A decade ago, a residential solar system was a relatively elite product available only to homeowners with the means to finance the installation. Banks were still a little shy about investing in this new technology and solar financing programs were relatively rare. Solar energy was more expensive than electricity from the power grid in most markets, and solar energy prices were much higher than today. So what’s changed? The market for one and one company has crafted solar financing down to a digital art form.
Solar financing – a retrospective
Solar financing hasn’t always been the easiest to obtain.
- Then, the cost of solar PV fell 50% in five years, according to a 2015 report and the federal tax credit was increased to 30%.
- The total cost of installing a solar system has fallen dramatically, and over the same period of time — retail electricity rates have climbed across much of the country.
- In fact, solar energy has reached grid parity in 20 states, according to a recent report from GTM Research, U.S. Residential Solar Economic Outlook: Grid Parity, Rate Design and Net Metering Risk.
What does it all mean? It means that solar power electricity is cheaper than retail electricity in much of the nation.
Homeowners in many states can save money with solar energy, thus financing the upfront cost is often the missing ingredient to solar system ownership. Now that solar power has proven itself as a reliable technology and a sound financial investment, solar financing programs are becoming hot. One of the most noteworthy is the Mosaic PowerSwitch loan program, a peer-to-peer loan initiative for affordable solar loans.
This online solar marketplace connects investors with aspiring solar system owners. The platform has crowd sourced numerous solar installations, including university housing projects, conference centers, and single-family homes. Mosaic started out with commercial and non-profit solar systems and has expanded to also serve homeowners. This California start-up was launched in 2010, right when solar leases were becoming really popular.
Why not just lease a solar system?
Solar leases emerged as a popular way for people to have a solar system with as little as no money down and they took the industry by storm several years ago. Suddenly many more homeowners had the means to go solar with billions in institutional money. The leasee can have many of the benefits of solar energy, but not all. Although lease agreements vary, many involve locking in electricity rates from the solar energy. As the cost of retail electricity grows, the savings from the solar system also increase.
The downside is that some home shoppers are shy about purchasing a home with a leased solar system on it and the homeowner is not entitled to the federal tax credits associated with the solar system. Solar system owners experience double the utility savings with solar energy because they aren’t sharing the profits generated by the system and they own their solar system outright at the end of the loan period. On the bright side, the solar leasor is responsible for solar system maintenance and repairs, but most solar systems require little if any maintenance over time. Some solar installers also offer an additional warranty that products solar system owners.
Solar leasing seems to have peaked in 2014 at 72 percent of the market and is likely declining. Now many large solar companies have started offering loan programs in addition to solar leases and they are growing in popularity. In fact, Sungevity and NRG Home Solar both offer loans through Mosaic. The business model is shifting behind solar, and Mosaic entered the market just at the right time to take advantage of this.
How do Mosaic loans work?
The Mosaic loan was specifically designed for solar energy. The idea behind it is that if the loans are structured properly, they will remove the barriers stopping many homeowners from going solar.
Investors can lend money to people, businesses and organizations wishing to install solar panels.
- The loans are considered to be low-risk because people are saving money by using solar energy, thus failure to make monthly payments puts this in jeopardy.
- The homeowner is entitled to the 30% federal tax credit (unlike with a leased solar system), and they can either use this money to pay down the Mosaic loan or keep the tax credit.
- When they keep the tax credit, it doubles the rate of the loan after 18 months.
What is peer-to-peer lending?
Peer-to-peer lending matches investors with borrowers using an online platform. The fees for such services are often lower than with a brick and mortar bank because the overhead for such companies is lower. Peer-to-peer lending serves as an alternative way for borrowers to seek credit and can pay higher returns for investors.
Peer-to-peer lending has been around for roughly a decade, but it really took off during the financial crisis. It became very difficult for borrowers to access credit, encouraging the growth of peer-to-peer lending. This alternative model serves a customer base that could otherwise be excluded or be poorly served with high rates. The peer-to-peer model can also be more nimble to changes in the business environment, like we saw during the financial crisis.
Many banks have been slow to see solar as a cash-generating asset with proven, reliable technology. Most solar panels have a 25-year production warranty while solar inverters (which converts the DC solar electricity to AC current) typically have 12 to 25-year warranties. With no moving parts, solar systems are practically maintenance free.
Solar energy has become a mainstream way to save on utility bills and hedge against rising electricity rates and has wide appeal beyond the green consumers niche. Due to the upfront cost of the solar equipment and installation, financing the system is often the largest hurdle, especially for people and organizations that would like to purchase instead of lease the system. This hurdle is rapidly shifting now that solar is more widely seen as a wise financial investment, in addition to being far more sustainable than fossil fuels.
Mosaic’s solar financing model is helping to fuel the clean energy movement by matching investors and borrowers. This is a win-win arrangement that allows investors to help further solar energy use, creating a very green investment opportunity. Now that the federal tax credit for solar systems has been extended, the solar energy market is ripe for further growth.
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