New Solar Financing Options Sprout for U.S. Homeowners

Thinking of going solar or investing in the sector? Options range from loans and leases for rooftops, to crowdfunding, debt securities and bond issues.

Employee of SolarCity, the nation's largest provider of rooftop solar, installs panels on top a roof in Lakewood, Calif. Early this year the company announced it will use its own web-based platform to offer solar debt investments to individuals and small organizations. Credit: Steve and Michelle Gerdes

For U.S. homeowners and citizen investors, going solar—right now—is becoming increasingly within their grasp.

Solar startups are offering new ways to both pay for rooftop solar installations and invest in the sector—from solar loans and leases for houses, to crowdfunding, debt securities and bond issues for small-time financiers. With solar panel prices at historic lows, companies are pushing to reduce costs even further by reimagining the way that projects get financed.

The latest example is in Connecticut. There, Sungage Financial is launching a two-part program. First, homeowners can get loans that are structured specifically for buying and installing solar panels. The initiative is the first to base the terms of the loans on the customer's projected energy-bill savings—typically about $25,000 over three decades for Connecticut homeowners.

Second, folks who want to grow their clean-energy portfolios can invest in that debt, a role typically reserved for financial institutions. Sungage will package and sell the loans through Mosaic, a California startup that runs an online crowdfunding platform. Thousands of people will be able to contribute money to the pot, and potentially reap returns from the Connecticut projects.

"All of this innovation is happening in one little deal," said Sara Ross, co-founder and CEO of Boston-based Sungage.

The company announced its partnership with Mosaic on Feb. 6. Just weeks earlier another solar firm, SolarCity Corp., unveiled its own plans to expand the investor playing field. SolarCity is the nation's largest provider of rooftop solar and a darling of Wall Street. On Jan. 15, it announced it will use its own web-based platform to offer solar debt investments to individuals and small organizations. 

"Customers are seeing the benefits of getting solar for their homes, but they would like to participate in other ways as well," SolarCity CEO Lyndon Rive in a statement. Rive is a cousin of Elon Musk, the billionaire behind the Tesla electric car and SolarCity's chairman. Last year, the company issued about $54.4 million in solar bonds—the world's first. 

SolarCity dominates the market for solar leases, a relatively new tool under which homeowners can go solar for little-to-no upfront payment. The company installs the rooftop solar system, and then sells the clean electricity for prices below what the homeowner typically pays the utility.

Nicole Litvak, a solar analyst at GTM Research in Boston, said there's no question that the widening availability of solar leases and loans is driving dramatic growth in the residential space. Home solar installations are expected to increase by 1,000 megawatts this year—one-third more than what was installed in 2013, she said. 

It's less clear, however, whether the new investment tools—like the Connecticut crowdfunding or SolarCity's Web platform—are having the same effect, she said. "A lot of these models are pretty new. It's hard to say the impact that they've had." 

Solar Loans on the Rise 

Although Sungage's partnership with Mosaic launched earlier this month, the company has been quietly issuing CT Solar Loans since last year, when Connecticut's "green bank"—a state-run lending institution—agreed to jumpstart the program with a $5 million loan pool. Hampshire Foundation, a Connecticut philanthropy, will also chip in. 

So far, more than 100 customers have been approved for over $.2.2 million in CT Solar Loans.

The loan program comes as more Americans consider buying their systems outright, rather than securing a lease with a company. Smaller banks and other lenders are popping up to meet the demand, including Boston-based Admirals Bank and Enerbank USA of Utah.

"We've seen that [lease] trend start to reverse" in key solar states like Arizona, Massachusetts and Colorado, Litvak said. "As the cost of solar has come down dramatically, and more people can afford to buy a system with a loan, we're seeing a resurgence" in solar ownership. 

In the last three years, the average price of solar panels has dropped by 60 percent, according to the Solar Energy Industries Association, the main trade group. Now a system might run $20,000 to $30,000 for a typical home, similar to the price of a new car. 

"To the extent that the price of power continues to go up, these assets are going to be more and more valuable over time," said Ross of Sungage. "We're trying to spread this solar wealth to homeowners." 

Stefan Linder, a senior analyst with Bloomberg New Energy Finance in New York, agreed that "oftentimes loan financing can present a more attractive option on a long-term basis." Homeowners that purchase their systems can usually tap the federal Investment Tax Credit, which is equal to 30 percent of the project's total cost. With a lease, the tax benefit goes to the solar company—although customers don't have to pay operations and maintenance expenses as owners would. 

Still, while Linder said he expects the solar loan model to "gain traction" in the next few years, the solar lease and other third-party options will remain "by far the most prominent form of distributed solar financing" because of the convenience.

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