The residential PV sector has a dirty secret: most people able to afford modules on their rooftops are rich.
It is towards this less-than-inspiring reality that the New York Green Bank (NYGB), which began accepting investment proposals last month, has taken aim.
By broadening the pool of customers financially eligible for PV leases and loans, the NYGB would not only inject more puff into the sails of New York’s fast-growing downstream PV sector. It could also create a virtuous financial cycle with major implications for the booming US residential PV market — and the companies, such as SolarCity and Sunrun, serving it.
Since being sketched out last year by New York governor Andrew Cuomo, a Democrat seeking to transform his state into a clean-energy hub, the NYGB has rapidly taken shape. It received its first $218m capital injection in December, and its war chest is set to swell to $1bn over the next few years, making it by far the largest green bank in the US, and one of the biggest in the world.
Like similar institutions elsewhere — such as the UK’s Green Investment Bank – the particulars of how the NYGB will operate have been left intentionally vague, a strategy intended both to maximise the programme’s political resonance and ensure it has the flexibility it needs to remain relevant to the rapidly evolving clean-energy sector in the years ahead.
At its heart, though, the bank is designed to financially support viable clean-energy technologies and businesses that may be struggling to raise sufficient capital in the private markets — often because financiers have not yet grown comfortable with them. Renewables will feature prominently, but sectors such as utility-scale solar and residential PV for wealthy homeowners — both already capable of raising finance on their own — should not expect much help.
Ultimately, the NYGB’s activities will be dictated by the ideas and investors that cross its doorstep; it is not in the business of actively hunting for investment opportunities.
But Alfred Griffin, the structured finance veteran hired from Citigroup as NYGB’s first president, has made clear that one of his preferred priorities would be finding ways to make rooftop PV more accessible to the state’s middle and lower classes.
Aside from the amount of sunlight, the biggest factor solar-leasing companies consider when deciding whether to accept a customer is their so-called Fico score, the most widely used credit-score metric in the US.
At the moment, people with Fico scores of less than 700 — the majority of the US population — “are being neglected” by the rooftop PV sector, claimed Griffin at a recent conference in New York.
“I understand why solar companies are not [offering financing deals to people with lower scores]. They don’t have to,” he says, because the industry is in its infancy and solar penetration is still very low. “There are still plenty of 700-and-ups to go around.”
But there are car leases, home mortgages and many other financial products available to people with scores far below 700, and there is no reason why the financial industry should not be able to get comfortable with such people also paying for a PV system over a number of years.
These are exactly the kinds of “market gaps” the NYGB has been designed to plug, says Griffin.
“You could see a scenario where a developer and their financial partner could come and say, ‘We really want to tackle Fico scores that are 650-700, or even 620-700, and this is how we’d want to approach that market, and this is the role we’d like the [NYGB] to play in helping us get that done’.”
In addition to hugely broadening the PV market, such intervention could also prevent the kind of political blowback that has occurred in advanced solar markets such as Germany, where populist media has seized on the reality that wealthier segments of society have disproportionately soaked up available subsidies — a group sometimes characterised by critical observers as “the doctors and dentists”.
Although solar penetration remains low in the US, the inability of huge swathes of the population to financially qualify for rooftop PV will quickly become a “social justice issue” in states with high electricity prices, predicts Brad Copithorne, financial policy director at the Environmental Defense Fund.
The average retail price of electricity in New York state is $0.22/kWh, against a national average of $0.12/kWh, making it the second-highest in the nation, trailing only Hawaii. It is simply not fair that homeowners with high Fico scores can install PV and mitigate rising electricity prices, while less affluent people and those who live in rental properties cannot, says Copithorne.
The solar industry is rapidly taking off in New York, a geographically diverse state of 20 million people whose economy is equivalent in size to South Korea’s. Although New York added just 69MW of PV capacity last year — placing it ninth among US states — a bevy of new programmes aimed to transform it into a renewables hub means that it is likely to be one of the most important US solar markets over the next half-decade, especially in the rooftop sector.
In recent weeks, New York extended to $1bn its financial commitment to its NY Sun Initiative — a separate programme offering geographically differentiated PV subsidies to encourage the sector’s development in far-flung areas — and signed an agreement that could see Japanese module supplier Solar Frontier build a factory in the state.
Of the NYGB’s $218m initial capitalisation — described as “burning a hole in my pocket” by managing director Nicholas Whitcombe — three quarters comes from surcharges levied on investor-owned utilities in the state, and the remainder from auction proceeds from the Regional Greenhouse Gas Initiative, the decade-old cap-and-trade scheme covering nine northeast US states.
The NYGB is also open to helping smaller solar developers who are less well known to financial institutions; financially “warehousing” small projects for a developer until the portfolio has grown large enough to attract investment from a big buyer; and acting as a “credit enhancer” for smaller, less-creditworthy companies or groups keen to install solar.
“If you’re an investment-grade municipality, or you’re Wal-Mart, developers have no problem getting financing to deploy solar on your rooftop,” Griffin says. “But if you’re not investment grade, then it’s really difficult.”
“There’s a world of rooftops and parking lots and fields out there in the state of New York that are perfect places for solar, but for the most part — for now — it’s not getting done.”