July 13 (Solar) – Solar loans will be the preferred consumer finance solution for US residential solar systems this year with a market share of 47%, GTM Research forecasts, while noting that solar lenders are facing many challenges.
Both third-party owned (TPO) solar and cash purchases have experienced significant declines. The US TPO market contracted by 36% between 2016 and 2017. Tesla’s (NASDAQ:TSLA) SolarCity worked hard to cut TPO financing so as to improve its cash position, which is one of the main reasons for the decline. The cash market also dropped by 30% in 2017.
Meanwhile, the loan market had a breakthrough year in 2017, GTM said. Mosaic, Sunlight Financial and other solar loan providers helped the market grow by 81%.
The solar loan market is seen to continue to expand through 2023, but the market research firm points out that the speed will be slower as solar lenders will have to pay more attention to their profitability.
“Most solar lenders have been able to grow quickly so far at the expense of earning profits, though investors and capital sources are likely to tighten the reigns on these companies in the coming years. Relatedly, rising interest rates are forcing lenders to re-evaluate their pricing models, and potentially move to ones which produce fewer but more profitable sales,” GTM Research said.
Another significant challenge is the gradual phase-out of the solar investment tax credit (ITC). TPO providers will be allowed to procure equipment for their projects up to four years in advance to guarantee that a system will get the tax credit. GTM says that, in theory, a TPO provider could claim a 30% ITC on a photovoltaic (PV) installed as late as 2023. Customer-owned systems, however, will not enjoy any such safe harboring, which could hurt the competitiveness of solar loans.