What if you could get a 20-year, no-money-down loan for a home solar photovoltaic (“PV”) system costing up to $25,000 with only a 5 percent to 7 percent interest rate? And then pocket the 30 percent investment tax credit worth $7,500 or possibly more?
Too good to be true?
This loan does exist, mostly thanks to a 90 percent loan guarantee through the Federal Housing Administration’s PowerSaver Pilot Program and its $25 million in grant funds to help banks roll out the program. Generally speaking, banks securitize the loans against the homeowner’s equity, taking a secondary/subordinated lien position against the first mortgage (if there is one).
At first glance, this would seem to beat out similar no-money-down solar leases (as measured by levelized cost of ownership in cents/kWh) provided by solar leasing companies. Such leases are now incredibly popular and account for three-quarters of all residential solar deals, according to solar leasing company SunRun.
And, in fact, after crunching the numbers (thanks to NREL’s SAM PVWatts calculator), we found that the solar loan through the PowerSaver program does work out to a better deal than that offered through a solar lease for a typically sized (we used 5 kW) residential solar PV system.
An interested customer might say, “Well, that’s nice, but to finance my new PV system I can just refinance my house and get mortgage interest rates which are under 4 percent right now.”
Unfortunately, in most cases bank appraisers don’t know how to value PV systems, and often inappropriately record the value as zero, despite evidence of substantial value. So one generally can’t use a refinanced mortgage or a typical home equity loan to cover the cost of a PV system. Regional solutions do exist, including the Colorado Energy Star Mortgage, but a national solution to mortgaging rooftop PV systems has yet to emerge. The good news is that Sandia National Laboratory is taking a hard look at the problem.
But Is It Really A Good Deal?
It’s a great deal, but only if a homeowner (a) is aware of this product, (b) can do a bit of financial analysis themselves, and/or (c) have it offered and coherently explained by an installer not married to their own solar leasing product.
Installers offering solar lease products generally present the terms in a very easy to understand manner, a key factor in the phenomenal success of solar leasing. Most PV customers can quickly understand the difference between paying 20 cents/kWh from your utility today, and tomorrow, after your solar PV system is installed, paying 15 cents/kWh. The PowerSaver concept of taking a big tax credit but paying more per month than the typical solar leasing product can be a harder sell.
Is PowerSaver a Scalable Model?
Anecdotal evidence suggests that PowerSaver has been a bit of a tough program for banks, perhaps because there’s a lot of customer involvement required for relatively small loan totals. Layered on top of this is the administrative burden of dealing with the oversight that generally comes with government grants.
But even without government grants and guarantee, there’s an opportunity to offer pure market-driven loans at slightly higher interest rates than PowerSaver. Learnings from the PowerSaver pilot could lead to that, as well as to other non-bank lending programs that could develop in some interesting directions (a public, loaning but not developing company, that just provides steady PV loan payment-based dividends to shareholders?)
There are undoubtedly better solar PV financing deals in certain U.S. regions as well as in certain customer classes. But is there anything better broadly available? Introduction of bank loans into solar leasing products, such as Clean Power Finance’s MySolar product might beat out PowerSaver, but it’s hard to tell at this early stage, considering the low volume of debt going directly into residential solar projects.
There are also rumors that some solar leasing companies are offering leasing products at effective rates well below their cost of capital in order to gain market share, even though default rates might leave them losing money on such deals. If so, those uneconomic-for-the-developer deals might also be more attractive to the PV customer.
All in all, the FHA PowerSaver program looks very competitive, and if you’re a homeowner interested in having a PV system installed, you should compare what an FHA PowerSaver loan would mean for you. In some cases, it could likely mean the difference between earning financial returns versus taking a net financial loss versus your old utility power bill. That’s a big deal.
Appreciation note: Thank you to the University of Virginia Credit Union and the Bank of Colorado for FHA PowerSaver information.
Some images courtesy of FreeDigitalPhotos.net.