The solar industry and the use of residential solar power have grown dramatically in recent years. In fact, in the U.S. alone, a new solar installation is completed every two and a half minutes. Moreover, growth in the residential solar sector is now outpacing other forms of solar installations, due in large part to an increase in the availability of third-party financing. Today, third-party-owned residential installations account for more than 50 percent of new residential solar capacity in California, Arizona, Colorado, and Massachusetts, while market share for third-party ownership in several other states (Connecticut, Delaware, Maryland, New Jersey, New York, Oregon, Texas, Vermont, and Washington) is increasing rapidly to the point that the residential solar-financing market is forecasted to rise to $5.7 billion in 2016 from $1.3 billion in 2012.
So, how does this all work? Using the
"third-party-owned" model, developers purchase, lease,
install, and maintain rooftop systems. Customers then pay a low,
fixed energy rate through a 20-year purchase agreement. Homeowners
are therefore able to avoid the high cost of purchasing a system
outright. While traditionally lenders would not assume the risk of
making loans to solar developers based on individual long-term
homeowner debt that is not secured by the underlying real estate,
it became clear that homeowners meeting certain credit criteria
were a good long-term risk, particularly when payments were tied to
powering their homes. In order to make this arrangement
financeable, solar developers retain ownership of the systems,
lease the systems to homeowners, pool the leased systems, and then
sell them to commercial banks in tranches ranging anywhere from $20
million to $700 million.
While initially the market for financing third-party-owned systems
was very narrow—sourcing financing from clean-power funds
such as those established by Clean Power Finance, which has placed
more than $1 billion in solar financing—the market for
financing residential rooftop leases is growing at a steady clip
and should continue to increase in 2015. Entrants into the
financing market include Morgan Stanley, Goldman Sachs, US Bank, JP
Morgan and Google, to name a few.
Moreover, it seems that all of the residential solar players are
taking advantage of the available financing opportunities. Sunrun,
the largest dedicated residential solar company in the U.S., along
with Investec, recently announced the close of $195 million of
senior credit facilities to support the growth of Sunrun's
residential solar business. Presumably Sunrun will use this credit
facility to assist in financing rooftop installations that arise
out of its partnership with Sungevity. It appears that Sungevity
will acquire customers and Sunrun will finance the rooftop
installations and own the photovoltaic ("PV")
system.
NRG Energy, Inc., through its NRG Residential Solar Systems
subsidiary, recently closed an up to $200 million financing with
MySolar, funded by Morgan Stanley, where NRG will source customers,
install, operate, and maintain leased residential systems, and then
sell the systems to MySolar.
Finally, SolarCity, which owns one-third of the U.S. residential
solar power market, recently launched its solar loan product,
MyPower, which is designed to finance residential solar ownership
directly with the homeowner.
Given the lowered costs of solar power, the increase in financing
opportunities for residential solar power, and the continually
evolving landscape of those financing options, we expect the use of
residential solar power to continue to increase significantly
through 2015. The real test will be how residential solar power
installations (and the financing of those systems) are affected
when the 30 percent investment tax credit on those systems expires
at the end of 2016.
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