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Firm’s solar loans could change market

By Jonathan Fahey
AP Energy Writer

NEW YORK — SolarCity will begin offering loans to homeowners for solar systems, a move that industry analysts say could reshape the market for rooftop solar and propel its rapid adoption.

Most rooftop solar deals involve a lease or an agreement to buy power over a period of time with the company retaining panel ownership. SolarCity’s loan will let customers own their systems and still pay less for electricity, a simpler and cheaper prospect.

“The value proposition is becoming clearer and less complicated for consumers,” said Patrick Jobin, an analyst at Credit Suisse. “Solar is going mainstream.”

Other solar companies have started offering loans in recent months, but SolarCity Corp., San Mateo, Calif., is the nation’s biggest installer, and its loan has a twist that may persuade reluctant customers to sign up: The customer pays the loan back based only on the electricity that the panels produce.

The growth of rooftop solar systems has been propelled by financing that lets customers have solar panels installed for little or no money down. The solar company installs the system, and customers either lease it or enter an agreement to pay for the power during a 20-year period. The combined price customers pay to the solar company and the electric utility is less than what the customer paid for power without solar panels.

Workers install rooftop solar panels on a home. SolarCity will begin offering loans to homeowners for rooftop solar systems, a move that analysts say could reshape the market for rooftop solar.

Workers install rooftop solar panels on a home recently. SolarCity will begin offering loans to homeowners for rooftop solar systems, a move that analysts say could reshape the market for rooftop solar. (AP Photo/Courtesy SolarCity)

Those plans were rolled out in 2007 and 2008 by SunRun, SolarCity, Sungevity and others. Last year, two-thirds of all solar systems were installed under those types of plans, said Shayle Kann, senior vice president of GTM Research, an analysis and consulting firm.

But the plans are more confusing than a loan, and some states, including Wisconsin, do not allow third-party ownership of solar panels.

Lyndon Rive, SolarCity’s CEO, said many customers say they would rather own, but then they sign up for a lease because it has been the only way to get a system without high upfront costs.

“Ownership is an important factor,” he said, “for our customers.”

The company can offer the loans now because it has better access to financing, it can predict the performance of panels well, and it has decreased installation costs dramatically, Rive said.

The loans will be offered at 4.5 percent for 30 years. But customers will not pay a fixed amount every month. Instead, they will pay only for the power the panels produce. If the panels produce more in a given month, customers will pay their loans off faster. But because the solar power is cheaper than power from the electric utility, it means the customers’ monthly electricity costs would fall further.

If the panels produce less, customers pay less to SolarCity, and, in theory, would not have to pay the loan off in full. But SolarCity representatives say they are confident they can predict the 30-year output of the panels well enough to ensure the loans will be repaid.

“It takes the production risk of the system off the customer’s plate,” Kann said, “and puts it on Solar City’s.”

Another important factor that could make the loans more attractive is how the federal tax credit for solar is handled.

With a solar lease, the credit of 30 percent of the cost of the system goes to the solar company or its financiers. With a loan, it goes to the customer. Assuming the customer uses the tax credit, $9,000 for a $30,000 system, to help pay down the loan, customer power prices would fall significantly.

For example, Rive calculated that a California solar loan customer would pay the equivalent of 16 cents per kilowatt-hour in the first year, but then the equivalent of 11 to 12 cents in the second year and beyond if the tax credit is used to pay down the loan. The average electricity rate for a California residential customer this year through July was 15.9 cents per kilowatt-hour, according to the Energy Department.

Rive said he expects that by the middle of next year more, than half of SolarCity’s customers will have chosen to go with a loan instead of a lease.

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