When it comes to financing for residential solar, data shows PPAs and leases are increasingly giving up market share to debt products, like solar loans. The implications of the transition are huge, said Conlan O’Leary, CEO and co-founder of Sighten, during a Quick Talk session at Solar Power International on Wednesday. “New financing vehicles are democratizing the residential market,” he said.
Just a few years ago, solar contractors with low installation volume found project financing difficult to secure, mainly because financing firms were few and the hurdles to financing high. Setting up PPA programs required complex financial engineering and relationships with major investment banks, O’Leary said.
“[At the beginning], Sunrun was the only option,” he said. “Then Clean Power Finance and One Roof entered the market. But now, you see a dramatically different universe. There is an order of magnitude more of financing options out there.”
A variety of financing types and vehicles have sprouted up for the residential market, including PACE programs, solar loans, PPAs/leases and cash. Now, installers with as little as five projects are getting financed, O’Leary said.
“Now installers have a lot more options, creating competition that drives down the cost of financing, so you can pass the savings on to the homeowners,” he said.
O’Leary said future finance products will take the best elements of different vehicles and combine them. “Combining PACE and loans with PPAs and leases, perhaps recreating solar as a service, like a PPA but with a loan product. There is a lot of creativity and people coming up with products that are attractive to consumers.”
But for now, O’Leary provided an overview that suggested pros and cons for each dominant type of financing on the market today, as follows:
Loan
Pros:
- Accessible to installers
- Low/no upfront costs
- Customer owns system
- Good long-term savings
- East to understand
Cons:
- Credit requirements
- Customer maintains system
- Additional customer debt
PACE (Property Assessed Clean Energy)
Pros:
- Accessible to installers
- Low/no upfront costs
- Customer owns system
- Good long-term savings
- Can qualify lower credit
Cons:
- Limited geographic availability
- Customer maintains system
- Can be a complex sale
PPA / Lease
Pros:
- Low/no upfront costs
- Maintained by a third party
Cons:
- Credit requirements
- Potentially lower savings
- Customer does not own system
- Not very accessible to installers
Cash
Pros:
- Highest long-term savings
- Customer owns system
- No credit requirements
Cons:
- High upfront costs
- Customer maintains system
For a solar installer, however, deciding which type of financing to use—and from which provider—can be difficult—it can be like a tangled web of options. Software like Sighten aims to reduce the headache.
“There is a lot of innovation happening and there are a lot of software companies trying to ease this complexity,” O’Leary said. “What we’re doing with Sighten is building a software tool installers can use to run core [financial] aspects of the business and then make that platform agnostic—able to run an analysis on any type of product.”
Help is on the way.