When it comes to spreading green energy, innovation in how we pay for it can be as important as innovation in how we produce it. And on Wednesday, SolarCity did a bit to tackle the first half of that equation.
The company — the largest residential solar service provider in the country — will start offering homeowners a form of financing for their solar system called MyPower, which functions as a kind of hybrid between a lease and a power purchase agreement (PPA).
Under a lease, the solar system is installed on the customer’s home, but is still owned by a third party. The customer then pays for the loan in regular installments while also paying for the electricity, and ownership of the system shifts to them once it’s paid off. The selling point is that because the third party has a guaranteed income stream over time, the rates for the electricity can be set ahead of time, and set very low. So the combined cost of the loan repayments and the electricity can actually be lower than the standard utility bills of just relying on the grid.
Meanwhile, under a PPA, the third party maintains ownership of the solar system indefinitely, so the customer can avoid whatever upfront costs might come with taking out the loan. Instead, they just pay for the electricity, again benefiting from the unusually low rates.
SolarCity’s MyPower deal aims to combine the best of both worlds. It’s a loan, but like the PPA, the customer can enter into it with no upfront costs — and instead of paying off the loan in regular installments, they pay it off with monthly bills based on how much power they use. So they can pay off the loan quicker or slower than otherwise, depending. The loan agreement would last over a 30-year period rather than the standard 20-year period for most solar loans. And unlike some other loans, the MyPower arrangement doesn’t involve putting a lien on the customer’s home, making transfer of the arrangement easier in case the home gets sold before the loan is paid off.
According to SolarCity, this arrangement could allow customers to pay up to 40 percent less for their electricity than it would cost them to rely on a traditional utility power company. Also, regardless of how fast the customer pays off the loan, the official agreement lasts 30 years; and for the entirety of that time SolarCity handles installation, maintenance and upkeep, taking that logistical hurdle off the customers shoulders.
Shayle Kann, a vice president at GTM Research, which keeps track of the green energy sector, told the New York Times that SolarCity and other similar solar service companies — Mosaic, Sungevity and Clean Power Finance, for example — have moved into peer-to-peer lending recently as a way to expand the market.
Spreading distributed solar generation depends on how affordable it is for the average customer as much as on cheaper and better technology, and Kann credited the advances in financing options with helping along the explosion in rooftop solar installations from 40 percent of the market in 2011 to 66 percent in 2013.
According to the Times, Mosaic’s loans start at an interest rate of 4.99 percent, but SolarCity says the MyPower deal could get down to 4.5 percent. And like its competitors, SolarCity will allow MyPower customers to take advantage of the federal government’s 30 percent tax credit for solar power — along with numerous state-level incentives — and use it to further lower the coast of their bill. (Under a standard lease agreement, the benefit of the tax credit goes to the this party owner of the solar system rather than the homeowner.)
That said, Kann wasn’t sure how much the MyPower deal would expand the company’s customer base beyond what it can get with SolarCity’s more traditional loans. “Probably there’s some group of customers who will find a loan more appealing and comprehensible,” Kann told the Times. “But I think at the end of the day it’s just another tool in the toolbox for SolarCity and a tool that many of the other companies in SolarCity’s business are finding valuable.”
In an interview with the Associated Press, SolarCity’s CEO Lyndon Rive pointed out that many customers want to eventually own their system, but standard leases have been the only way for them to go solar without the high upfront costs. “Ownership is an important factor for our customers,” he said. Improvements in how well SolarCity can predict the performance of its panels, its decreased installation costs, and the overall simplicity of the arrangement are also reasons Rive and the company pointed to for why MyPower could attract customers.
SolarCity plans to initially offer the MyPower arrangement in the states where it’s already doing the best business: Arizona, California, Colorado, Connecticut, Hawaii, Massachusetts, New York and New Jersey. But with 52 bases of operation in 15 different states, SolarCity also expects to expand in short order.