Financing & Business Models

Access to financing and the availability of business models and ownership structures support broad-based distributed PV deployment. Policymakers and regulators play important roles in designing and implementing financial incentives and enabling various DPV business models.

Introduction

Access to affordable sources of capital is key to enabling DPV deployment. In addition, financial incentives aim to lower the cost of buying and installing distributed PV systems; improve the return on investment; attract investors to the solar industry; or all of the above. Multiple sources of capital and incentives can be combined into various business models and ownership structures to more broadly support DPV market development.

Common incentives include both production and investment-based tax credits, tax deductions, tax exemptions (e.g. sales or property), rebates, subsidized loans and loan guarantees. Funding for incentives can come from government budgets, utilities, utility ratepayers or international funders, among others. 

Distributed PV generation business models include both customer-owned projects, projects owned by third parties who can more efficiently use the available tax credits and utility-owned investments in distributed solar projects or companies. Emerging as well are community-based distributed solar models which incorporate joint ownership of a single, larger distributed PV array.

Example Interventions

  • Create a level playing field by insuring that current incentives for capital investment are made available to DPV. Such incentives can include import tax exemptions on imported capital equipment and accelerated depreciation of capital assets.
  • If the current cost of DPV is high or retail electricity rates are low (or both), offer either an upfront incentive (e.g., dollar per watt rebate) or a production incentive (e.g., cents per kWh) for qualifying DPV systems to encourage investment in the sector.
  • Partner with local lenders to offer credit enhancements including loan guarantees or interest rate buy-downs to encourage debt financing for DPV.
  • Permit third party ownership of DPV assets so that solar leasing and solar power purchase agreements can be used to reduce barriers to entry and more efficiently monetize any available tax-based incentives.
  • Offer tax incentives including investment-based tax credits and production-based tax credits. 
  • Reduce or eliminate sales and property taxes associated with buying solar equipment and long-term ownership of DPV assets.
  • Allow utility ownership of DPV assets in combination with rooftop leasing programs.

Reading List and Case Studies

Financial Incentives to Enable Clean Energy Deployment

National Renewable Energy Laboratory and Clean Energy Solutions Center, 2016.

Financial incentives for PV installations work at multiple policy levels and are an impactful tool for promoting clean energy deployment. As some forty-eight countries globally have implemented financial incentives for PV, methods like tax measures, rebates or grants, performance-based incentives, and loan programs stand as demonstrably successful tools. This study examines ways to ensure success in implementing incentive structures. 

Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital

World Resources Institute, 2012.

Various sources estimate between $264 and $565 billion dollars will be needed annually to finance climate change-relevant projects, such as distributed PV, in developing countries. While some of this has been pledged through international institutions like the Green Climate Fund, the rest will need to come from a combination of private and public investments. This report examines methods to utilize public investment to leverage private investment by reducing investor risk. By coordinating their investment strategies, efficient funding opportunities can be selected to maximize the return on investment.

Finance Guide for Policy Makers: Renewable Energy, Green Infrastructure

Bloomberg New Energy Finance, Chatham House, The Frankfurt School, 2016.

Designed as a practical guide for clean energy developers or policy makers without significant finance experience, this document is a good starting point for those with questions about financing their DPV projects. This resource will help readers understand the various financing methods available, the timelines for accessing capital, and the risks to both the developer and lender.

Resource Guide for NDC Finance

Low Emission Development Strategies Global Partnership (LEDS GP), 2017

This manual was developed to assist countries in implementing their Nationally Determined Contributions (NDC); to do so requires initiative at several phases, from project development and financing, to operations, and verification. Readers gain an understanding of international institutional funding opportunities available, as well as a list of other resources helpful in developing a financing strategy.

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