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April 11, 2016 Green Business

Bank loans taking over solar financing

Courtesy Workers from California installer SolarCity put panels on a home in Connecticut. In Massachusetts, the trend is shifting towards residential systems being owned by the homeowners, instead of the installers.

The evolution of financing for renewable energy installations is shifting, as bank loans are becoming a more mainstream way to maximize savings on a solar array, offering more benefits than third-party leases. Late last year, the Massachusetts Clean Energy Center and the state Department of Energy Resources launched Mass Solar Loan, a $30-million program offersing a variety of low-interest solar power loans to residential customers through partnerships with banks, credit unions and solar installers.

As more options for financing home solar systems become available nationwide, experts and data predict within the next few years, the majority of residential solar systems will be owned by the people whose houses they're on, rather than leased through a third-party installer. Since the program launched, nine banks in Massachusetts, including four in Central Mass, have partnered with MassCEC to offer low-interest loans. While solar loans become more popular, clean energy advocates are educating banks on their benefits.

“There's not always a new product to roll out, but renewable energy is a big push from the Baker Administration, and banks are always happy to come out and learn about it,” said Brad Papalardo, director of government affairs and trust services at the Massachusetts Bankers Association. “Renewable energy is a hot topic now.”

Scope of the market

The residential solar market in the United States has grown exponentially over the past five years, with the majority of customers leasing their panels through a third-party owner. Massachusetts installed 286 megawatts of solar capacity in 2015, the fourth highest in the nation, according to the Solar Energy Industries Association. Installations were slightly down last year from 2014, but it's still significant considering the solar industry barely existed in Massachusetts even six years ago.

As more solar financing methods become available, ownership of solar panels is expected to come from the people whose homes are powered by them.

Residential solar customers in Massachusetts stand to gain more financially by owning a solar system, rather than leasing it, according to a 2013 Massachusetts Department of Energy Resources study.

The total project lifetime benefits under a direct homeowner scenario will yield $18,194 in savings. Leasing through a third party will have lifetime net benefits of just $1,248, while the third party owner reaps in $11,425.

GTM Research, the research branch of Boston-based energy publication Greentech Media, found while an estimated 63 percent of residential solar systems in the U.S. were owned by a third-party in 2015, that percentage is expected to decline relatively steadily by 2020. By then, the majority of solar systems will be owned by the homeowners themselves, GTM said.

Solar growth can be contributed largely to a 30-percent federal investment tax credit for system owners, Massachusetts solar renewable energy certificates (SRECs) and declining solar equipment costs.

Bank hesitancy

At EnergySage, a Boston-based website that bills itself as the Expedia or of solar shopping, founder and CEO Vikram Aggarwal said he has seen more interest in loans as a form of solar panel financing.

Most of that, however, is not driven by banks – a lot of it is from private funds at large solar installers.

Banks don't jump on it as quickly because, oftentimes, they're not familiar with how solar works, so part of the challenge is educating them, Aggarwal said.

“If you're a homeowner, and you're installing solar on your home, the payback period can be five to six years, then you have free electricity for 20 plus years,” he said. “A lot of the banks did not know the numbers – they weren't sure if the technology actually works. There was a lot of hesitancy on that, on their part.”

More than 10,000 homeowners nationwide used EnergySage to get a quote on their solar system in 2015, according to the company.

Massachusetts banks have been involved in renewable energy financing in other ways, including through the Mass Save HEAT Loan Program, which allows customers to apply for a 0-percent loan for the installation of renewable energy systems in their homes.

Papalardo, from the MBA, has been working with MassCEC to get the word out about Mass Solar Loan to bankers association members.

He held an informational session about the program, and about 60 member banks showed up.

“It's a different option for banks. We were hoping to give them the information, and if it fits their portfolio, then it's a great fit for them. If not, then at least they have the information,” he said.

Benefits to banks

When Donna Tiso of North Brookfield Savings Bank first caught wind of the Mass Solar Loan program, she wasn't sure if it would work. In her 25 years of lending, she was used to getting baited on various loan products, only to sign up and have little come of it.

“I'd hear, 'Hey, we're introducing a new program or new product.' You read through it, you apply to be part of the project, and you're one of 300 banks or credit unions or financial institutions, and you might get one or two phone calls,” Tiso said.

When she read a bit more about solar and talked to a few people, something just clicked. On the first day of the Mass Solar Loan program, Tiso said she spent the entire day answering phone calls from people who had been waiting to try solar. The phone didn't stop ringing for four days straight.

So far, North Brookfield Savings Bank has given out about $400,000 in solar loans.

Hudson-based Avidia Bank got involved through one its clients, BlueWave, which wanted to get involved with the program but couldn't because it's not a bank or a credit union. Andrew Miller, senior vice president and commercial relationship officer at Avidia, said it's good for customers who want better access to solar, as well as for the banks themselves.

“Supporting the industry is something that aligns with our values,” Miller said. “A lot of people in the communities we serve are very into in this. We thought by partnering with BlueWave and doing Mass Solar Loan, it would help facilitate customers in the communities we serve.”

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