Homeowners who wish to install solar on their rooftops need money, so they should be able to borrow those funds from their local banks. That's the general idea behind a proposed solar loan program that the Massachusetts Department of Energy Resources (DOER) announced earlier this year.
The program's goal, the department said, is to reduce barriers for Massachusetts residents to directly own solar projects.
The residential solar loan program would be funded by $30 million of alternative compliance payments. These are funds paid by electric retail suppliers if they have insufficient renewable or alternative energy certificates to meet their compliance obligations under the state's renewable and alternative portfolio standard programs.
According to the DOER's preliminary design proposal, project financing is mature for large-scale solar projects but remains adolescent for residential-scale projects. Meanwhile, solar costs are dropping, enabling homeowners to realize positive cashflow if they install solar – especially if they own the project rather than leasing it from a third-party owner.
This positive cashflow should make the loans particularly low risk.
‘We would not expect a high default rate at all,’ says Meg Lusardi, acting commissioner of the DOER. ‘Less than one percent is what we are predicting.’
The DOER announced the loan program in March, then went through a comment process and several stakeholder meetings in June and July. In August, the DOER presented the loan program proposal to area banks and local credit unions.
‘The lenders were very engaged and interested, and they provided feedback,’ Lusardi says. ‘That was one of the key goals. We want to get the lenders comfortable with lending for solar.’
The loans would come from the banks, and the DOER would use the $30 million for either credit buy-down or loan loss reserve.
With a buy-down scenario, for example, a project might cost $22,000, and the homeowner would take out a loan for the full amount with a payment period of 10 years. The market interest rate would be 5.5%, but the program funding can be used to buy down that rate to 2%, saving the homeowner more than $2,000. Over the life of the loan, the homeowner earns federal and state tax credits, which the borrower agrees to use for the loan.
The loan loss reserve design element would be more of a security feature. The amount of loan loss reserve would vary depending on the borrower's FICO score.
As with any loan, there would be certain requirements: the loan limit would be $35,000, the borrower must have a FICO score of at least 580 and there would be no penalties for early payoff. There are also requirements for the installers, who have to be Massachusetts-licensed electricians, and for the installations, which must have five-year warranties on labor and a 20-year production warranty on the panels.
Other states have launched their own solar loan programs. In some municipalities, property assessed clean energy (PACE) financing is available to homeowners to make energy-efficient improvements on their homes.
There are also Green Banks, or state-sponsored investment funds to help finance distributed generation solar projects. In Connecticut, for example, the Clean Energy Finance and Investment Authority announced earlier this year that it was partnering with Mosaic and with Sungage Financial to provide loans to homeowners who want to build solar installations. The New York State Energy Research and Development Authority has launched the NY-Sun Incentive program that includes residential loans of up to $13,000 with repayment periods of five, 10 or 15 years.
‘I would say that PACE, some green bank activity and the Massachusetts DOER are somewhat fairly similar in their operations,’ says Travis Lowder, an analyst with the U.S. Department of Energy's National Renewable Energy Laboratory. ‘Each program makes use of government support to jump-start the local solar lending market.’
The aggressiveness of the DOER under Gov. Deval Patrick in developing solar is borne out by the numbers. Earlier in the week, the Patrick administration announced that 15,762 solar power systems were installed across the commonwealth, a twenty-fold increase from 2008. The DOER anticipates 5,000 to 10,000 residential systems will be installed per year through 2020.
‘We are really seen as a leader in this area,’ Lusardi says. ‘We have one of the most aggressive targets in the country.’
The DOER hopes to launch the program in late fall. For more information on the program, click here.
Nora Caley is a freelance writer based in Denver.