Evolution of solar financing

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  • http://www.sunrun.com/solar-lease/solar-financing/companies/
  • http://www.bloomberg.com/news/2014-06-23/rooftop-solar-leases-scaring-buyers-when-homeowners-sell.html

Transcript

  • 1. The Evolution of Residential Solar Financing
  • 2. 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 solar.
  • 3. 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 investors. • Providers would also monitor the system and provide maintenance if the system had issues. • Calculated value over the lease – or retained value – has generally been $1.50 to $2.00 per watt for lease providers.
  • 4. 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 2018. • The company has $2.5 billion in payments under contract and an estimated retained value of $1.3 billion.
  • 5. 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 2014. • Until recently, few other financing options were available to homeowners, except leases or paying out of pocket with cash.
  • 6. 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.
  • 7. 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.
  • 8. Will crowdfunding be a key? Mosaic and Enphase recently announced a partnership that will allow installers to offer crowdfunded solar loans and operating and maintenance. • 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 assets. • Crowdfunding could be a key to cutting a lengthy approval process and keeping interest rates low for homeowners.
  • 9. 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.
  • 10. 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 Research. • 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.
  • 11. There’s an energy boom happening in the U.S. right now. Find out how to invest in it here.