The third-party financing business model is dominating the booming US residential market, according to the latest report from GTM Research.
Despite a slew of new entrants and the expectation of more to follow, the residential third-party ownership (TPO) vendor that currently dominates the landscape is SolarCity, one of the pioneers of the model. SolarCity was said to have a market share (18.8% in Q3 2012) more than double the next largest player, Verengo Solar in 2012.
"Prior to 2010, there were few residential third-party ownership (TPO) vendors," said Shayle Kann, Vice-President of Research at GTM and the report's author. "Since then, the success of companies such as SolarCity, Sunrun, and SunPower has led to a spate of new entrants into the market. Today, we count at least ten TPO companies operating, and a number of others still getting off the ground."
GTM Research said that the TPO market was worth US$1.3 billion in 2012 and is forecast to reach US$5.7 billion in 2016.
Currently, the residential TPO market comprises more than 50% of new residential solar capacity in California, Arizona, Colorado and Massachusetts, with the model said to be gaining greater market share in other states such as Connecticut, Delaware, Maryland, New Jersey, New York, Oregon, Texas, Vermont, and Washington.
GTM Research believes the TPO market will continue to consume a greater percentage of the residential market.
Critical to the TPO business model is the availability of capital to sustain the model. According to GTM Research there have been 28 individual funds raised for residential solar projects totalling over US$3.1 billion to date.
The market has been supported the most so far by US Bancorp, providing fourteen funds and over US$1.35 billion to the market. Eight other financiers were said to have been active in the market.
However, perhaps the biggest hurdle to future expansion is attracting a broader number of financial backers and institutions.
“Financing has been the hardest part of the equation, and as the report notes, there have only been a few active financing players, noted Kann in response to questions from PV-Tech.
“The basic reason is how new and complicated it looks to financial players to do the diligence on these portfolios. That said, it's encouraging to see some new financiers like Energy Capital Partners entering the market and I expect it will continue to happen incrementally over time,”
Module manufacturers play
Notable in the analysis of the leading TPO vendors is the presence of SunPower but the lack of other module manufacturers directly engaged in the business model and being a major player.
According to Kann, Solarworld does have a residential lease programme, but he described it as a “white-labelled Clean Power Finance lease”.
Also, SolarWorld's residential market share as a module supplier is relatively small and said to be around 4% in 2012. The difference according to Kann comes from SolarWorld’s higher share in the commercial rooftop market (~7%), compared the other TPO players.
“Most of the smaller domestic manufacturers don't have their own leasing programmes – partially because of the financing constraints. If they do, they also would likely use CPF's white labelling option. There have been a few exceptions to this (e.g. Mage Solar), but they haven't seen the same kind of volume as the lease providers mentioned in the report,” added Kann.
Looking at the key players it is clear that the top TPO vendors are selecting module manufacturers with North American-based module manufacturing operations such as Suntech, Kyocera and SolarWorld.
However, the leader of the pack, SunCity, also depends heavily on Yingli Green and Trina Solar, which have yet to build a manufacturing base in the US. Other TPO vendors, such as vivint use Canadian Solar, which has module assembly in Canada.
"Each company has introduced its own unique version of the residential financing model," Kann added. "These vendors differ in their services, their relationships with solar installers, their geographic footprints, their financing sources and their customer acquisition strategies. As a result, there is now a vibrant competitive market for third-party owned residential solar in the US."