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Rooftop solar enjoys strong public support across the United States. So why aren’t solar panels blanketing communities across the country?
The reason there aren’t millions more homes with rooftop solar isn’t due to a lack of demand; it’s because a lot of American homes aren’t solar-ready, according to Hayes Barnard, CEO of Loanpal, which recently became the fastest-growing solar lender in the nation.
Getting solar-ready may require installing a new roof or upgrading the home’s electrical panel. And these things are not cheap, with a price tag anywhere from $2,000 to $10,000. That’s typically a deal-breaker for a customer trying to go solar for zero money down.
Roughly 2 percent of homes in the United States have gone solar, and people don't really understand why that number isn’t higher, said Barnard, who previously served as chief revenue officer at SolarCity. “They just assume it's demand, and that the customers don't call. But that's not the case.”
“When I was [at] SolarCity I became very frustrated that so many people were told…they couldn't get solar,” he said. “The main reason was people would get hung up in the financing process for solutions to get their home solar-ready.”
The idea behind Loanpal was to find a way to finance home upgrades for prospective solar customers. For that reason, Loanpal is focused specifically on the financial piece of the solar purchase and does not actually build any rooftop solar systems. The company’s secret sauce is its proprietary fintech platform that serves as connective tissue between banks, clean energy system installers and homeowners.
For homeowners, Loanpal offers zero-down financing and virtually instant loan approvals for solar, batteries and other home upgrades, like a “Square or PayPal” for clean energy purchases, said Barnard. For installers, the benefit is Loanpal’s technology directly integrates into their point of sale and operational systems, creating a seamless sales and back-office experience. Banks, meanwhile, benefit from an efficient way to deploy capital without the traditional costs associated with a consumer-lending platform.
So far, this approach appears to be paying off.
Loanpal announced today that it is now responsible for financing 21 percent of all new residential solar loans in the U.S., after just 15 months in the market. That figure aligns with research from Wood Mackenzie Power & Renewables, which currently ranks Loanpal as the second-largest residential solar loan provider in the U.S. with 20 percent market share in that space in 2018. That makes Loanpal the third-largest residential financier overall, after Sunrun and Mosaic.
In addition, Loanpal claims that 80 percent of the top 50 solar providers in the U.S. now use its fintech platform. The company also closed a $241 million securitization with Goldman Sachs earlier this year, and claims to have partnerships with a number of other large institutional banks. Barnard said the firm’s goal is to sign forward flow agreements with another five to six banks over the course of the year.
Loanpal launches with SolarCity expertise
These stats represent rapid growth since the launch of Loanpal’s solar loan origination platform in December 2017. But the company isn't entirely new to the market.
Loanpal was previously Paramount Equity Mortgage, which was incorporated in California in 2003 to provide residential mortgage loans. Paramount launched a residential solar finance company, Paramount Solar, in 2009, which was acquired by SolarCity in 2013. SolarCity was then acquired by Tesla in November 2016, and has since seen its presence in the residential solar sector shrink significantly.
Barnard left the company shortly before the Tesla acquisition, in August 2016, according to LinkedIn. He went on to launch the Loanpal brand and brought several former SolarCity employees along with him, including COO Tanguy Serra and SVP of Market Development Matt Dawson.
Loanpal has funded more than $27 billion in total loan volume since its inception as Paramount Equity Mortgage. This background has enabled the company to get a jump on the solar loan competition.
“They are a relatively new solar loan provider, but with the backing of a large mortgage company and the expertise from several seasoned industry executives, which gives them clout,” said Allison Mond, solar analyst at Wood Mackenzie.
“I think Loanpal is likely the last major entrant into the uber-competitive solar loan space, and they were able to do so because of their mortgage business plus the solar executive team,” she added.
Barnard acknowledged it would not have been possible to launch a consumer finance company like Loanpal from scratch, without a prior history of working with the banking business.
Loans are now the dominant residential solar financing option in the U.S., outperforming third-party-owned solar sales in 2018 for the first time since WoodMac (formerly GTM Research) started tracking the solar sector.
But while Wood Mackenzie is projecting growth in the solar loan space over the next few years — albeit slower than in past years — Mond said there are so many companies currently occupying that space that the market is likely to see a contraction or possibly some exits.
A new model: Link solar loans to mortgages
Loanpal is uniquely positioned in the solar market because of its ties to the mortgage industry.
Not only does the company originate loans to homeowners for home improvement projects, like rooftop solar, but Loanpal also holds residential mortgage licenses in all 50 states. Most notably, the company has found a way to roll those clean energy loans into the customer’s mortgage.
“Ultimately, it's gravity,” said Barnard. “All of these loans will live in the first mortgage at some point in time. But we don't try to do a first mortgage that demands this asset upfront, because that would be too onerous of a process for the homeowner and the contractor doesn't have that patience.”
“Instead, we do a consumer finance loan: a simple, easy, frictionless loan,” he said. “And then later in the relationship with the consumer…we can have an educated conversation on whether or not they'd like to roll it into their first mortgage.”
This model failed in the past, said Barnard, because there was too much paperwork for the homeowner and the solar installer to handle. The development of fintech solutions and a growing consumer preference for loans made the business possible.
Today, this model means that installers like Sunrun or Vivint manage the solar customer relationship entirely at the outset, and simply present Loanpal as a financing option. The mortgage conversation only happens once the solar project finance deal is complete.
There are a few consumer advantages of rolling a solar loan into a first mortgage, said Barnard. For one thing, it's tax-deductible. It also means the customer can avoid making two separate payments.
Banks like it because they traditionally haven’t had enough data on the residential solar asset class to know what the system performance would be, and didn’t get into financing these assets as a result. Plus, they get to drive significantly more loan volume overall. Solar installers, meanwhile, have already made their sale using Loanpal’s back-end system by the time the mortgage conversation comes up, and are indifferent to the customer’s next move.
“Loanpal’s strategy to eventually roll their solar loans into mortgages is novel and not yet proven,” said Mond. “But if it works, it could be an effective way to grow both businesses.”
Eventually, Loanpal wants to go beyond solar, storage and basic home upgrades to finance virtually every major aspect of the home.
“We're really going to look at all of these things that homeowners want to do to turn their outdated home into an energy-efficient smart home, and continue to find new ways to unlock capital from the biggest banks in the country,” said Barnard. “We’re going to build a conduit for world-positive banking."
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