To Lease or to Own? Where Is Solar Financing Going?

A panel at the GTM Solar Summit tackles the question

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Are cash and loans the future of solar financing? Greentech Media thinks so, predicting that by 2021, 73% of all solar systems sold will be owned directly by customers. (Some reports from GTM Research are even putting this number at 80% in the near future.)

Others have even gone so far as to warn consumers against solar leases. And we all know a homeowner will save the most if they pay with cash or a loan. But they might not get the operations and maintenance (O&M) that a lease provides.

The jury’s still out.

At a GTM Solar Summit panel last week titled The Evolution of Consumer Finance, Nicole Litvak, Senior Solar Analyst at GTM Research, led a discussion on the merits of various financing options — and which is likely to dominate.

Earlier at the Solar Summit, Lynn Jurich of Sunrun indicated that she still believes leases offer a better value for the customer, and that they’ll choose that financing option if given choices. She expects leases to account for about 80% of Sunrun’s market in the near future.

Choice can indeed be a factor. One problem with determining what customers prefer is that lease and loan products haven’t been offered consistently side by side, said Thomas Plagemann, Chief Commercial Officer of Vivint Solar. For the customer, a lease is uncomplicated — and the solar company is more motivated to fix any issues if they have an interest in the system’s production. On the other hand, the long tail, he said, has been fueled by the availability of a loan product that wasn’t there just 18 months ago. So we have yet to see where it will go.

What constitutes value for the customer? If it’s just dollar savings, clearly ownership is the best deal. But peace of mind is worth a lot, and without O&M, 80% of customers will still choose a lease or PPA. So said John Berger, Co-Founder and CEO of residential solar provider Sunnova. He feels so strongly about including O&M with solar loans that he asserted it should be a legal requirement.

Some might argue that with solar companies going out of business, a leasing arrangement is not as secure as it seems. If your solar installer is no longer around, who will come to service your system? That could also apply to loans that come with O&M. While the included O&M used to seem like a good argument in favor of leases, it’s not clear now what recourse many customers have when their system needs repairs.

What happens when you do compare ownership and leasing side by side? Vikram Aggarwal, Founder and CEO of online solar marketplace EnergySage, noted that his company does that, showing quotes from different installers in a standardized manner. They’re seeing a two-thirds preference for ownership from the time that customers first express interest, with a “large majority” choosing loans. Those who do pick leases either can’t take advantage of the ITC or are worried about performance and maintenance.

And of course, the choice may simply depend on what’s available in each state. Some states still don’t allow leasing.

When it comes to solar loans, said Plagemann, Vivint picks the ones they work with based on things like the interface capability, pricing flexibility, and how seamlessly the loans can integrate into the sales process. EnergySage is seeing installers carrying two to five companies’ loan products, said Aggarwal, and their choices sometimes depend on the software the loan company is providing, rather than the terms. Loan products need to become more transparent for consumers, he said, and provide what they need.

Berger expressed concerns about loans, saying the market for fintech is going to shrink, and we may see a higher delinquency rate in the loan market. This would be a problem for the industry. That’s why he believes we must include O&M in loans, and still make a 20-year commitment to customers. Cars come with warranties, he noted, even though the car might break down. Similarly, we need to provide assurances that solar systems will get the servicing they need.

Attendees had a chance to weigh in on the future of loans and third-party ownership (TPO). The poll results:

  • 71%: TPO will decrease to 20%.
  • 13%: TPO will entirely disappear.
  • 13%: TPO will increase and once again become a majority of the market.

Very few thought the balance would land at 50-50, about where it is right now.