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IN DEPTH: Forget solar leasing

In the opinion of Mosaic, the third-party ownership (TPO) model for home solar systems is passé.

It is a bold claim, considering that TPO emerged at scale just a few years ago, and has since acted like rocket fuel to the US residential PV market.

The TPO model — exemplified by the leases and power-purchase agreements that companies such as SolarCity and SunPower sign with homeowners — remains dominant, and is expected to account for more than two thirds of US residential PV installations this year.

But Mosaic, the solar start-up best known for crowdsourcing funding for commercial rooftop PV installations, has repositioned its business around the model it believes will come to define the industry’s next phase of growth: the home solar loan.

Based near San Francisco, Mosaic underwent a major strategic pivot this spring when it launched its solar loan offering for homeowners, staking out a critical early-mover advantage.

The move allows Mosaic to claim it is playing a disruptive role in two sectors: solar energy and financial services. The company still has only a few dozen employees, but is growing quickly.

Leases have been more popular than loans for several reasons, explains Bruce Ledesma, a SunPower veteran who was last month named Mosaic’s first chief operating officer.

First, leases typically allow consumers to get PV installed at no upfront cost — an understandably popular arrangement for consumers, yet one that many banks providing solar loans don’t currently offer. Leases also often come with lower monthly payments than outright loans.

Furthermore, because leased PV systems are owned by a third party — often a distant tax-equity investor that owns a vast portfolio of systems — they usually come bundled with O&M services, as the investor wants to make sure they are generating as much electricity as possible. By contrast, customers who own their systems have generally been left to fend for themselves if something goes wrong.

But the tide is turning, Ledesma says, and Mosaic has solved all of the problems endemic to solar loans.

First off, “our loan doesn’t require any money down, so that’s not an issue”.

By offering loans with 20-year terms, rather than the 12 or so years offered by many banks, “we’re able to reduce monthly payments to be on par with a lease”, he says.

As for O&M, the company last month announced a groundbreaking partnership with US micro-inverter maker Enphase, which will cover maintenance for Mosaic’s loans customers, closing the so-called “service gap”. Enphase already monitors more than 160,000 PV systems globally.

“We feel like we’re beating the lease now on all fronts,” Ledesma tells Recharge.

With the historic advantages of the leasing model narrowed or eliminated, Mosaic believes the disadvantages of leases will become increasingly apparent.

All things being equal, customers prefer owning their PV systems to leasing them, according to Mosaic’s market research. Once a loan is paid off, the system belongs to the homeowner, adding value to their home; by contrast, at the end of a 20-year lease the system still belongs to another investor.

As a result, loans will in many cases represent a better economic proposition for homeowners over the course of several decades.

There has also been a recent trickle of stories about some homeowners with leased PV systems finding it more difficult to sell their homes, as new buyers, often unfamiliar with solar energy, are unhappy taking on the lease.

A growing number of analysts agree with Mosaic that the home solar loan is the wave of the future, and will one day be as pedestrian as a car loan.

GTM Research believes the third-party ownership model will peak this year at a 68% share of the US residential PV market, before steadily losing ground to loans in the years to come.

Mosaic is keenly aware that many solar companies currently employing the TPO model will soon launch loan products — including SolarCity, the dominant player in the residential market.

“We think at the moment that our loan product... is the most competitive on the market,” Ledesma says. “The question is how do we maintain that advantage.”

One obvious way of doing so is on the downstream end, building relationships with as many respected installers as possible. Mosaic launched its home loans in the spring in partnership with one such installation partner, Colorado-based RGS Energy.

“We’re very focused on the top 25 installers in the country, and forging deep partnerships with each,” says Ledesma.

Part of making itself attractive to both installers and customers is offering a “frictionless” loan process.

“Right now, for most other loan options, homeowners have to deal offline with another company beyond their solar installer — which is the bank.

“It takes a couple of weeks to run through approvals and documentation [with the bank], there’s a lot of physical documentation, and credit is still tight enough that with many institutions there are still quite a few denials.”

In contrast, Mosaic has spent the past few years developing “a very seamless web interface for the homeowner and installer, which is very elegant and user-friendly — and it’s instant”.

From the homeowner’s kitchen, the installer can simply open a laptop, launch the web portal and instantly process a loan, with no paperwork involved.

Tapping into its peerless social-media chops and its thousands-deep investor base — the latter a legacy of its crowdfunding roots — Mosaic is also able to generate sales leads for its installation partners.

“Banks don’t do that,” Ledesma notes.

Mosaic aims to issue home solar loans worth at least $100m by the end of 2015, a target that, if met, would launch the company into an entirely different league within the US solar sector.

While some of the money will be crowdsourced, a growing portion will come from institutional investors, allowing Mosaic to “toggle between the two to keep our loan products at very low cost to the homeowner”.

Currently present only in California, Mosaic’s short-term focus is “scaling the loan product nationally”, says Ledesma. “We’re moving into several states in the next couple of months, and we’ll continue to grow from there.”

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