"Financing Solar Energy in the U.S." by Michael T. Eckhart
Executive Summary

The financing of solar energy, representing one of the final phases of the process of commercializing solar energy technologies, needs to be addressed as carefully as the previous stages of research, development, demonstration, and commercial utilization. The degree to which solar energy is financeable represents a key measure of its commercialization. Ultimately, the "financeability" of solar energy will determine the solar market in the U.S.

Policy development for solar energy has been underway for nearly 30 years, since the National Science Foundation and NASA published "Solar Energy as a National Energy Resource" in 1972. Today, leadership for solar market development is coming from the federal government's Million Solar Roofs initiative (MSR), the Utility Photovoltaic Group (UPVG), and several state and local governments. In total, over 200 government programs address or influence the financing of solar energy. Yet, in spite of this attention, solar energy continues to face a financeability problem.

Because as much as 95% of all solar energy installations will require some form of financing upon purchase, public and corporate policy makers can usefully view the commercialization challenge from the perspective of the lender. In considering whether to lend money for solar technology, financial institutions will assess the likelihood of being repaid, first from the borrower's cash flow and good character (the so-called "ability and willingness" to pay), second, from the solar system's collateral value, and finally, from third-party guarantees. Policies and programs must address those factors to have an impact on market-based lending decisions.

Another urgent issue faces public policy makers. Confusion over technical quality, utility interconnection, safety, economic viability, and insurability actually precludes lenders from making financial determinations. In addition to their impact on potential individual users and solar businesses, these factors harm the broader public interest. The nation's return on its billion-dollar investment in solar panel technology has been delayed by twenty-five years of deliberations over, among other issues, the development and adoption of standards by which users can connect solar systems to the U.S. utility grid.

The solar industries, associations, technical societies, and agencies have undertaken considerable work to address these issues. Based on the review conducted for this paper, it appears that all institutional barriers are resolvable within the next 12 months if there is an across-the-board call for their resolution. This will require joint leadership and commitment. Key issues include: utility interconnection standards; net metering and other regulatory matters; solar system technical, quality, and installation standards; economic and tax incentives on a more permanent basis to encourage appropriate long-term financing of solar energy systems; evaluation criteria for energy-efficient buildings that explicitly accommodate solar electric and solar thermal options; evaluation criteria for lending that incorporate the benefits of solar energy; and consumer guidelines for solar system sizing and performance.

Developing a viable U.S. market for solar energy is a unique challenge. Pro-solar public policy programs in Europe and Japan are valuable benchmarks, but may not be directly applicable in the U.S. American policy must aim to bring the value and cost of the systems to parity; ensure the practicality of the use of the systems through the implementation of standards and guidelines; and support actual financing through government and private sector mechanisms.

The next phase of public policy implementation is charting how the government will become more involved, and then withdraw over time from active intervention in the solar and renewable energy marketplace. The goal is to create a fabric of laws, regulations, rules, practices, procedures, tax treatments, economic incentives, and supporting technology programs that together define a public policy foundation on which the solar energy marketplace can flourish and grow.

This scoping paper, the front-end research for a full policy paper provisionally scheduled for publication in November 1999, includes an introduction, history of solar energy markets in the U.S., assessment of the situation today, description of the role of financing in sustainable markets, catalogue of key issues constraining financing, and a new context (the lender) for development of policy solutions. An appendix includes a valuable and extensive inventory of financing-related programs.

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