Solar lending to become the top consumer finance solution for residential solar in 2018

Even though interest rates are rising, people continue to turn away from solar leases and third-party-owned solar systems in favor of home loans to pay for their residential solar systems in 2018.

According to GTM Research and their current report that solar lending will become the No. 1 consumer finance solution for residential solar systems in 2018.

The increase in the popularity of solar loans, which includes personal and home equity lending, took a big bite out of TPO systems. The TPO market hit its peak in 2016 as companies like SolarCity and Vivint Solar spent tens of millions of dollars acquiring customers through purchased leads, door-to-door sales, and selling via big-box retailers.

Then in 2016 throughout 2017, these same companies had pressure from investors to become profitable, marking a stark change in focus for these and other large residential solar installers. In 2016, 83 percent of systems SolarCity installed were third-party owned. By 2017, that figure had dropped to 61 percent. 
 

Drop in consumer demand for solar leases

The drop in SolarCity’s TPO business in particular contributed to the 15 percent market decline of the residential solar industry in 2017 over 2016 (and a 36 percent decline for the national TPO market). Even the cash market fell 30 percent in 2017 as struggles with customer acquisition plagued both national installers and the long tail.
 

The rise of the solar lending company

Meanwhile, the loan market had a breakthrough year in 2017. The rise of solar lending companies such as Mosaic and Sunlight Financial contributed to 81 percent annual growth in the loan market. Much of this growth can be contributed to SolarCity's and Vivint Solar’s use of these solar lending companies, though other lenders such as Dividend Finance achieved explosive growth through partnerships with the long tail of installers. 

Many of today’s solar loan products combine the benefits of leasing with system ownership. Like the leasing products, many solar loans require no money down and allow for annual savings on a customer’s electric bill, especially with longer-term loans. And like a cash sale, loans allow homeowners to own the system and take advantage of the 30 percent federal Investment Tax Credit, while also allowing them to enjoy the benefits of the power produced by the system after the loan is paid off. 
 

The solar loan market is expected to grow

The solar loan market is expected to continue to grow through 2023, though at a decreased pace as solar lenders must grapple with the same sorts of challenges faced by the major TPO providers. Most solar lenders have been able to grow quickly thus far at the expense of earning profits, though investors and capital sources are likely to tighten the reins on these companies in the coming years. Rising interest rates are forcing lenders to re-evaluate their pricing models, and potentially to move to methods that produce fewer but more profitable sales.

While many challenges lie ahead for solar lenders, 2018 is gearing up to be another year of impressive loan market growth. Like the few remaining TPO players, solar lending companies must compete to offer customer savings while maintaining sufficient margins to appease investors.

If you want to move into the future and join the solar revolution, or if you want to find out what solar panels are right for you, go to HahaSmart.com and try our price checker tool. You can see how much a system will cost, and how much you can save over the next 20 years. 

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