Third Party Finance now 75% of California Solar Market

For those who question if performance contracting can work in the residential sector, I believe the massive and accelerating growth in the solar industry, driven by solar leasing and power purchase agreements, demonstrates how aligning interests through performance contracts, with guarantees around production and maintenance risk, works for consumer, works for capital markets, and leads to scale.

The following graphic is thanks to Clean Power Finance:

While there are differences between PV and EE, there is no reason we cannot deliver business models for residential energy efficiency that have similar impacts and attributes.  While the internal workings may be somewhat different, the fundamentals of providing guarantees to consumers, aligning market forces, and creating a securitizable asset that the financial markets can invest in, are within our grasp.

I would argue that the current approach to incentivizing homeowners, regulating contractors, regulating and incentivizing utilities, underwriting lending, is simple too economically inefficient to scale.  It just costs too much to either bribe or require every actor in the system to do something that is fundamentally not in their interest.  If you do the math on retrofitting say two million homes  year (still the 50 year plan), we are talking about at least $20 Billion in spending per year, and a huge public investment to support it.  We simply run out of public money well before we reach our goals.  

It is time to rethink our approach, and we can learn from what is already working in similar industries and attracting the kinds of large scale capital required for us to achieve our long-term goals.  Solar is a great place to start, however, there are currently similar models emerging in the commercial energy efficiency industry in the form of Managed Energy Service Agreement.  Asset owners get a guaranteed energy bill from a service provider, who conducts a retrofit, often adds an energy management system, pools risk and installs measures.

We are in a new time, with new technology, and a post ARRA infrastructure to lean on.   It is time we bring this thinking to the residential energy efficiency sector.