Are loans for residential solar installations the wave of thefuture or a temporary fad? The jury is still out, but according toseveral experts, they appear to have staying power.

The traditional financing method for residential solar has beenthird-party ownership financing, in which solar installationcompanies lease the installations to their customers, or offertheir own power purchase agreements.

More recently, though, credit unions and banks have begun todiscover this burgeoning market and offer specialized solar lending products. As a result, more and more homeownersare seeking loans through their local, trusted, familiar financialinstitutions, rather than arranging financing through theirinstallers, some of which turn out to be fly-by-nightoperations.

Do credit unions and banks face competition for these types ofloans? At this point, only one group of competitors appear toexist, and they're growing – electric utility companies. As utilitycompanies begin to see their profits erode as more and moreconsumers opt for self-generation, many of them are trying to enterthe game themselves by offering solar consulting services, solarinstallation services and even solar financing. While activity inthis area is currently miniscule at a national level, relativelyspeaking, it is growing and becoming a trend to watch.

One credit union with many years of experience in solar lending is the $681 million, Montpelier, Vt.-based VermontState Employees Credit Union, which recently received a $125,000grant from the Vermont Public Service Department's Clean EnergyDevelopment Fund to help residents in the state reduce financingcosts for investments in community solar arrays. The funding, whichis available for a limited time to buy down interest rates on loansused to purchase shares or portions of community solar projects, isonly available through VSECU.

The credit union said the program is a tribute to its strong andlengthy reputation in solar lending; the grant is the third VSECUhas received from the state.

Loans related to this new state program are available throughthe credit union's VGreen program, which is designed to financevarious residential energy improvement projects.

“The loans we offer through our VGreen program are incrediblypopular for financing the purchase of residential rooftop andground-mount solar panel installations,” Laurie Fielder, VGreenprogram director, said. “This grant gives us additional resourcesto help Vermonters who wish to go solar but who don't have an idealsite for solar panels, are renters or just want to benefit from thecost-effective alternative of owning panels in a community solarproject.”

VSECU's solar lending experience extends back almost adecade.

“We adopted an environmental mission statement a number of yearsago, demonstrating our commitment to best practices as they relateto how we manage our operations and the products and services thatwe develop and offer to our members,” President/CEO Robert Millersaid.

The VGreen program, which the credit union has run for a numberof years, includes loans for energy-efficient vehicles, as well asconsumer loans and secured loans for weatherization, solar projectsand efficient heating systems.

Prior to launching the VGreen program, the credit union madesome loans for specific solar projects.

“This started around 2006,” Fielder said. “When VGreen came intoexistence in 2012, we modified the solar loans so they would workbetter for the economics of a solar project, such as increasing themaximum amount that could be borrowed on the loan. The averagesolar project runs $20,000 to $30,000, so we also provided extendedterms, as well as reduced interest rates.”

With extended terms and reduced interest, many of these projectsbecome cost-neutral or just slightly profitable due to the savingsconsumers achieve on their utility bills and the sales of excesspower back to the utility companies.

According to Miller, solar loans at the credit union beganmodestly but grew in recent years, primarily as a result of theVGreen program.

“We now have the reputation of being the leading lender forenergy efficient projects in the state,” he said.

Most solar loan marketing is B2B for the credit union – it worksclosely with solar developers and installers to understand theircustomers' needs.

“We then offer various products, which they then market to theircustomers,” Miller said.

In addition, the credit union educates members through seminarsat its locations throughout the state, newsletter articles and itsown e-book, which it distributes via social media and email tomembers.

“Many of our executives are also board members of statewiderenewable energy and energy-efficiency organizations, andfrequently give presentations on our products and services,” hesaid.

Fielder added, “We also get a lot of publicity through our localnews outlets, since solar is so popular.”

What does the future hold for VSECU's solar loans?

“Vermont is in that northern tier of states where energy costsare a major part of everyone's budget, so everyone wants tomaximize their energy investments,” Fielder said. “Renewables playa big part in that, so we see these programs as part of a long-termstrategy to leverage private funds through these public grants andmake the loans even more accessible to people who may benon-traditional borrowers.”

Another credit union, the Fairhaven, Mass.-based First Citizens'Federal Credit Union, is newer to solar lending. In December 2016,the state announced a $30 million Mass Solar Loan Program, offeredthrough the Massachusetts Department of Energy Resources and theMassachusetts Clean Energy Center. The program offers subsidies toapproved local financial institutions to provide low-interest loansto homeowners interested in solar installations. The financialinstitutions underwrite and approve the solar energy loans.

First Citizens' is one of the participating financialinstitutions.

“In this region, solar is a major opportunity for everyone,”Peter J. Muise, president/CEO for First Citizens', said. “A lot ofpeople are interested in it from the 'green' perspective, andvirtually everyone is interested in it because of the high cost ofelectricity in this region.”

When the credit union heard about the Mass Solar Loan Program,it immediately applied.

“This is our first involvement in solar lending,” he said.

Will the program require First Citizens' to reorganize orrestructure its lending or other administrative processes? Not atall, according to Muise.

“We are a significant indirect automobile lender, so we arealready familiar with merchant-type financing,”” he said. “As such,we can offer opportunities both for solar company referrals, aswell as direct inquiries from homeowners.”

Muise also said he does not anticipate any challenges related tomarketing. In fact, even before the credit union put out its pressrelease announcing the program, it already had 16 inquiries frompeople who had seen the state's press release, and its number ofinquiries soon doubled.

“We will do some marketing, but there is obviously a pent-updemand, and our marketing will match that demand,” he said.

The future of solar lending looks bright for First Citizens',Muise said.

“We lend into a marketplace, so, with solar being a very robustopportunity, we will, no pun intended, 'ride that into thesunset,'” he noted.

What are the long-term prospects for solar power in terms ofconsumer demand? As the nation gravitates toward more renewableenergy, numerous technologies have come into play. However, thereis no arguing that solar panels are the top choice for homeowners,and their popularity has been growing. Reasons include the desirefor dependable power (they are not subject to utility gridblackouts), less expensive power and “green” power.

The popularity of residential solar also got a huge shot in thearm this past August, when Tesla Motors, manufacturers of electricvehicles, announced the game-changing Powerwall battery, areasonably-priced, lithium ion battery designed for installation byhomeowners who want power available during utility power outages.The Powerwall battery is also intended for homeowners with solarinstallations who want to move even more “off the grid” by storingsolar power in the batteries during daylight hours for use atnight.

Sales of Powerwall skyrocketed immediately, with one-year-longback orders right out of the gate. Demand has become so large thatTesla is building a massive factory in Nevada to focus exclusivelyon manufacturing the batteries.

Still, there are a couple of concerns related to the future ofresidential solar. One is that the 30% Federal investment taxcredit is set to expire at the end of 2016. That could put a majorcrimp in the demand for residential solar. However, there is a lotof pressure from various sectors for the ITC to be renewed, or atleast replaced with similar incentives.

The other concern is that in most states, public utilitiescommissions require utility companies to buy back excess power fromresidential customers who use home-generated energy, such as solar.This concept is called net metering. What concerns utilitycompanies is that, while they can buy new power from the generatingstations of large-scale power producers at wholesale prices, thePUCs still require utility companies to purchase excess power backfrom customers at the full retail price. As such, there is a moveafoot to change this financial equation so that homeowners wouldn'tearn as much money for the power they sell back.