The lease transactions often require attracting additional tax-motivated parties to the project financing, and at considerable expense for transaction and capital. How much more expensive? A host-owned solar array is expected to get financing at 4% interest and have a return on equity expectation of 4%. A solar leasing company is expected to pay 6% interest on shorter-term debt and to require 15% return on equity.
It might seem convenient to blame solar leasing companies for this problem, but they’re merely opportunists in a poor policy environment. Making your money back on solar in America is complicated. It requires a combination of tax savvy, skilled navigation of state bureaucracies, persistence at a local permitting office and limited options for low-cost financing. Compared to Germany, with a simple, non-nonsense long-term contract that permits low financing costs and broad participation, America’s solar market is a joke (and the installed cost of solar is much higher as a result).
Furthermore, big banks have also played a role in inflating solar leasing costs to taxpayers, using a legal loophole to collect tax incentives based on (higher) estimated costs of solar installations instead of actual costs.
Paying twice for poor policy
In other words, we pay twice for bad solar policy in America. Complicated tax incentive, interconnection, and contract policy makes solar cost more to install than in mature markets like Germany. Solar leasing middlemen simplify the complications, but at a price premium to (complicated) individual ownership.