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Markets & Trends
Mexico: Will the ,..orrd rou"a of
solar tenders fulfill the vast promise
evident in round one?. Page 22
Applications & lnstallations
Conipi.uous PV: Solar strape-sfrifts
Storage & Smart Grids
Residential storage: The U.S. solar
to put arlqy.s o-l display, rather than ma1$! is leaning ev,er morg helyily
hidden on rooftops. Page 36 on batterysupport. Page 80
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pv magallne-^
New marketiaxis for trackers
Our global survey reveals the scald of tracker growth,
and America's key role in the e;rpatrsion. Page 40
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2. Financial & Legal Affairs
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pv magazine: Can you describe for our readers what an
operatinglease is, andhow it works?
Stanley Fishbein: Operating lease and capital lease are account-
ing classifications. So for book accounting purposes, when a
lease has a purchase option with a bargain purchase price, like
one dollar at the end, it is classified as a capital lease and treated
like a loan. Like a loan, the capital lease is used to finance the
customer's purchase of the leased asset.
When a lease has a purchase option with an amount considered
to be the fair market value, it is classified as an operating lease,
because it is not certain whether or not the lessee will buy or
return the asset. However the lease could still be classified as
a capital lease ifits term is greater thanT5o/o ofthe assets' eco-
nomic useful life, or the present value of the fixed payments is
equal to, or greater than, 90% ofthe assets'fair market value
at the beginning of the lease. An operating lease is considered
to be an off-balance sheet method of financing when the lessee
intends to later purchase the Ieased asset.
The tax classification of a lease involves rules similar to the
accounting rules. The operating lease is known as a tax lease
(or true lease), and the lessee's monthly payments are 1007o tax-
deductible as ordinary business expense. Ifthe lessee exercises
its purchase option, the price the lessee pays for the asset will
be 100% tax-deductible using MACRS depreciation, because tax
rules allow companies to depreciate purchases of used as well
as new equipment.
What advantages do operatingleases fot solar have ovet
PPAs, third-party solar "leases" or louns?
The type of operating lease that we offer commercial solar cus-
tomers is what I call a "traditional" lease to distinguish it from
the longer-term 15 to 20-year solar industry lease, and distance
it from the problem that many people have with these.
Stanley Fishbein has more than three decades of experience in equipment
leasing and project finance, and is a long-time board member ofthe New
York Solar Energy Society. After building up a successful clean energy
finance group at LFC Capital, Mr. Fishbein and a colleague, Al Golembeski,
left the company in April to launch CleanView Capital, LLC. The new
compan, based in NewYork, specializes in providing operating leases to
commercial and industrial companies for their solar PV and other clean
energy projects.
Operating
leases for
commercial PV
lnterview: pv magazine spoke with Stanley Fishbein,
managing partner at CleanView Capital, about operating
leases and why they are an attractive alternative form of
financing for the C&l solar market.
The problem with the solar industry's lease, and its economic-
equivalent cousin, the PPA, is that too many of the incentives
available for solar go to the provider of these programs rather
than the customer. This maybe acceptable to a nonprofit or res-
idential customer that only wants a cost-reduction program,
but I have found that savvy business owners seek greater over-
all value from solar, and are turned offwhen they feel that they
are not getting their fair share ofthe incentives.
Solar salespeople need to understand the mindset of the busi-
ness owner. Unlike a home owner, the business owner is accus-
tomed to acquiring equipment and undertaking capital proj-
ects, so is not as reluctant to make an investment, and is more
comfortable when using a familiar method of financing for that
investment.
That is where our lease comes in. It makes the solar project
affordable by eliminating upfront capital investment, and in
its place, providing business customers with a relatively quick,
low-cost path to ownership at a reduced price. In addition, with
our lease, all available cash incentives, such as grants and per-
formance-based incentives, are paid to the customer, and they
keep any available SRECs. There is no escalation of payments
in our Iease, and the customer keeps the entire monthly electric
savings, during as well as after the lease term.
The 30o/o ITC is a big value-driver that is available to the first
owner ofthe solar system. Unfortunately, many comPanies can-
not monetize the ITC, because as limited liability companies
(LLCs) or 'S' corporations, they do not pay taxes, so there is no
tax to offset with a credit. As the first owner/lessor of the solar
system, we monetize the ITC, and share that value with the
customer/lessee by subsidizing, in other words reducing, the
customer's monthly lease Payments. In this way, we use leasing
as an efficient tool to transfer a significant portion of the ITC's
value from us to the customer.

3. Financial & Legal Affairs
When an LLC or'S' corporation uses a capital lease, or loan, to
finance its purchase, the pass-through of the ITC to the com-
pany owners is not always a solution to the monetization prob-
lem, because most company owners have implemented tax
reduction strategies that often leave them with a tax liability
that is too low to effectively use a large tax credit. While unused
tax crddits can be carried forward for many years, there will be
a loss in value, as measured by the time value of money. And
even if these company owners could fully monetize the ITC
in the year of installation, guess what, it would not conserve
cash where needed, in the company for working capital and
other needs!
The monthly payments on our operating lease are about half of
what they would be on a comparable term loan, which conserves
cash in the business. In addition, operating lease payments are
10070 tax deductible, while only the interest portion ofloan pay-
ments are deductible. So lower payments that are completely tax
deductible, helps to create greater overall value for customers
than they could obtain in a long-term cost-reduction program,
such as the PPA or solar industry lease.
What are the barriers that could slow and/or pretent operat-
ing leases from gaining market share?
A familiarity with leasing and standard lease provisions is an
advantage that leases have over PPAs, which are newer and
unfamiliar to customers and their advisors. A reduction in the
availability of tax equity would slow the growth of all types
of operating leases and PPAs. The elimination or reduction of
ITC would diminish the value of traditional operating leases
and negatively impact the economic value of the solar indus-
try's leases and PPAs.
As ITC steps down from 30 to 260/o in2020, and continues fur-
ther down after that, the operating lease will deliver less value.
The good news, however, is that the operating lease, with its
100% tax-deductible payments, will still be attractive relative
to other options available.
What share of the U.S. commercial solar market do operat-
ing leases currently hold? What share do you expect them to
have in thefuture?
The type of traditional lease that we offer has a small share of
the commercial solar market for two reasons. First, because
there are relatively few equipment leasing companies offering
solar leases, and secondly, because the solar industry has not
promoted the traditional operating Iease.
The major solar companies and project developers have instead
come out with a different operating lease, which is based upon
the same economic model as the PPA. Their economic model
was developed as a way to make themselves more profitable
than if they simply earned a developer's profit when selling a
solar system to a customer or third-party leasing company. So
because these solar companies have no financial interest in
offering a traditional operating lease instead oftheir cost reduc-
tion programs, penetration of the C&I market has not been as
great as it could be.
Having said this, there is a growing body of solar contractors
who are actively promoting our traditional operating lease to
their commercial customers as a way to help increase sales by
making projects affordable. This may be because these contrac-
tors cannot obtain the tax equity needed to support develop-
ment of their own cost reduction programs, or they just prefer
to use a traditional lease in order to provide their commercial
customers with greater overall value.
In all fairness, cost reduction programs do have their place.
The PPA makes sense for nonprofit organizations, because
these organizations cannot benefit from an ITC on a direct
purchase, or through an operating lease, because tax rules do
not allow a lessor to monetize an ITC when the lessee is a non-
profit. So PPAs allow nonprofits to put solar on their buildings
and achieve their environmental goals in a cost-efective way.
Do you expect the market share to grow?
When you dissect the solar market, the residential and util-
ity-scale segments have grown the most. The commercial and
industrial segment has not grown as quickly, and at Interso-
lar East in Brooklyn, I heard that annual volume in C&I actu-
ally decreased in the last two years. I think the reason for the
reduction in C&I volume is due to the solar industry promot-
ing cost reduction programs to commercial customers rather
than offering a traditional operating lease, and thereby not giv-
ing these savvy business owners what they want, a greater share
of the incentives to do a solar project. By working with the solar
companies that offer our traditional operating Iease, we hope to
reverse this trend. l lnterview by Christian Roselund
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