Solar is expensive, so adoption was slow
Installing solar panels on a rooftop has long been a cost-prohibitive
endeavor, with systems costing $30,000 to $50,000 until recently.
Homeowners didn’t have the cost savings or the financing to pay cash for
a costly solar system, but that dynamic is quickly changing.
• In 2007, Sunrun launched the first solar lease, which brought down initial
costs to as little as $0 and cut costs into manageable monthly payments.
• Over time, companies like SolarCity, Clean Power Finance, and
SunPower became big players in the solar lease, expanding installations
and lowering costs along the way.
• Investors also became more comfortable with the lease, now supplying
hundreds of millions of dollars in tax equity financing to the industry.
• As costs fall, will the lease stay the dominant financing method, or will
homeowners want to own their systems?
• The answer may define who creates value in the future of residential
Along came the solar lease
Leases allowed consumers to go solar with $0 down and also created
immense value for the lease provider.
• Lease providers would sell tax
benefits such as the investment
tax credit and accelerated
depreciation to tax equity
• Providers would also monitor
the system and provide
maintenance if the system had
• Calculated value over the
lease – or retained value – has
generally been $1.50 to $2.00
per watt for lease providers.
SolarCity takes the lease and runs
SolarCity quickly took the industry by storm.
• SolarCity has signed nearly
50,000 new customer contracts
in the past year.
• Management has set a goal of
1 million solar customers by
• The company has $2.5 billion
in payments under contract and
an estimated retained value of
Lease now dominates solar financing
In part because of SolarCity’s dominance, the lease is now the main
method of financing residential solar systems.
• The share of residential
systems built under solar
leases ballooned from 42%
in 2011 to a projected 68% in
• Until recently, few other
financing options were
available to homeowners,
except leases or paying out
of pocket with cash.
What does the future look like?
New financing methods are starting to develop, including the solar loan.
• SunPower recently signed a $200 million financing deal with Admirals
Bank that will increase its loan offerings.
• Mosaic is now offering a crowdsourced solar loan in California that
comes with an operating and maintenance plan from Enphase.
• Loans are primarily given as personal loans, but in the future they can
be securitized by the solar system itself, or by the home.
• Like leases, as investors become more comfortable with how loans are
structured and securitized and with the reliability of payments, there will
be more offerings at lower rates.
Loans will grow in importance
The lease dominates the market today, but loans will play a growing role
in the industry.
• GTM Research predicts
that the share of the market
that leases solar will peak in
2014 and fall to 63% in 2018.
• Leases have also been
found to hinder home sales
to new buyers.
• One the cash/loan side, a
study by the Lawrence
Berkeley National Laboratory
finds that an owned solar
system adds $25,000 in
value to a home.
Will crowdfunding be a key?
Mosaic and Enphase recently announced a partnership that will allow
installers to offer crowdfunded solar loans and operating and
• Mosaic will instantly fund a designed solar system after a credit check
and will create a long-term (20-year) loan.
• An operating and maintenance plan through Enphase will be offered as
part of the package.
• SolarCity has also looked into using crowdfunding through an online
system that would allow small investors in a pool of residential solar
• Crowdfunding could be a key to cutting a lengthy approval process and
keeping interest rates low for homeowners.
Future looks much like buying a car
At the end of the day, solar financing will likely look a lot like buying a car.
• Cash, leases, and loans will be
available to homeowners.
• Some buyers will put a premium on
owning their solar system, especially if
leases are found to negatively affect
home value in the long term.
• Operating and maintenance (similar to
warranties in auto) will see increased
availability through loans, currently
available only with leases.
• I think that in the long term, leases will
trend toward the 20% market share
currently seen in the auto industry.
The players you need to know in solar financing
In residential solar, there are two dominant companies to know and one
that may emerge as players in the future.
• SolarCity is the biggest
player in residential solar,
installing 67 MW in Q1. The
company had a 29% market
share in Q2, according to GTM
• SunPower installed 35 MW
through third-party installers.
• Enphase Energy is one of
the largest inverter suppliers
to residential solar and is now
doing O&M for Mosaic, a new
offering for the company.
There’s an energy boom
happening in the U.S. right now.
Find out how to invest in it here.
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