Navigating High-Interest Rates & The Solar Coaster
Regulatory wins and losses, ITC tax credit extensions and reductions, module supply chain issues, permitting and interconnection delays, and, most recently, wild and unforgiving interest rates have tossed the renewable energy industry for a loop. For installers and salespeople alike, financial fluency can be critical in navigating the ups and downs of the industry and selling confidently at the kitchen table.
Adam Gilbert, head of sales with Greentech Finance Solutions, summarized these peaks and valleys in what is known as the ‘solar coaster’, stating that when lending rates are best, “the dealer fees for a 1.99% APR loan a year ago were lower than dealer fees on a 7.99% APR loan today.” When interest rates are high, financing companies often compensate by increasing dealer fees. We have seen dealer fees, also known as origination fees, increase from 5% - 15% a year ago to, in some cases, 40% today. This quick shift in the cost of borrowing has resulted in sluggish sales growth and opened the door for third-party ownership (TPO) lenders to increase their market share.
TPO primarily consists of leases and power purchase agreements (PPAs). A customer taking advantage of a solar system lease pays for the use of the system itself, whereas in a PPA model, customers buy the power generated by their solar system from a developer at a fixed rate. Lenders who offer TPO products have seen positive volume shifts as homeowners look to avoid high lending fees. With TPO providers owning the system, the homeowners pay a monthly bill to utilize the system on their roof. The TPO provider retains the 30% ITC and often the state’s incentive to drive down the monthly costs for homeowners. The homeowner is not required to provide upfront capital, and many of these options come with performance guarantees and bumper-to-bumper service plans. Customers tend to choose the lowest monthly payment option, and in the state of affairs today, TPO is leading this battle. In markets such as Florida and Massachusetts, there has been a dramatic pendulum shift from loan to TPO sales volume due to these factors.
Now more than ever, it is vital for solar salespeople to be well-versed in presenting both the loan and TPO options to their customers. The growth of the industry is dependent on our installers’ ability to educate homeowners to make well-informed decisions based on meeting their financial goals. Our customers at Greentech Renewables have adapted to constant change and will continue to do so. For every drop on the solar coaster, there is an exciting climb to the top ahead. Just be sure to buckle up!