While third-party solar was once the driving force of growth in the residential solar market, the past few years have been seen loans dominate. According to Wood Mackenzie, much of this was driven by one company – Mosaic – whose solar loan offerings have carried the market forward to become the dominant form of finance for residential PV systems.
And on the sixth anniversary of Mosaic’s arrival into the residential loan space, it is trying out something new; a loan product far more versatile than what has been offered in the market to date.
For starters, unlike most solar loans the PowerSwitch Plus does not assume that the homeowner will automatically apply the Investment Tax Credit (ITC) to paying off the loan. “This gives the homeowner optionality to take the tax credit and do whatever it chooses,” Erin Talbot, Mosaic’s general manager of solar lending told pv magazine.
Home improvement +
Another feature of the loan strikes to the heart of selling residential solar. No one in their right mind puts solar on a roof that will needs to be replaced. And since solar is often installed around the time that a roof is replaced, homeowners typically need to finance two processes: re-roofing and installing a PV system.
PowerSwitch Plus allows customers to finance both of these with one loan, by allowing home improvement to be coupled with PV system installation, as well as any energy efficiency improvements. The loan comes in 10-, 15- and 20-year terms, and these longer terms are hard to find with home improvement loans.
“The multi-dimensional optionality is great for the homeowner as well as the installer,” notes Talbot.
And while Property Assessed Clean Energy (PACE) loans have offered the ability to finance energy efficiency as well as PV installation for some time, Mosaic notes that they often come with higher interest rates than the 3.99-8.99% annual percentage rate that it offers.
But perhaps the most unusual innovation in the PowerSwitch Plus is that it moves the finance of a PV system from an individual to a household. Under the program, the income of anyone living in a house can count towards loan qualification.
“It makes sense to us that homes with multiple income sources should be able to count all of that income,” states Mosaic Co-Founder and CEO Billy Parish.
This goes beyond co-signing, as the income of all household members can be used to qualify for a loan. And this doesn’t just appear to be an innovation for the solar industry, but for finance in general, as Mosaic couldn’t name another industry where loans based on the income of an entire household were available.
Moving on up
Mosaic says that its PowerSwitch Plus loan has been well received by installers in a pilot program, noting that among other things it has been simpler for homeowners to navigate. But whether or not this loan product takes off, the larger loan market is growing.
Wood Mackenzie Power & Renewables estimates that 45% of the residential PV systems sold in 2018 were financed with loans arranged through the installer – well above the 33% market share of solar leases and power purchase agreements under the third party owned model.
This is up from a 31% loan share in 2017, and only 15% in 2016. “This growth by so many solar loan providers has created a very competitive environment where loan providers are competing on price more than anything else,” states Allison Mond, a senior analyst at Wood Mackenzie Power & Renewables.
“That said, many solar loan providers are working now to increase margins by either increasing prices, cutting costs, or both. The increase in pricing by some of these players should be viewed as a positive as they set out to grow more sustainably into the future.”
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