NREL is a national laboratory of the U. S. Department of Energy, Office of Energy Efficiency

and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

BANKING ON SOLAR:

DEBT FINANCE IN TODAY’S DISTRIBUTED MARKET

Travis Lowder

National Renewable Energy Laboratory

This presentation does not contain any proprietary, confidential, or otherwise 

restricted information.

Active third-party finance markets Markets in which laws and 

regulations apparently disallow 

third-party PPAs

Modeled Comparison of Residential Solar Loans (5-, 10-, and 20-year) 

vs. Solar PPA and SDG&E Blended Residential Rate

Over the last two years, several entities—from banks to credit unions to solar 

finance companies—have rolled out distributed solar-specific loan programs in the 

United States. These solar-specific loans are a distinct loan in that the underwriting, 

loan terms, lender security interest, and other programmatic aspects are designed 

exclusively for the financing of solar installations. Until recently, loan financing for 

distributed solar installations was largely through home equity loans, commercial 

loans, and other standardized loan products available to homeowners and 

businesses for general expenditures. However, as the U.S. solar market matures, so 

too are its financing options, and solar-specific loans stand to gain market share.

As of 2014, third-party ownership (TPO) accounted for some 66% of the residential 

market and a nontrivial portion of the commercial market. However, after yearover-year gains since 2008, third-party finance market penetration may crest in 

2014, and gradually cede share to loan options. This includes the numerous solarspecific programs that are only now just emerging, but also specialty products such 

as property assessed clean energy (PACE).

How do solar loans perform relative to TPO? What are the range of loan-based 

financing options available to U.S. consumers, and what are the 

regional/jurisdictional limitations on that availability. And what kind of challenges—

besides competition with the successful TPO model—that could affect the growth of 

solar loans as a viable form of financing distributed (namely residential and small 

commercial) installations? 

The National Renewable Energy Laboratory’s Banking on Solar effort aims to answer 

these questions and build a knowledge framework to investigate and facilitate the 

emergence of this nascent asset class.

DC 

A Diversity of Financing Options

Loan 

Type Description Lender Term(yrs)

Interest 

Rate Examples Availability Govt. Support? 

Residential

SolarSpecific

A loan made to a 

borrower by a private or 

public lender exclusively 

for the purchase of a 

solar system

Bank, Credit 

Union (CU), 

finance

company 

(finco) 

5 – 20

2.99% – 

8% + 

• EnerBank

• GreenSky

• Mosaic

• Sungage 

Financial

Can be limited to certain 

jurisdictions or available 

nationwide

Typically no

Title I 

(HUD)

90% governmentguaranteed loan 

secured by second lien 

on home

Programapproved 

Lenders 

(Bank, CU, 

finco) 

10-20 3 - 9%

• Power-Saver

• Admirals 

Bank’s Solar 

Step-down

Nationwide Yes

On-Bill Loan amortized through 

electric bill

Bank, CU, 

Utility, State ≤15 3% + NYSERDA Service territories of participating utilities Sometimes

Home 

Equity

A loan or line of credit 

against the value of a 

homeowner’s equity. 

Also called a 2nd 

mortgage 

Bank, CU, 

finco ≤30 4.5% + NA Nationwide No

Both

PACE

A loan made via an 

increase in property tax 

assessment and 

amortized through 

property tax bill

Bank, finco, 

Municipality ≤20 5 - 8%

• Hero Program

• Renewable 

Funding

States with PACE-enabling 

legislation Yes

Commercial Commercia

l Loan

A loan made to 

businesses to finance 

operations, capital 

expenditures, etc.

Bank, CU, 

finco 5 - 30 3.25%– 6.85% NA Nationwide No

The Flavors of Solar Loans Homeowners (and businesses to a lesser extent) in certain solar markets can access a growing menu of options when choosing a loan product with which to finance a 

rooftop installation. These options range from solar-specific loans to general energy-related loans (Title I, PACE), to general loans (home equity, commercial loans), each 

with its own particular programmatic structure. In some solar specific loans, for example, the lender will issue a 12 -18 month loan at 0% interest against the anticipated 

sum of the homeowner’s return from the 30% investment tax credit. This loan is usually due as a bullet payment (i.e., all at once) at the maturity date. Another example, 

on-bill financing, which is essentially a loan to a homeowner that is amortized through that homeowner’s utility bill, does not offer this “same-as-cash” type loan, though it 

does consolidate the collection of payment with the utility. This reduces the likelihood of borrower default (because utility bills are typically one of the obligations that 

people will default on in times of economic hardship).

0

5

10

15

20

25

30

Members in Each Category

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Yearly Payments

Years

5-year Loan

10-year Loan

20-year Loan

20-year PPA

SDG&E Res. Tier 2/3

Banking on Solar

In January of 2014, the National Renewable Energy Laboratory, under the auspices of the Department of Energy’s SunShot program, convened the Banking on Solar 

working group. The working group brings together stakeholders in the emerging solar loan market to discuss the challenges to growth, explore solutions, and build 

the knowledge framework that would enable wider market participation and therefore liquidity. The group’s membership totals over 135 organizations representing 

the most active industries in the solar finance arena. Half of the group is comprised of the solar and lending communities, while the other half includes 

$0.189 $0.190 $0.198 

$0.247 $0.255 

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

5-year Loan 10-year

Loan

20-year

Loan

20-year PPA SDG&E Res.

Tier 2/3

LCOE ($/kWh)

Loans could also allow for reductions in 

the overall cost of distributed solar 

finance. All else being equal, the cost of 

capital associated with a loan—that is, 

the interest rate—can undercut the 

weighted average cost of capital 

(WACC) associated with the tax equity 

financing structures. This WACC is 

passed through to lease and PPA 

customers, which can put upward 

pressure on prices and the ultimate 

cost of solar energy. 

A forthcoming NREL analysis models a 

hypothetical 5 kW residential solar 

system in California. This analysis finds 

that when financed through a loan, the 

cost of solar energy is below that of a 

system financed through a third-party 

PPA, regardless of loan maturity (see 

Modeled Comparison of Residential 

Solar Loans figure, right). This analysis 

also finds greater lifetime savings—i.e., 

the differential between the utility rate 

and the total monthly payments over 

the term of the loan (including O&M 

costs)—in loan financings.

top law firms, governmental entities (e.g., green 

banks and development authorities), PACE 

administrators, and other industries. 

Many lenders in the United States are hesitant to 

extend credit to solar borrowers because they lack 

an understanding of the technology and loan 

performance risks. Banking on Solar works with its 

membership to educate banks, credit unions, and 

other lenders about these risks as well as the 

potential rewards in gaining exposure to this new 

asset class.

Banking on Solar also provides a forum for lawyers 

to explore the legal uncertainties surrounding 

solar lending. Such issues include the 

characterization of solar assets as personal 

property or fixtures of the real estate, the rights of 

the solar lender in the event of a foreclosure, 

holder in due course exceptions, and others.

Additionally, no effort to engage the banking 

sector and other lenders could succeed without 

addressing the regulatory component. Banks are 

among the most heavily regulated entities in the 

world, and they will be hesitant to invest in a new 

opportunity without clarification of how their 

regulators will treat it in the examination 

process. Banking on Solar is facilitating dialogue 

with regulators, educating them on solar’s risk 

profile, and clarifying their positions will 

encourage more banks to consider lending to the 

asset class. 

Modeled Cost of Energy for Solar Loans (5-, 10-, and 20-year) vs. Solar 

PPA and SDG&E Blended Residential Rate

Growth in the U.S. distributed solar market—particularly the residential sector—has been facilitated in large part by the TPO 

model: going solar via a lease or power purchase agreement (PPA). The TPO model of allowing solar customers to finance 

systems for no money down, and to pay a simple monthly fee that is often below the local utility rate has proven to be a 

winning economic proposition for hundreds of thousands of Americans.

However, a diversity of financing options—leases, loans, and other forms of financing—is important for any consumer market 

(think automobiles or real estate). Despite its strengths, TPO has limitations that could be complemented by the benefits of 

loans. For example, TPO is only available in a handful of states. In some states, laws and regulations either explicitly or 

implicitly prohibit the sale of electricity through third-party power purchase agreements (PPAs). Leases may be legal in these 

markets, but the business risk of unclear laws may be unacceptable to many TPO companies. In these markets, loans can fill 

the financing gap for potential solar customers. Moreover, TPO does not allow solar customers to take advantage of the 

benefits of ownership, such as the direct receipt of the 30% investment tax credit, and potential increase in home value. 

Third-Party Finance Availability in the United States

All in all, Banking on Solar aims to build consensus around industry standards and best 

practices, while also engaging a broad range of capital providers to inform them of and 

educate them about the solar asset class. The U.S. solar industry is fast-growing and hungry 

for capital—unlocking the low-cost capital in the banking sector, as well as facilitating the 

solar industry’s access to a financing tool that could reduce installation costs, could enable 

deployment at levels not possible under strictly higher cost financing regimes.

Solar Loans: A Nascent Market

The information contained in this poster is subject to a government license.

Solar Power International

Las Vegas, Nevada 

October 20-23, 2014 

NREL/PO-6A20-62669