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U.S. Department of Energy

Reducing Financing and Contracting Costs for Solar Installations

Obtaining financing and the necessary legal agreements between the parties can represent a significant component of balance-of-systems (BOS) costs for new solar projects. Today, most commercial- and utility-scale photovoltaic (PV) projects are financed via power purchase or leasing agreements involving multiple parties, as the time and expense of installation is expensive. 

Financing

To launch a commercial- or utility-scale solar project, the developer must secure equity (and sometimes debt) financing from key investors, who have separate legal agreements designed to optimize tax incentives. The cost of securing capital remains high as a result of investor uncertainty regarding PV technology reliability and performance—only a few investors are comfortable in this space, which limits investment capital availability.

Making technology descriptions as well as performance and reliability data more readily available will help new investors (e.g., regional banks, real estate corporations) become more confident in PV systems. The resulting increase in the number of investors and capital available for solar projects will continue to lower the overall cost of financing. Also, the cost of solar insurance products, including property, liability, production guarantees, and construction bonding, could decline with better information. Insurers would like to see statistically significant data about the risks of solar project installation and operation. If the risks can be quantified and proven to be low, obtaining these products will be much more affordable.

Contracting

The time and expense in obtaining the necessary legal and regulatory agreements for commercial- and utility-scale PV projects presents a key opportunity for cost reduction. Most commercial systems involve a power purchase or leasing agreement between multiple parties (including the end user), which can be a lengthy and expensive process to develop. Utility-scale systems require a power purchase agreement with the load-serving entity (e.g., utility), which is secured through a competitive solicitation process or bilateral negotiations. In addition, systems taking advantage of third-party ownership or leasing models typically require approval from utility regulators.

Simplifying the contracting process will be critical for accelerating the pace of cost reductions and, in turn, solar energy development. Standardization of end-user legal agreements—including commercial and utility-scale requests for proposals, Power Purchase Agreements, and leases—could significantly reduce end-user contracting costs and project completion time.

By reducing costs and eliminating market barriers, Market Transformation efforts strive to meet the SunShot Initiative goal to make large-scale solar energy systems cost-competitive by 2020.

Market Transformation is addressing financing and contracting costs through these activities: