New research from Wood Mackenzie has found that solar loans were the preferred and dominant financing solution for residential solar systems in the United States through the first half of 2018, accounting for 42% and outperforming third-party-owned solar systems for the first time.
Wood Mackenzie (WoodMac, formerly GTM Research) published its latest US residential solar finance update this week, revealing that solar loans were the dominant residential solar financing solution as existing loan providers scaled up their partnerships, and new loan providers grew through relationships with regional installers. Solar loans accounted for 42% of the residential market through the first half of 2018, while third-party ownership (TPO) reached its lowest point since 2011 with only a 34% market share.
WoodMac also concluded that the “recent decline in leases and [Power Purchase Agreements (PPAs)] relative to other financing options has leveled off.”
Despite the strength of solar loans, one of the United States’ leading solar loan providers, Mosaic, saw its growth slow slightly in the first half of the year, as the company shifted its attention to targeting more profitable sales. The company nevertheless maintains its rank as the country’s top solar loan provider with a 29% share of the customer-owned market, but just barely beating out Sunrun in overall deployments over the first half of the year.
“I don’t view [Mosaic’s slowdown] as a bad thing,” said Allison Mond, senior solar analyst at Wood Mackenzie. “I view it as a positive. They evaluated their position in the market and saw the need to price in a more sustainable way — specifically, to raise interest rates charged to consumers to make more money off of each individual loan.”
For Wood Mackenzie, Mosaic’s recent business decisions might cost them in the short-term, but it will set them up to ensure long-term success — not least of all because most other loan providers are focusing their near-term attentions on achieving growth at all costs, which is good for the solar loan market as a whole, but will eventually force these companies to restructure.
“The day is going to come when these companies are forced to increase pricing or potentially go out of business because they aren’t making any money,” said Mond.
The current solar loan market, in the view of Wood Mackenzie analysts, reflects the situation large third-party ownership providers found themselves in a year ago. Currently, most TPO providers aren’t profitable, but necessary restructuring has helped them to at least begin to generate cash enough to continue operations. Such is the case for Utah-based Vivint Solar, which resumed growth in 2018 after stalling last year.
Another element which is helping to ensure the TPO market keeps what market share it has is the role of Sunrun, which continues to see its lease sales grow as it works through its vertically integrated installation business. In the long run, WoodMac expect the TPO market to fall to 33% by 2021 but then to increase slightly in 2022-2023 to 35% as the federal Investment Tax Credit (ITC) is eliminated for customer-owned systems, and TPO systems benefit from a continuing 10%-30% ITC.
“They’ve been able to show it is possible to scale and grow as a semi-vertically integrated residential solar company,” said Mond, referring to Sunrun. “There were doubts about any company’s ability to do that a year ago. Tesla, for instance, hasn’t been able to do that.” Specifically, according to the report, Tesla continues to drop out of the residential solar scene, deploying 160 MW in the first half of the year and 93 MW in the third quarter — the latter a slight uptick, but believed to be due to commercial sales rather than residential.