Third-Party-Owned Solar Panels Bring Record-Low Costs

According to a new article from GTM Research, U.S. Residential Solar Finance: H1 2018, 2017 was the first year since 2011 when more house systems were bought with cash and loans (59 percent) than with leases and PPAs (41 percent). This trend runs counter to what GTM Research witnesses in the commercial sector.

Allison Mond, GTM Research senior solar analyst, ascribes the decline of third-party ownership to three key reasons: the widespread availability of loan products, a shortage of third-party ownership (TPO) suppliers, and Tesla's and Vivint’s deliberate progress away from TPO.

According to the article, the share of TPO in the market is supposed to drop to 33 percent by 2023 as growth expectations for the long tail of installers exceed those of top TPO providers. This TPO percentage is bigger than previously forecast, as new information suggests a rebound in volume for major TPO providers, as well as the possible entry of new TPO providers to the market.

Shifting Ranks

Sunrun exceeded Tesla as the No. 1 TPO provider in 2017, while Sunrun finished the year with 32 percent market share of the TPO market. This equates to 23 percent for Tesla and 16 percent for Vivint Solar, both of whom struggled to grow and are pivoting away from TPO sales. Sunrun has grown because it is both a vertically integrated installer and a financier providing the long tail of residential installers.

As the prevalence of solar loans grows, Mosaic has emerged as a top player and claimed the No. 1 residential financier spot in 2017, just edging out Sunrun. According to the report, Mosaic’s impressive 14 percent market share of financiers can be attached to its supply of solar loans to Tesla, as well as its work with more than 150 other leading solar installers. Sunlight Financial has also grown significantly in 2017, thanks in large part to its relationship with a few large drivers, while Dividend Solar has encountered growth due to its ability to work with relatively small and nascent installers.

Competition

Many solar-specific loan providers, as well as conventional banks and credit unions, have recently entered the space. Mond notes that this intense competition has led to very competitive rates — and therefore compressed margins — leaving questions about the financial health and long-term viability of many of these loan providers. While some lenders are primarily focused on growth and market share, others are scaling back growth expectations in order to pursue more profitable sales.

Many solar bankers are expanding into additional verticals such as storage and home improvement to boost margins. GTM Research also requires the increased adoption of O&M by the end of 2018 after first-movers bring awareness of the product to consumers and other lenders become excited to match the competition’s offerings.

According to Mond, 2017 was a record year for solar securitizations, with larger than $1.4 billion in issuances (up from a cumulative $795 million prior to 2017). "Mosaic, Sunnova and Dividend Finance all issued securitizations for the first time, and the diversity in sponsors and products indicates an increase in investor comfort with space," stated Mond.

While GTM Research expects Mosaic and Dividend Finance to proceed to securitize as a way to raise funds (in addition to selling portfolios of loans), most other lenders choose to finance themselves exclusively through portfolio sales, which can generate higher profits than securitization.

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