Over recent years solar power providers and installers have offered an increasing variety of ways to finance solar installations, with each having its time in the spotlight. Now solar loans are becoming the financing mechanism of choice for homeowners, rather than solar leases or power-purchase agreements (PPAs).
Solar loan products that are now offered have taken on characteristics of solar leases and PPAs. Many require no money down and are designed to offer the homeowner overall savings on their annual energy spending. They also allow the lessee to own the system and get the value of the 30 percent federal Investment Tax Credit. Financiers like Blue Wave are also starting to innovate on standard solar loan offers by offering options like flexible rates.
The shift was observed in Bringing Scale, Profitability and Value to the Residential Solar Market, a new report out from GTM Research, which found that solar loans will be the way roughly 47 percent of home solar systems are financed in 2018. This represents a big change over the past few years when third-party-owned (TPO) ownership and outright cash purchases dominated solar installation financing. In 2016 solar loans only comprised 16 percent of the market share while roughly 45 percent of installations were financed by TPOs like Vivint and Tesla’s SolarCity. Another roughly 25 percent were bought outright.
“The TPO market hit its peak in 2016 as companies like SolarCity and Vivint Solar spent tens of millions of dollars acquiring customers through purchased leads, door-to-door sales, and selling via big-box retailers,” wrote report author Allison Mond in a post about it. “In 2016, 83 percent of systems installed by SolarCity were third-party owned.”
Mond explained that as investors pushed the companies to become profitable they moved away from those more expensive marketing tactics and financing mechanisms. By 2017, she said SolarCity’s TPO installations dropped to 61 percent.
Since SolarCity was the nation’s largest solar installer for years, when it changed it’s marketing and financing tactics it led to the 15 percent market decline of the residential solar industry in 2017 over 2016 (and a 36 percent decline for the national TPO market), according to Mond.
Solar loans were buoyed in 2017, growing 81 percent over the previous year to 33 percent of the market share as Mosaic, Sunlight Financial, Dividend Finance and other companies stepped into the market. In fact, SolarCity and Vivint are using them to finance solar loans, Mond explained.
Looking ahead Mond anticipated that the trend toward solar loans will continue through 2023. However, she also noted that solar lenders will have to deal with the same challenges that TPO providers have had to as they work to become profitable. Already rising interest rates will force them to revaluate their their pricing models, for instance.Tweet