Mosaic: PV loans better than leases

Mosaic’s home solar loans are beating solar-lease products “on all fronts”, its chief operating officer tells Recharge, as the company looks to capitalise on the growing US demand for outright ownership of residential PV systems.

The third-party ownership model, exemplified by the leases offered by companies such as SolarCity and SunPower, has come to dominate the US residential PV market in recent years, and is expected to account for more than two thirds of installations this year.

But there is growing industry certainty that loans – as opposed to leases or power-purchase agreements – will become increasingly popular in the residential market in the years ahead, both in market share and overall volume.

California-based Mosaic, which focused initially on crowdsourcing finance for commercial rooftop projects, underwent a major strategic pivot this spring when it launched its solar loan offering for homeowners, staking out an early-mover advantage.

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

Leases typically allow consumers to get PV installed at no upfront costs – a popular arrangement which many banks that provide solar loans don’t offer – and leases often come with lower monthly payments.

Furthermore, because leased PV systems are owned by a third party – often a distant tax-equity investor – 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.

Mosaic has solved all of those problems, Ledesma says.

“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 adds.

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

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 the home; by contrast, at the end of a 20-year lease, the system still belongs to another investor.

In many cases, loans will 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, at least initially.

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. Many of the solar financiers currently offering loans and PPAs are expected to launch loan products shortly.

“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, there’s a lot of physical documentation and credit is still tight enough that with many institutions there’s still quite a few denials.”

In contrast, Mosaic has spent “a couple of 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.

Through its thousands-deep investor base – a legacy of its crowdfunding roots – and its social-media chops, 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.

The company is currently present only in California, but its 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.”