As we mentioned in our previous post, the Department of Housing and Urban Development (HUD) and the Federal Housing Authority (FHA) offer Property Loan Insurance to approved lenders in a program known as Title I. This program protects lenders from risk of default on fixed-rate loans of up to $25,000 for home improvements. Solar qualifies under this program and one such lender, Admirals Bank, is promoting an alternative way to finance your residential solar installation through a solar loan backed by this program.
When comparing the solar loan to a solar lease, side-by-side, it would appear that the solar loan is a better option for the customer. Despite this, solar leases, like those offered by Clean Power Finance, SunRun, SolarCity and Sungevity continue to outpace all other alternatives in many of the fastest growing solar markets like California, New Jersey and Massachusetts. This is because solar leases are simply much easier for a solar company to sell. Here we look at the benefits of each option from the point of view of both the installer and the consumer.
Solar Lease Pros
For the customer, the primary benefit of leasing versus the loan is that they don’t take on any performance or equipment risk. If the panels fail or the system underproduces, it has little effect on the homeowner. However, as we learn more from the growth in installations over the past few years, performance issues do not seem to be as significant of a threat as we used to think.
Instead of getting bogged down in the details of the equipment and the specifics of the layout, a solar installer can speak to a customer in terms of electricity savings. Solar leasing firms offer a cookie cutter approach to the sales and installation process that helps installation companies shorten the sales AND installation cycles and scale their businesses up more rapidly. The equipment is pre-determined and the layouts tend to be very similar. Finally, leasing firms are also able to streamline the onerous paperwork process involved with electricity interconnection and applying for state rebates and incentives.
Solar Loan Pros
The key benefit to an installer for selling a solar loan is that they will get paid sooner than they would by a leasing company. The loans tend to be distributed upfront and the installer gets paid upfront for their work, while with leases, the leasing firm will typically make the final 50% payment after the system is complete and interconnected.
The benefits for a solar home owner is that they can get great loan terms to install a solar system that they will own. They can choose the type of equipment they want to use and they can also have more freedom to work with the installer to design the most appropriate system. Finally, as we alluded to in our previous article about how solar leasing firms make money, there are a variety of reasons that solar leasing firms can finance systems more cheaply than homeowners. That said, nothing compares to owning a solar system on your roof outright that, once you’ve recouped the costs, gives you free electricity for the life of the system – which is quoted at 25 years, but will likely be much longer once more data becomes available.
Over the next few years, solar leases will continue to be the most popular way to finance a residential solar installation, primarily driven by how easy it is for installers to sell them. However, over time, the economic advantages that these firms receive through the Federal Investment Tax Credit (ITC) will expire and the consumer will have access to a greater deal of information and options like the current Title 1 loans available. There will be room for both options as the market expands, but so far, it seems the leasing firms are light years ahead of their competition!