SolarCity
on Wednesday launched its first residential solar loan that it’s
structured to resemble a power purchase agreement, unlike conventional
loans that are being rolled out by a small but growing number of its
competitors.
The company, the largest residential solar installer in the country, calls its program MyPower and expects half of its new customers in 2015 to opt for the loan instead of the power purchase agreements and leases that it has helped to popularize. That would likely require anywhere from $500 million to $1 billion to finance the loans in 2015, said Lyndon Rive, CEO of SolarCity.
Rive calls MyPower the biggest product launch in the company history and is counting it to help the company expand into states that don’t have solar-friendly incentives.
“It’s the first loan product of its kind. We are applying financial benefits and selling the same value to homeowners,” Rive said.
For the past six years, the residential solar market in the U.S. has grown quickly thanks primarily to a 30% federal tax credit, state rebates or other incentives, and leases or power purchase agreements offered by installers. By the first half of this year, 2,700 megawatts of solar systems graced the home roofs of the country, compared with 1,144 megawatts by the end of June last year, according to GTM Research.
Homeowners who sign leases or power purchase agreements, which usually last 15 to 20 years, pay for solar electricity from the solar panels on their rooftops. Installers target homeowners who are big energy users or regions with high electric rates so that they could market solar electricity as a cheaper source energy than what the local utilities could provide.
A lease usually involves paying a flat monthly fee regardless of how much electricity the solar panels produce. A power purchase agreement requires payment only for the amount of solar electricity produced.
SolarCity and companies such as SunRun, Sungevity, Vivint Solar and SunPower would raise funds from banks or other investors to finance the equipment and installation and provide returns to their investments by collecting payments from leases or power purchase agreements. By 2013, those “third-party financing” mechanism accounted for over 70% of the residential installations in California (the biggest market), Arizona and Colorado.
With prices of the solar equipment coming down quickly, some solar companies, such SunPower and Mosaic , see opportunities in offering loans that allow homeowners to own the solar panels and take advantage of the federal tax credit, which lets taxpayers deduct from their income tax 30% of the cost of a solar energy system. Over long term, owning the should cost homeowners less than paying for leases or power purchase agreements.
Loans could enable solar companies to enter states that don’t allow third-party solar financing or see solar companies as essentially utilities that they don’t have the rules in place to regulate. States with low electric rates also haven’t been attractive to solar companies. Loans, combined with the federal tax credit, would lower the cost of producing solar electricity to the point that solar becomes attractive in those states, solar executives surmise.
That’s certainly the thinking behind SolarCity’s launch of its loan program. It also is prompting competitors such as NRG Energy to look at offering residential solar loans in 2015, said Kelcy Pegler, president of NRG Home Solar, when I spoke with him last week about the company’s acquisition of a solar sales and marketing firm, Pure Energies Group.
SolarCity is offering the loan in eight of the 15 solar-friendly states it already operates in first because it already has established the sales, installation and performance monitoring teams there. Rive declined to disclose the company’s expansion plan into new states.
What makes SolarCity’s loan program different is that the company isn’t partnering with banks to offer the loans. Instead, it’s funding them directly and plans to raise money for the program by securitizing the loans in ways that are similar to how banks bundle and sell securities backed by home mortgages. SolarCity completed the industry’s first securitization of rooftop solar assets last year.
The company also is structuring the 30-year loan to resemble a power purchase agreement. A homeowner who opts for a loan will pay only for the solar electricity generated each month. SolarCity charges a 4.5% annual interest rate and markets the loan to those with a minimum FICO score of 680.
What it all means for the homeowner is that he or she will pay more per kilowatt-hour with the loan than with a power purchase agreement but only during the first year, Rive said. By claiming the 30% federal tax credit and counting that savings toward the solar energy cost, the homeowner will in effect get a lower-cost solar electricity with the loan for the remaining years.
Tying the loan payment to solar power production should make it easier for homeowners to track the savings they get from solar versus energy from their utilities. That in turn should help with marketing the loan and enable SolarCity to set itself apart from competitors who connect customers with banks or otherwise offer more conventionally structured loans. Rive maintains that the MyPower loan can also offer greater savings than conventional loans.
For SolarCity, the revenues from the loan program will be “very similar” to what it gets from leases and power purchase agreements, Rive said.
The reliance on the federal tax credit to make the loan attractive could present a problem in a few years. The credit is scheduled to end after 2016. Rive is bullish about Congress extending the 30% tax credit beyond then. In the recent past, lawmakers tended to wait until the last minute to renew solar and other renewable energy incentives.
The company, the largest residential solar installer in the country, calls its program MyPower and expects half of its new customers in 2015 to opt for the loan instead of the power purchase agreements and leases that it has helped to popularize. That would likely require anywhere from $500 million to $1 billion to finance the loans in 2015, said Lyndon Rive, CEO of SolarCity.
Rive calls MyPower the biggest product launch in the company history and is counting it to help the company expand into states that don’t have solar-friendly incentives.
“It’s the first loan product of its kind. We are applying financial benefits and selling the same value to homeowners,” Rive said.
For the past six years, the residential solar market in the U.S. has grown quickly thanks primarily to a 30% federal tax credit, state rebates or other incentives, and leases or power purchase agreements offered by installers. By the first half of this year, 2,700 megawatts of solar systems graced the home roofs of the country, compared with 1,144 megawatts by the end of June last year, according to GTM Research.
Homeowners who sign leases or power purchase agreements, which usually last 15 to 20 years, pay for solar electricity from the solar panels on their rooftops. Installers target homeowners who are big energy users or regions with high electric rates so that they could market solar electricity as a cheaper source energy than what the local utilities could provide.
A lease usually involves paying a flat monthly fee regardless of how much electricity the solar panels produce. A power purchase agreement requires payment only for the amount of solar electricity produced.
SolarCity and companies such as SunRun, Sungevity, Vivint Solar and SunPower would raise funds from banks or other investors to finance the equipment and installation and provide returns to their investments by collecting payments from leases or power purchase agreements. By 2013, those “third-party financing” mechanism accounted for over 70% of the residential installations in California (the biggest market), Arizona and Colorado.
With prices of the solar equipment coming down quickly, some solar companies, such SunPower and Mosaic , see opportunities in offering loans that allow homeowners to own the solar panels and take advantage of the federal tax credit, which lets taxpayers deduct from their income tax 30% of the cost of a solar energy system. Over long term, owning the should cost homeowners less than paying for leases or power purchase agreements.
Loans could enable solar companies to enter states that don’t allow third-party solar financing or see solar companies as essentially utilities that they don’t have the rules in place to regulate. States with low electric rates also haven’t been attractive to solar companies. Loans, combined with the federal tax credit, would lower the cost of producing solar electricity to the point that solar becomes attractive in those states, solar executives surmise.
That’s certainly the thinking behind SolarCity’s launch of its loan program. It also is prompting competitors such as NRG Energy to look at offering residential solar loans in 2015, said Kelcy Pegler, president of NRG Home Solar, when I spoke with him last week about the company’s acquisition of a solar sales and marketing firm, Pure Energies Group.
SolarCity is offering the loan in eight of the 15 solar-friendly states it already operates in first because it already has established the sales, installation and performance monitoring teams there. Rive declined to disclose the company’s expansion plan into new states.
What makes SolarCity’s loan program different is that the company isn’t partnering with banks to offer the loans. Instead, it’s funding them directly and plans to raise money for the program by securitizing the loans in ways that are similar to how banks bundle and sell securities backed by home mortgages. SolarCity completed the industry’s first securitization of rooftop solar assets last year.
The company also is structuring the 30-year loan to resemble a power purchase agreement. A homeowner who opts for a loan will pay only for the solar electricity generated each month. SolarCity charges a 4.5% annual interest rate and markets the loan to those with a minimum FICO score of 680.
What it all means for the homeowner is that he or she will pay more per kilowatt-hour with the loan than with a power purchase agreement but only during the first year, Rive said. By claiming the 30% federal tax credit and counting that savings toward the solar energy cost, the homeowner will in effect get a lower-cost solar electricity with the loan for the remaining years.
Tying the loan payment to solar power production should make it easier for homeowners to track the savings they get from solar versus energy from their utilities. That in turn should help with marketing the loan and enable SolarCity to set itself apart from competitors who connect customers with banks or otherwise offer more conventionally structured loans. Rive maintains that the MyPower loan can also offer greater savings than conventional loans.
For SolarCity, the revenues from the loan program will be “very similar” to what it gets from leases and power purchase agreements, Rive said.
The reliance on the federal tax credit to make the loan attractive could present a problem in a few years. The credit is scheduled to end after 2016. Rive is bullish about Congress extending the 30% tax credit beyond then. In the recent past, lawmakers tended to wait until the last minute to renew solar and other renewable energy incentives.
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