This article was written by Wendy Rowland who recently completed a SMOC, MassCEC, and a HeatSpring solar course that provides skill-based training for professionals seeking to enter the renewable energy industry.

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One important aspect of formulating a business strategy is the study and analysis of trends. One such trend is the increase of solar loans in Massachusetts. GTM Research forecasts that by 2017 direct ownership of solar systems will grow by 166% and by 2020 residential solar in Massachusetts will be a $10 billion market. While many residential solar modules are third party owned, solar loans will have a larger long-term impact in manifesting the growth of the residential solar industry in Massachusetts.

Massachusetts utilities have a combined total of approximately 4.4 million electric customers; 2.3 million of that total are residential customers. Nationally, Massachusetts (based on solar capacity installed) currently ranks 4th in the Top Ten Solar States for the solar industry’s fastest-growing market, residential PV.  SunShot Initiative Rooftop Solar Challenge grant funds help create programs to reduce ownership barriers for Massachusetts residents who want solar.  These programs (Solar Carve-Out Program II (SREC II), Solarize Mass, Mass Solar Connect, Mass Solar Loans) are designed to help cities and towns lower installation costs to increase the number of small-scale solar PV installations in the state. Their objective is to help communities implement best practices to streamline permitting and zoning processes, improve interconnection, and increase finance options for solar energy projects.

Although cash purchases dominated the residential U.S. solar market at 58.3% in 2011, by 2013 third party ownership dominated at 64.9%. According to a report by Greentech Media and SEIA, the Massachusetts solar market grew steadily during that time and the U.S. Solar Market Insight 2014 Year in Review  reported that Massachusetts, shot to No. 1 among all Northeast states and remained 4th nationally for the most new solar capacity added in 2014.

A few reasons why solar loans will surpass TPO in the near future are…

Solar loans enable customers to hold onto their cash, have fairly low interest rates, save money, maximize financial investments, lock-in costs at a fixed rate for the long term, and benefit directly from state and federal tax break incentives without expending any up-front cash investment.

In March 2014 DOER and MassCEC launched the Mass Solar Loan Program. This program gives homeowners, including owner-occupied multi-family homes with three or fewer units, more access to low-interest loans to purchase and install solar electric systems. MassCEC  partnered with local banks, credit unions and solar installers to offer loans to homeowners with moderate income or lower credit scores. For MA residents who did not have cash on hand to purchase a solar system or find the process unfamiliarity, terms, or lack of ownership issues associated with leases and PPA’s unappealing, the solar loan is a welcome and popular addition to the TPO model. Solar loans enable customers to hold onto their cash, have fairly low interest rates, save money, maximize financial investments, lock-in costs at a fixed rate for the long term, and benefit directly from state and federal tax break incentives without expending any up-front cash investment. Industry growth indicates as homeowners have become more familiar with solar technology, they’ve become more comfortable with taking out a loan to install solar as a hedge against rising electric cost(s) with net metering and SREC’s helping them reap a return on their investment.

Additionally, the Mass Solar Loan Program also provides loans to residents interested in purchasing a share in a community-shared solar project. The National Renewable Energy Laboratory (NREL) reports community solar options expand access to solar power for renters, those with shaded roofs, and those who choose not to install a residential system on their home for financial or other reasons.  DOER anticipates the solar loan trend in MA to grow. The $30 million for the Mass Solar Loan program came out of DOER’S Renewable Portfolio Standard (RPS) Alternative Compliance Payment funds.

MA utilities too have embraced and encourage the solar loan trend as a way of using residential power systems to reduce demand on the grid’s existing electricity. Residential solar systems contribute renewable energy to the grid without utilities having to invest in the systems themselves. This assists utilities achieve RPS  requirements. Solar loans also help fulfill the state’s Green Communities Act efforts and meet its renewable energy goals. TerraForm Power’s acquisition of leading distributed solar energy provider Vivint Solar Assets in order to expand its residential solar portfolio, is one example of organizations and investors seeing distributed generation solar as a positive opportunity in the market.

Finally, as solar costs continue to decrease, investors/financiers will need to replace tax equity as the cheapest financing available after the 30 percent tax credit expires. Increasing the volume of residential loans as an asset class (particularly loans made to homeowners with high FICO scores) could increase the potential for growing distributed solar and a move towards securitization. Numerous channels for offering solar loans have opened up. With tax laws currently favorable towards securitization, more residential solar loans could make investors more money thru securitization.  As solar loans increase in availability and flexibility, demand for residential solar will remain high.  

A good strategy looking forward would be to learn more about new technology entering the solar market, to study the Massachusetts regulatory environment as banks embrace rooftop systems and the energy they produce as the collateral instead of the house itself, to keep monitoring the solar loan trend as programs expand and the real estate market rebounds, and to begin an in-depth exploration of community and distributed grid solar.

With millions being invested in its success, a shift away from TPO and towards loans in the residential solar industry in Massachusetts is inevitable. Stable, predictable cash flow is what homeowners and businesses alike want. Solar loans structured to offer homeowners energy production, guarantees, system warranties, performance monitoring, ownership and significant long-term value greater than that of a lease or PPA will dominate the market.

In the Massachusetts residential market, solar loans will surpass TPO’s and be the primary trend empowering homeowners thru 2020 to reduce carbon emissions and move the world towards cleaner, safer, more sustainable energy production for everyone.

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