On January 6, 2015, the administration of former Governor Deval Patrick solidified Massachusetts as a leader in the residential solar energy market by announcing its final design for the Mass Solar Loan Program. Commencing spring 2015, the $30 million residential loan program will help homeowners finance the placement of solar panels on their homes by working with banks and credit unions to lower loan rates and encouraging lower income homeowners and/or those with lower credit scores to consider loans.

This program is an outgrowth of an earlier study, which determined homeowners’ overall net benefits to be ten times greater with direct solar ownership (with loans) than third-party ownership. Currently, according to SunRun, almost 60% of homeowners who have gone solar chose a solar lease, rather than buying the panels. In the solar lease model, SunRun and competitors typically provide the homeowner with the use of the solar system and offer a Power Purchase Agreement (PPA), which locks in a long-term rate for electricity generated by the system. Additionally, these developer entities assist with residential installations for little customer money down, and then service the system over its useful life, eliminating a large part of the hassle to the homeowner. However, in exchange, the homeowner signs over to the developer their Solar Renewable Energy Credits (SRECs) and other possible tax incentives (e.g. the Investment Tax Credit or ITC) or rebates. In addition, SunRun, as the owner of the solar facility, benefits from net metering policies instead of the customer.

This new solar loan program may change the paradigm, giving solar customers greater control over their panels and the ability to directly monetize credits and other ownership incentives. The goals of this program include increasing accessibility for all parties involved (i.e. customers, lenders, and installers), creating an affordable solution that enables middle-income homeowner participation, assisting smaller installers in securing financing for their customers, and increasing competition in the residential solar market. If the program is successful, a trend toward localization of solar loans could be expected to emerge in other pioneering states, thus challenging the status quo of PPAs and solar leases.

Special thanks to Morgan Gerard and Emma Spath who assisted in the preparation of this post.