Credit unions and community banks offer path to residential solar industry success

The U.S. solar industry is facing serious struggles after a decade of strong, sustained growth. Compared other rooftop solar-rich nations like Australia, relatively high costs, particularly non-hardware related costs, have represented a barrier to adoption in the United States. 

However, costs are reaching record lows while panel and inverter efficiencies rise. In the face of rising electricity rates, consumer demand for rooftop solar remains. A recent study from Stanford said nearly 60% of U.S. households could cut their long-term energy bills by 15% through installing a solar-plus-battery system.

So why is adoption of residential solar slowing down? Part of the answer may lie in the financing experience for customers, said Bill Paulen, chief executive officer of LoanTerra, in an Op-Ed for Leasing Life. LoanTerra is a clean energy lending platform helping credit unions and community banks enter the renewable energy financing space.

The residential solar loan space is currently largely occupied by a small number of specialist fintech lenders whose loans often include hidden costs, said Paulen. Loan providers often bake in “dealer fees” attached to loan products that can add up to 30% to the total cost of a system, quietly increasing a $30,000 installation by as much as $9,000, he said.

A rise in third-party-owned systems like leases and power purchase agreements emerged in response to worsened loan terms in our current higher-for-longer interest rate environment. However, Paulen argues that the best long-term value for homeowners, both for reduced bills and increased property values, comes from customer ownership.

Paulen said a lack of transparency in loan terms damages the ability for installers to reach more customers.

“Historically, federal incentives filled the gap, sustaining adoption even in the absence of fair financing. But with provisions in the latest federal budget creating an end-of-year cliff, their future is uncertain. As incentives recede, the shortcomings of the current finance model come into sharper focus,” said Paulen.

Paulen said the solution may lie in local credit unions and community banks to close the financing gap. He said their lower cost of capital allows these smaller entities to offer fairer terms, and their community focus gives them credibility that larger lenders may lack. Credit unions and community banks already have experience in financing home essentials like cars, home improvements and education, so Paulen sees expanding into solar finance as a “natural solution.”

While community lenders have been cautious about entering the space, Paulen said the risks are well-known by the industry.

“Solar lending has established mechanisms to protect lenders, such as fixture filings that attach to a property’s title,” he said. “Performance data shows these loans behave more like superprime mortgages than unsecured consumer debt. In other words, the tools exist, and the risk is manageable.”

Solar lending also comes with some technical challenges. Homeowners are accustomed to seamless digital experiences, requiring a strong relationship with solar installers, as well as the need to monitor quality, performance, and payment flows.

“These barriers are not insurmountable,” said Paulen. “Financing remains the last mile of residential solar – the missing connection between proven technology and household adoption.”

Paulsen said for credit unions and community banks, closing the last mile is a responsibility and an opportunity. Unions and banks can extend savings to members while opening a new line of lending, diversifying their balance sheets, and deepening the community relationships.

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