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

The traditional financing method for residential solar has been third-party ownership financing, in which solar installation companies lease the installations to their customers, or offer their own power purchase agreements.

More recently, though, credit unions and banks have begun to discover this burgeoning market and offer specialized solar lending products. As a result, more and more homeowners are seeking loans through their local, trusted, familiar financial institutions, rather than arranging financing through their installers, some of which turn out to be fly-by-night operations.

Do credit unions and banks face competition for these types of loans? At this point, only one group of competitors appear to exist, and they're growing – electric utility companies. As utility companies begin to see their profits erode as more and more consumers opt for self-generation, many of them are trying to enter the game themselves by offering solar consulting services, solar installation services and even solar financing. While activity in this area is currently miniscule at a national level, relatively speaking, 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 Vermont State Employees Credit Union, which recently received a $125,000 grant from the Vermont Public Service Department's Clean Energy Development Fund to help residents in the state reduce financing costs for investments in community solar arrays. The funding, which is available for a limited time to buy down interest rates on loans used to purchase shares or portions of community solar projects, is only available through VSECU.

The credit union said the program is a tribute to its strong and lengthy reputation in solar lending; the grant is the third VSECU has received from the state.

Loans related to this new state program are available through the credit union's VGreen program, which is designed to finance various residential energy improvement projects.

“The loans we offer through our VGreen program are incredibly popular for financing the purchase of residential rooftop and ground-mount solar panel installations,” Laurie Fielder, VGreen program director, said. “This grant gives us additional resources to help Vermonters who wish to go solar but who don't have an ideal site for solar panels, are renters or just want to benefit from the cost-effective alternative of owning panels in a community solar project.”

VSECU's solar lending experience extends back almost a decade.

“We adopted an environmental mission statement a number of years ago, demonstrating our commitment to best practices as they relate to how we manage our operations and the products and services that we develop and offer to our members,” President/CEO Robert Miller said.

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

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

“This started around 2006,” Fielder said. “When VGreen came into existence in 2012, we modified the solar loans so they would work better for the economics of a solar project, such as increasing the maximum amount that could be borrowed on the loan. The average solar project runs $20,000 to $30,000, so we also provided extended terms, as well as reduced interest rates.”

With extended terms and reduced interest, many of these projects become cost-neutral or just slightly profitable due to the savings consumers achieve on their utility bills and the sales of excess power back to the utility companies.

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

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

Most solar loan marketing is B2B for the credit union – it works closely with solar developers and installers to understand their customers' needs.

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

In addition, the credit union educates members through seminars at its locations throughout the state, newsletter articles and its own e-book, which it distributes via social media and email to members.

“Many of our executives are also board members of statewide renewable energy and energy-efficiency organizations, and frequently give presentations on our products and services,” he said.

Fielder added, “We also get a lot of publicity through our local news 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 costs are a major part of everyone's budget, so everyone wants to maximize their energy investments,” Fielder said. “Renewables play a big part in that, so we see these programs as part of a long-term strategy to leverage private funds through these public grants and make the loans even more accessible to people who may be non-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, offered through the Massachusetts Department of Energy Resources and the Massachusetts Clean Energy Center. The program offers subsidies to approved local financial institutions to provide low-interest loans to homeowners interested in solar installations. The financial institutions underwrite and approve the solar energy loans.

First Citizens' is one of the participating financial institutions.

“In this region, solar is a major opportunity for everyone,” Peter J. Muise, president/CEO for First Citizens', said. “A lot of people are interested in it from the 'green' perspective, and virtually everyone is interested in it because of the high cost of electricity 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 or restructure its lending or other administrative processes? Not at all, according to Muise.

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

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

“We will do some marketing, but there is obviously a pent-up demand, 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 robust opportunity, we will, no pun intended, 'ride that into the sunset,'” he noted.

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

The popularity of residential solar also got a huge shot in the arm this past August, when Tesla Motors, manufacturers of electric vehicles, announced the game-changing Powerwall battery, a reasonably-priced, lithium ion battery designed for installation by homeowners who want power available during utility power outages. The Powerwall battery is also intended for homeowners with solar installations who want to move even more “off the grid” by storing solar power in the batteries during daylight hours for use at night.

Sales of Powerwall skyrocketed immediately, with one-year-long back orders right out of the gate. Demand has become so large that Tesla is building a massive factory in Nevada to focus exclusively on manufacturing the batteries.

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

The other concern is that in most states, public utilities commissions require utility companies to buy back excess power from residential customers who use home-generated energy, such as solar. This concept is called net metering. What concerns utility companies is that, while they can buy new power from the generating stations of large-scale power producers at wholesale prices, the PUCs still require utility companies to purchase excess power back from customers at the full retail price. As such, there is a move afoot to change this financial equation so that homeowners wouldn't earn as much money for the power they sell back.

Instant Insights /

Solar Projects Fuel Credit Union Lending Programs

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