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Solar Lease Companies Are Poised For Strong Growth

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Why Solar Lease Companies Are Poised For Continued Strong Growth

Solar Lease Companies
Solar lease companies are poised for strong growth in coming years, and investors looking to outperform the stock market averages need to take note.  Solar lease companies have thrived in recent years, as consumers looking for opportunities to rid themselves of expensive grid-based electricity have shown increasing interest in converting to solar power, which is decreasing in cost over time.

Solar lease companies solve the main obstacle to converting a home or business to solar power; the large upfront cost associated with installing solar panels and related equipment.  Traditional solar installations can cost $30,000 and up, whereas solar lease companies install solar power for free, with a lease agreement in place for them to recover their investment and make a profit.  As more consumers become aware of the solar lease option, sales and profits for companies in the business of installing and leasing solar equipment have soared and are expected to continue to increase rapidly for a number of years.

What Is a Solar Lease? | Understanding Solar Leases

Solar Power Saves Money
A solar lease is an agreement by which a property owner, whether a business or a homeowner, leases their roof space to companies that in return install and maintain solar panels and equipment, and then sell the electricity to the property owner for a number of years, as specified in the lease agreement.  Essentially, one is renting out their roof in exchange for a long-term electricity supply contract, which is usually at a fixed rate that is less than the going rate for utility-provided electricity.  Electricity that the property owner does not use is sold back by the solar lease company to the electrical grid at a profit.

If the solar power system needs to be repaired, the solar lease company pays for the repairs, rather than the property owner, since the company is the owner of the system, not the property owner.  The advantage to the property owner is that they can go green, generate their electricity via solar energy, and save money on their monthly electrical bill, while avoiding the considerable up-front cost of installing a solar power system.  If a property owner can afford to install a solar power system on their home or business themselves, there are some advantages to taking the direct ownership route, as further outlined in the last paragraph of this article.

How To Invest In Solar Lease Companies

A solar lease is a win win for both consumers, who would otherwise not be able to afford to install a solar power system on their home or business, and for the companies that are in the business of installing leased solar power systems on homes and businesses throughout the United States.

The economics of electric power pricing is certainly on the side of continued growth in the solar energy lease business segment.  Traditional grid-delivered electricity costs vary considerable across the United States, from under 9 cents per kilowatt hour (kWh) in states that rely on coal and hydro-electric power to over 35 cents per kWh in diesel dependent Hawaii.  The average cost across the United States is approaching 12 cents per kWh, and is rising every year.

Solar energy costs are declining every year, as new solar technologies and manufacturing methods continue to bring the cost of solar power down.  When averaged over the twenty to thirty year life of a solar power system, solar energy’s cost is dropping to such an extent that it will soon be cheaper than the average cost of electricity across the United States.  With their large buying power, companies that lease property owner’s roof space and install solar panels and equipment are able to bring solar energy costs down even further.  It all adds up to cheaper solar power generated electricity for property owners that enter into agreements with solar lease companies.  These market dynamics are driving additional business to the solar lease companies over time.

Solar City Logo

While many solar lease companies are privately held firms, there are a handful that have publicly traded stocks that can be purchased by investors seeking to invest in the growing solar lease business.  The following are some ideas regarding solar lease companies that offer investors the ability to invest in this rapidly growing business segment.

  • SolarCity Corporation (NASDAQ:  SCTY)
  • SunPower Corporation (NASDAQ:  SPWR)
  • SunEdison, Inc. (NYSE:  SUNE)

The Future of Solar Lease Companies

Solar lease companies are constantly looking at better ways of monetizing their leased roof space.  They mainly make money by selling electricity back to the property owners and selling excess electricity to the electrical grid, via net metering.  However, they are not standing still in their quest to maximize the profitability of their solar leasing businesses.  For example, SolarCity Corporation (NASDAQ:  SCTY) is teaming up with electric car maker Tesla Motors, Inc. (NASDAQ:  TSLA) to use that Tesla’s DemandLogic battery storage systems in conjunction with their leased roof-mounted solar power systems to store solar generated electricity, so it can be sold to the electrical grid when it is most valuable, during peak usage times to increase profit margins.

Tesla recently announced an ambitious lithium-ion battery manufacturing plant that is called a Gigafactory, due to plans for it to produce huge quantities of lithium-ion batteries.  Tesla is planning on not only producing the batteries for their electric cars, but also for other companies that need lithium-ion batteries, such as SolarCity and other solar lease providers.  This should help increase profit margins for solar lease providers, as they can sell their electricity at premium rates.

Risks Associated With Investing In Solar Lease Companies

There are some risks associated with investing in solar lease companies.  The primary risk is that their sales have been bolstered significantly by generous 30% federal tax credits for new solar power system installations.  The credits are scheduled to be reduced in coming years, which could impact profit margins and earnings going forward.  Another risk is that consumers will opt to own their own solar power systems, instead of leasing them.  While there will always be a leasing market for consumers that do not have the money to buy solar power systems, as the cost of solar power systems decrease over time, consumers may find it more sensible to own their solar power systems rather than leasing them.  Owning a solar power system has some important financial advantages over leasing.  For one thing, tax credits are provided to the property owner when a system is owned by them.  They also have a fixed electrical cost, as long as the system is operational, whereas leased systems may be subject to incremental cost increases when the lease is up for renewal.  Selling a property with a solar power system is easier when it is part of the property, rather than leased equipment.

All in all, the future looks bright for solar lease companies.  Solar is becoming more competitive in price each year and there is a huge potential supply of future customers that would add to both the top and bottom lines of solar lease companies.

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