Spruce Finance is exiting the residential efficiency and solar lending and property-assessed clean energy origination business, leaving behind an increasingly cutthroat space to attempt a comeback in the third-party-owned residential solar space.
In a Tuesday email to its dealer partners, Spruce said it “will be exiting the efficiency and solar lending and PACE origination business effective immediately.” The San Francisco-based company said it would continue servicing its book of assets and loan portfolios, however, as well as continuing to “process and fund deals that have achieved specific milestones.”
Spruce Finance did not immediately respond to requests for comment on Tuesday. But GTM Research Solar Analyst Allison Mond noted that the company’s abrupt exit from the residential solar lending business “really just comes down to competition in the market.”
She’s referring to the boom in the business of lending customers the money to own their own home solar systems, versus the third-party-owned leases and other arrangements that have dominated the residential market for most of the decade.
Spruce has suffered from the same economic and political headwinds that have battered the rest of the third-party-owned (TPO) residential solar space over the past two years. Sungevity went bankrupt, OneRoof Energy shuttered its doors, NRG exited the residential solar market, and SolarCity/Tesla lost the title of No. 1 U.S. residential solar installer to Sunrun.
“Unlike the TPO space,” however, “the solar loan market has been becoming increasingly competitive over the last two years,” Mond said. According to GTM Research, more than half of customer-owned residential solar installations were financed with cash or loans in 2017, outpacing TPO solar business models for the first time since 2011.
Competition in the space is fierce. Back in 2015, only two loan providers, Sungage Financial and Admirals Bank, made up 53.7 percent of the loan financing offered in solar quotes. But as of mid-2017, the two lenders’ share had fallen to a combined 17.8 percent amid aggressive efforts by competitive solar loan providers such as Sunlight Financial, Dividend Solar, Solar Mosaic and Spruce.
“There are nearly a dozen prominent players in the space, and new players are still entering,” Mond said. But, she added, "many of these companies are effectively competing with each other by undercutting rates, bringing the financial health of these players into question."
Spruce was created by the 2015 merger of Clean Power Finance and Kilowatt Financial, two companies that have raised more than $2 billion to finance residential solar, energy efficiency and other new energy projects. In early 2016, Spruce received $175 million from U.S. Bancorp Community Development Corporation to finance residential solar.
Spruce issued layoffs in February 2017, although the numbers involved were small enough that they didn't require federal WARN Act notices. Rumors of a planned sale of the company that year were put to rest in June 2017 when Spruce announced a $25 million capital injection from HPS Investment Partners LLC (formerly Highbridge Principal Strategies LLC). The company also reshuffled its top leadership at the time, promoting COO Steve Olszewski to CEO, and placed two new members on its independent board of directors.
In June 2017, Spruce announced a sale of $250 million in solar and efficiency loan portfolio to an unnamed “large American bank with expertise in consumer loan assets.” In September 2107, Spruce announced that its new software would support PACE financing for all eligible residential energy efficiency installations — the same line of business it’s now discontinuing.
Spruce still has its lease and PPA business, which raised about $445 million in equity and project debt for 2017, along with a $105 million "back leverage facility against existing projects" led by Investec and Silicon Valley Bank.
But according to GTM Research, the company only deployed about 37 megawatts in 2017, down from 100 megawatts in 2016.Learn more about the shifting solar landscape in the U.S. and abroad at Greentech Media's 11th annual Solar Summit 2018 in San Diego, Calif., featuring more than 11 hours of panels and presentations from the industry's top experts and leaders. GTM Squared members can watch the livestream here.