SolarCity is officially relaunching its solar loan effort.

In October 2014, SolarCity added a solar loan business to its soaring solar leasing business. At the time, SolarCity's CEO Lyndon Rive said that nearly half the company’s business could be loans by the end of 2015. Instead, loans accounted for 13 percent of total installations in 2015. 

In February 2016, a little over a year after its intro, SolarCity pulled its complex loan product and began to develop a replacement loan offering.

Tim Newell, VP of financial products at SolarCity, told GTM, "We issued more than 21,000 loans for a total value of just under $600 million. It was a product that customers liked. We issued more solar loans than any other seller in the U.S. during 2015."

Newell added, "The MyPower loan was designed, essentially, to replicate a power-purchase contract. [The loan was structured] over 30 years and the monthly payments varied with the production of the system."

The contract also had a 2.9 percent escalator.

Nicole Litvak, senior solar analyst with GTM Research, said, “It seemed like it would be a simple transition. It turned out to be totally the opposite.” She added, "Even for the customers who were able to take advantage of the federal Investment Tax Credit, there were still numerous other sticking points that made it a tough sell. There was the issue of the 2.9 percent escalator, which made the transaction more like a PPA than a fixed loan. Another problematic feature was the 30-year payback period, far longer than the average 20 years for PPAs. “

As we reported, solar marketplace Pick My Solar found that the cost of MyPower for the average California customer was more expensive than other options in the market.

Newell said that customers wanted "the option for shorter terms on a loan and fixed monthly payments." The new loan has the option of a 10-year loan and a 20-year loan with annual percentage rates as low as 2.99 percent and 4.99 percent, respectively, along with no prepayment penalty. The loans come with a service package including a 20-year warranty, production guarantee, and continuous monitoring. "That's all included in the price that we sell to them," said the VP.

Newell notes, "We were the issuer for the MyPower loans; we financed those with our capital. Our current loan program is through third-party lenders. We intend to bring between three and five third-party lenders onto our platform. We're negotiating with all of them to provide the same terms and the same product for our customers. We feel like we're able to use our market leadership and or installation volume to help drive great terms to our customers and good economics for ourselves."

(Newell would not divulge the lenders already signed up, but it's a poorly kept industry secret that Mosaic is the initial lender.)

"That doesn't mean that we won't ever be a lender ourselves, especially if we see that there are places with increased choice for our customers, if we wanted to test a market, or if we wanted to offer something that the current lenders don't," said Newell.

“[The new product] is just addressing the basic [elements] of the loan that we should have done rather than making a loan a PPA,” said Lyndon Rive in a previous interview.

Sungage, Sunlight, Spruce, SunPower, Sunrun, NRG, Sungevity, SunEdison and Dividend Solar are also involved in the solar loan business. As we've reported, around 60 percent of consumers would prefer to own a residential rooftop system rather than lease it, assuming savings and performance are similar, according to a 2014 survey of California homeowners conducted by Mosaic.

Sara Ross, the CEO of Sungage Financial notes,"The large national platforms used to differentiate based on access to capital. The emergence of the solar loan all but removes that advantage as this financing option is now accessible to installers large and small. This broadened access to capital is forcing the national players to compete on other dimensions such as price and service. I don't believe SolarCity will find any persistent competitive advantage through their loan product. They will need to look elsewhere."

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.

Third-party financing is still the dominant form of financing for residential solar, but by 2020, GTM Research forecasts that direct ownership will eclipse third-party ownership.

FIGURE: Percentage of Third-Party-Owned Residential Solar PV Systems

Source: GTM Research