Category: Finance and Asset Management
Third-party-owned solar PV systems account for a substantial portion of solar capacity in the United States. SEIA estimates that 72% of residential systems installed in California in 2013 were third-party owned; SEIA also estimates that 57% of the nation’s non-residential systems installed in 2017 were third-party owned. In next 3-9 years, many third-party-owned systems will be eligible for early buy-outs by site owners. An early buy-out is a site owner exercising a purchase option from the system owner prior to the end of the contract term. Third-party system owners should be thinking now about the value proposition of selling third-party-owned solar assets to site owners.
System Owner Value Proposition: Although O&M costs for PV systems are typically manageable, maintaining geographically-dispersed PV systems can be a substantial ongoing cost for system owners. Further, the incidence of more costly system repairs (i.e., inverter replacement) increases as systems age. Lastly, some firms may prefer to focus on project development, rather than O&M and administrative requirements of existing systems. Therefore, selling these systems to current lessees can help relieve current owners of these liabilities.
Site Owner Value Proposition: In addition to the longer-term benefits of direct system ownership, system purchase represents an opportunity to make system improvements (i.e., swapping out for higher wattage modules, adding modules for additional capacity, or adding microinverters or DC optimizers) that can enhance system production and/or increase financial returns. Even with substantial purchase costs, a site owner may be able to offset a portion of the purchase cost through new revenue from a higher efficiency system. With increased performance and output, site owners may be more motivated to exercise early purchase options. Lastly, direct ownership of the system may relieve some of the actual or perceived complexities of selling a residence with a third-party-owned PV system.
Right Time for Early Buy-Out: Early buy-out timeframes are governed by the contract between the system and site owner, as well as the financial benefits and costs of the system to each party. Knowing whether this buy-out should be exercised requires deeper investigation, as both parties will need to mutually benefit. Examples of diligence needed before proceeding with a third-party-owned asset sale include: sound engineering to provide certainty on future O&M activities and costs; 2) accurate market intelligence and financial modeling to project prices and future revenue streams; and 3) legal and policy analysis to verify interconnection and incentive eligibility.
Danielle Burns– Senior Project Manager, Solar & Energy Storage, Natural Power Consultants LLC