SolarCity is now in the solar loan business as well as the solar leasing business.

SolarCity has come to dominate the residential solar finance and installation industry by leveraging the no-money-down, third-party-ownership business model. That model has launched the company to more than 7,000 employees and a market cap of $5.3 billion.

But in order to maintain its gaudy 30 percent market share and meet its goal of a million solar rooftops, SolarCity has to keep dialing-in in every facet of its now vertically integrated business. From its Silevo acquisition of high-efficiency solar modules to its acquisition of Zep's mounting hardware to innovations in sales channels and financing, it's not a surprise that SolarCity is also offering a solar loan product with a SolarCity spin.

It's not a new idea. SunPower, Clean Power Finance, Sunrun, NRG, Sungevity, SunEdison, Kilowatt Financial, Dividend Solar and Mosaic are already in or are moving into the solar loan business. As we've reported, according to a survey of 1,031 California homeowners conducted by Mosaic in April, around 60 percent of respondents would prefer to own a residential rooftop system rather than lease it, assuming savings and performance are similar. Among the 26 percent who still want to lease, more than half would choose a loan instead if a warranty was included.

Steve Michella, founder of Dividend Solar told GTM recently, "The lease/PPA model has been tremendous for the growth of solar in the U.S., but it’s becoming increasingly clear that solar ownership offers significantly greater long-term value to homeowners."

SolarCity's loan is different and the company's CEO Lyndon Rive suggested, "It is by far the best product out there." Rive said, "The thing that I like about this product -- all that matters is your effective cost per kilowatt-hour." Rive notes that the system has a 30-year warranty and "It's our responsibility to fix it. Our motivation is exactly aligned with the customer. If a system is not performing -- we have to go and make sure it's performing."

If the solar system underperforms -- then SolarCity takes a hit.

Rive said, "You only pay for the energy. If the system's not working, you're not paying. [...] You're paying it back at 16 cents per kilowatt-hour, and the tax credit buys it down to 12 cents per kilowatt-hour."

The SolarCity loan:

  • Is open to customers with FICO scores of 680 and higher
  • Offers a fixed annual percentage rate as low as 4.5 percent over 30 years
  • Will be offered in Arizona, California, Colorado, Connecticut, Hawaii, Massachusetts, New York and New Jersey
  • Is offered with SolarCity as the "direct lender to its customers through its subsidiary, SolarCity Finance," with capital from an underwriting partner
  • Includes a 30-year warranty, production guarantee, and O&M

If a loan is such a good idea, shouldn't every customer elect this option? The CEO told GTM, "If you don't have tax capacity, then the PPA or lease is a better product."

Third-party ownership remains the dominant model for financing a residential solar installation in the U.S., but that's changing. Direct ownership via loans (and other mechanisms like PACE) is gaining traction, because PV systems continue to get cheaper while financing options continue to improve. GTM Research is forecasting third-party ownership to peak at 68 percent of the residential PV market this year.

Nicole Litvak, a solar analyst at GTM Research, just authored a report on this topic, U.S. Residential Solar Financing 2014-2018. (For more information on the report, click here or contact Zack Munsell at [email protected].)

GTM Research expects the U.S. residential PV market to exceed 1 gigawatt for the first time in 2014.

In April of this year, GTM Research VP Shayle Kann suggested that all of the larger residential solar financiers would offer a loan product by the end of the year. As of this writing, the newly public Vivint is the only holdout.

In talking to financiers and analysts about the market leader's move into loans, I heard suggestions that there was going to be "a significant markup" in the price of a solar system involved in a loan. Another solar expert said that part of SolarCity's innovation is that the company "took a risk that no bank would take."

That expert added, "There are a number of upstart loan providers that will hate this announcement."