Officially, SolarCity, Sunrun and Vivint do not offer loans for the residential photovoltaic (PV) systems that they help finance and install.

Unofficially, it's another story.

These market-leading firms make their money with residential solar leases and power-purchase agreements (PPAs). And business is pretty good (see SolarCity's recent securitization).

Third-party ownership (TPO) remains the dominant model for financing a residential solar installation in the U.S., but that's changing. Direct ownership via loans and other mechanisms like PACE are gaining traction, because PV systems continue to get cheaper while financing options continue to improve.

If customers are moving toward loans, surely SolarCity, Sunrun and Vivint will as well.

Recently we reported that SolarCity, the leading residential solar installer and financier, would soon unveil a loan product, according to sources close to the firm. The program was to be open to applicants with FICO scores of 650 and higher with a 30-year option. The loan program was to be tested in a limited market to begin with, in order to better understand and codify the sales process.

And now SolarCity's 30-year loan product has been spotted in the wild by one of our sources. (They are everywhere.) "It looks like a hybrid PPA-loan," according to our contact, who called it "confusing" and "expensive."

GTM has also learned that SolarCity has started a pilot loan program in TPO-unfriendly Colorado and is financing the loans off its balance sheet.

Additionally, our contacts note that SunEdison's 20-year loan includes equipment but has an expensive dealer fee. Both the SolarCity and SunEdison loans are unsecured and have a relatively low rate of 4.5 percent to 6.5 percent, according to our sources.

Neither SolarCity nor Vivint offered an official comment in response to GTM's request.

Some detail about Sunrun's loan hopes can be found online, including a listing for a product manager position that will "develop and manage product financing offerings which will include secured and unsecured loans." Sunrun's Andrew Pontti notes, "We currently don't offer a loans, but we follow the consumer financing landscape closely and appreciate financial innovation that helps more homeowners go solar. Our view is that there will likely be a robust market for other financing methods over time, and their success will be determined by consumer interest."

A financial industry contact says that there are two products that are doing well in the market, both unsecured:

  • A loan with an interest rate buy-down program where the consumer gets a low interest rate (1 percent to 3 percent) and the dealer (contractor or sales organization) pays a fee of anywhere from 12 percent to 20 percent.
  • A no-interest, no-payments loan (i.e., a same-as-cash loan) for some period of time (12 to 24 months) which includes a dealer fee of 10 percent to 20 percent

Our contact notes that unsecured loans are the dominant choice in the market.

In June, SunPower partnered with Admirals Bank on a $200 million loan program for residential solar installations over the next two years. Clean Power Finance and Sungevity are also in the loan business, and Kilowatt Financial, Sungage and Mosaic are moving into the solar loan transaction business. Look for NRG to enter the fray as well.

Nicole Litvak, a solar analyst at GTM Research, just authored a report on this topic, U.S. Residential Solar Financing 2014-2018. (For more information on the report, click here or contact Matt Casey at Casey@gtmresearch.com.) GTM Research is forecasting third-party ownership to peak at 68 percent of the residential PV market this year.

Litvak notes that a few banks, such as Admirals Bank and EnerBank, provide solar-specific bank loans with interest rates "typically between 5 percent and 10 percent depending on term (five to twenty years) and FICO score."

GTM's Matthias Krause reports that Mosaic will allow homeowners to take out a 20-year solar loan with no down payment and a 4.99 percent interest rate. "The loan is bundled with residential operations and maintenance services provided by Enphase along with its microinverters," according to the article. Mosaic's Billy Parish hopes that higher-quality loans will help the securitization process. "In Mosaic's experience, lenders and investors have historically viewed solar loans as riskier than leases because there is no assurance that the system will continue to produce energy after installation."

"According to an online survey of 1,031 California homeowners that was conducted by Mosaic in April, around 60 percent of respondents would prefer to own a residential rooftop system rather than lease it, assuming that savings and performance are similar. And, more importantly, among the 26 percent who still favor leases, more than half would choose a loan instead if a warranty was included," writes Krause.

GTM Research expects the U.S. residential PV market to exceed 1 gigawatt for the first time in 2014.

Last month, GTM Research published its latest report on residential solar along with an update on the leaders and trends in the industry landscape:

Market data is from the recently released report U.S. Residential Solar Financing 2014-2018.  For more information on the report, see this page or contact Matt Casey at Casey@gtmresearch.com.

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