SolarCity Introduces New Finance Model for Rooftop Systems

SolarCity Corp. will begin offering loans for rooftop solar power systems in a bid to reach consumers who want to own the panels on their roofs rather than lease them or pay cash.

SolarCity became the largest U.S. supplier of rooftop solar power by offering leases for no money down. Today it will begin offering 30-year loans in eight states that are repaid through borrowers’ power bills, the San Mateo, California-based company said today in a statement.

Loans may offer a better deal for consumers than leases, said Chief Executive Officer Lyndon Rive. Under SolarCity’s current model, the company owns the equipment and the customers make monthly payments for the electricity, an arrangement typically called a power purchase agreement.

“Once consumers understand it, they should prefer this product over a PPA,” Rive said in an interview yesterday. He estimates these types of loans will make up half the company’s business by mid-2015. “The total savings is greater than with a PPA.”

Two-thirds of U.S. residential solar systems last year were funded by third parties through such power purchase agreements, according to GTM Research. That’s expected to peak this year at 68 percent and then decline to 61 percent by 2016 as more financing options emerge, the research company said in a June report.

With SolarCity’s MyPower loan program, homeowners who qualify can finance rooftop solar systems at a rate as low as 4.5 percent. There are no penalties or fees for prepayments.

Tax Credit

For a typical system in California that costs $30,000 to install, the monthly bill initially works out to paying about 16 cents a kilowatt-hour for electricity in the first year, Rive said.

The homeowner will also qualify for a 30 percent federal tax credit, $9,000 in this case. Once that’s applied to the loan, the price will decline to about 11 cents a kilowatt-hour.

“Once the customer gets the tax credit, it’s a much lower cost per kilowatt-hour,” Rive said.

SolarCity’s loan program also allows it to enter states such as Georgia and North Carolina that ban third-party ownership of rooftop solar systems.

SolarCity isn’t the first solar installer to offer debt financing in addition to leases.

Admirals Bank offers loans of as much as $40,000 for renewable energy systems and in June announced a partnership with SunPower Corp., a solar-panel manufacturer and rooftop system provider. SunTrust Banks Inc.’s LightStream unit offers financing for rooftop power at rates that start at 4.99 percent.

SolarCity will begin offering loans to homeowners today in Arizona, California, Colorado, Connecticut, Hawaii, Massachusetts, New York and New Jersey.

Once a collection of solar loans becomes big enough, SolarCity plans to securitize them, probably by tying the monthly payments to bond issues, Rive said.

Copyright 2014 Bloomberg

Lead image: Rooftop solar via Shutterstock

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