Leasing Model Could Prove Game-Changer for Australian PV Market

Michael Barker, Senior Analyst, May 4, 2012

For the past few years, the PV market in Australia has been driven by small-scale residential systems; primarily a result of government policies that only offered incentives to these types of systems. According to our recent Asia Pacific analysis, residential customers accounted for over 90% of Australia’s PV demand in 2011 and contributed to year-on-year growth of over 75%.

Unfortunately for the Australian market, these types of installations are projected to decline in 2012 as a result of policy cutbacks at both the federal (solar credit multiplier declining 1 July 2012) and state level (only one state, QLD, has maintained its FIT program). Current projections show that the Australian PV market could contract by almost 20% in 2012 as a result of these policy changes.

However, a new business model has recently emerged that could revitalize the flagging residential market segment and also provide a jumpstart to the commercial customer market segment. The model in question is third-party system ownership via leasing programs. Under these programs - already hugely successful in the USA - solar PV leasing companies install, maintain, and own PV systems that are sited on residential or commercial rooftops while the site owners is able to sign a long-term (20 year or greater) power purchase agreement at rates often lower than retail electricity. This provides a ‘win-win’ scenario as the system ‘host’ can secure cheaper long-term energy pricing and the system ‘owner’ (the leasing company) has a steady long-term revenue stream that makes it easier to finance systems and provide acceptable ROIs.

For some time, the downstream Australian PV industry has been preoccupied with providing solar systems as ‘hardware’ rather than as a ‘service’. However, recent announcements from several companies indicate this situation is about to change. Established PV systems providers, both domestically and internationally, have recently announced they will start offering this type of service, including Australia-based Energy Matters and California-based Sungevity. In the US, this type of business model has become the de-facto method of installation for residential systems in several states because it requires less upfront investment from the customer and provides similar benefits. According to our North America research, in Q1’12, leased systems accounted for 64% and 75% of new residential PV installations in California and Colorado, respectively; up from 37% and 47% in Q1’11. If Australian integrators can offer a reliable long-term service-based PV power solution, then the prospects for growth in the overall market could significantly improve; in particular, in states where retail grid-parity is expected to be reached within one to two years.