More U.S. homeowners are putting solar on their roof than ever before. What’s driving that growth?
More specifically, it’s third-party financing, such as solar leases or power purchase agreements (PPA), where homeowners go in with little or no money down to then pay a monthly amount to have solar panels installed and use the electricity they generate. Maintenance is usually included in the agreements, since the homeowner doesn’t actually own the solar system.
“It’s hassle-free and it’s risk-free,” Field said.
Indeed, a majority of consumers have opted for third-party financing, which made up 65.9 percent of the residential solar market in 2013, up from 41.7 percent in 2011, according to Greentech Media research.
But the residential solar finance landscape is getting more creative, and competitive, as new financial products enter the market and new partnerships develop. Industry watchers say this is good news for customers, and are now making predictions on how this will impact consumer choice and their pocketbook.
Two recent moves aim not to bring new financial models to the solar business, but instead will bring more investors into the tent. In January, solar installer SolarCity sought to bring greater equality in solar investment and announced that it will launch a web-based platform to sell debt investments directly to investors, including individuals. Large financial institutions historically have been the only ones to directly take part in such investments. [Disclosure: SolarCity is an installer partner of SolarEnergy.net’s parent company, PURE Energies.]
Financial institutions are also getting more involved in the residential financing space. For example, SunPower announced in January that it was teaming with Bank of America Merrill Lynch to finance $220 million in residential solar lease projects.
Up until three years ago a number of major financial institutions had kept their distance from the residential solar financing space, according to Field. Credit issues coming out of the recession had kept many major banks from making such investments.
Even though high levels of contention can exist between the solar industry and utilities, especially on issues of net metering and state renewable portfolio standards, some utilities are venturing into residential solar financing.
In January, Clean Power Finance and Integrys Energy Services, a subsidiary of the Midwestern utility holding company Integrys Energy Group, announced the formation of a fund for installers to tap for third-party financing options.
Another financial strategy grabbing attention is crowdfunding. Mosaic is among the companies using crowdfunding to help customers own their own solar system. Mosaic claims to have invested more than $8.9 million into solar projects with the help of 3,500 investors in 46 states.
“We offer the lowest monthly payments on the market,” said Bill Parish, president and founder of Mosaic, while speaking on an Intersolar panel. Parish said Mosaic’s interest rates are as low as 4.99 percent.
The company moved to make its residential loan program more appealing by announcing on Tuesday that it was bundling it with operations and maintenance services.
With no down payment, Mosaic wants to provide the maintenance perks that comes with most solar leases. But unlike solar leases, loans enable homeowners to keep the investment tax credit that comes with owning their own solar system, Parish said.
Another perk of going with a loan according to Parish, “it’s easier to manage than a lease when you are selling your home.” Homeowners can boost the price of their home to pay off or absorb the cost of the loan, as opposed to trying to get the buyer to take over the lease.
But Field thinks the crowdsourcing model could face challenges as financing solar lease funds can be more efficient. In many cases it makes more sense to take down a $25 or $50 million tranche of debt from a single source than to try and arrange the same amount through crowdsourcing, he said.
As more money and investors enter the residential financing space, Field believes solar consumers will benefit. The biggest payoff, he said, will come from a greater selection of financing options to fit a consumer’s budget and desire to own or lease their solar system. Field doesn’t think solar consumers will be paying significantly less solely due to financing.
With so many financing options, the biggest impact might come in the form of more solar customers opting to buy their solar systems. Greentech Media research is projecting that third-party financing will reach its height this year by taking 68 percent of the residential solar market. After that, GTM predicts that other financing options, such as property assessed clean energy programs, will encourage more customers to own their solar systems — though the company expects leasing to be the dominant form of solar financing through 2018.
Stack of coins photo CC-licensed by Sharon Drummond on Flickr.