owned, and in California, Arizona, and Colorado, 69 to 81 percent of installed solar generation systems were third-party owned.
We hope you have found this Q&A about how Third-Party Finance works here in South Carolina useful and informative.
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