Fitch: New Entrants to Distributed Generation Market Challenge Utilities' Dominance

NEW DELHI & SINGAPORE--()--New investor classes and alternative financing will drive the expansion of the distribution generation (DG) market, adding further challenges to the traditional utility business model, according to a new Fitch Ratings report.

Fitch expects third-party finance and alternative capital sources to play an important role in expanding the market for residential solar DG. Greater access to capital will make enable easier residential photovoltaic (PV) acquisition, reduce upfront cash outlays, eliminate homeowner system maintenance and upkeep costs, and thus broaden the potential customer pool. Third-party finance has not resulted in lower rooftop system acquisition costs and the U.S. Department of Energy estimates in a December 2013 report that third-party finance added approximately 15% to total system costs.

Third-party ownership currently represents 60% to 70% of total residential DG installations and remains the key growth driver of DG installations. Third-party-owned systems, themselves, have been fueled by the ability to attract new investors and new forms of capital or recycle capital through securitizations.

Traditional utilities have been the sole distributor of electricity even in restructured states where generation and retail energy supply may be provided by others. However, under the leasing model advanced for solar distributed generation, customers can now purchase electricity - at a lower price than the utility retail price - from the owners of the rooftop systems. The leasing model is similar to the retail electricity model in a restructured state but potentially has more risks for the incumbent utility, as the volume of utility-supplied electricity is reduced.

Fitch believes this will further challenge the traditional utility business model, which is already under siege from energy efficiency and other market dynamics.

The full report 'Alternative Finance Plugs into Distributed Generation Growth' is available at 'www.fitchratings.com' or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Alternative Finance Plugs into Distributed Generation Growth (Competitive Challenge Faced by U.S. Utilities on the Rise)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=755107

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Contacts

Fitch Ratings, Inc.
Glen Grabelsky, +1-212-908-0577
Managing Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Daniel Neama, +1-212-908-0561
Associate Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings, Inc.
Glen Grabelsky, +1-212-908-0577
Managing Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Daniel Neama, +1-212-908-0561
Associate Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com