Solar loans are outpacing solar leases.
Solar loans are outpacing solar leases.

2018 is the year of the solar loan.

Despite rising interest rates affecting all consumer lending, GTM Research forecasts in its latest report, Bringing Scale, Profitability and Value to the Residential Solar Market, that solar lending will become the No. 1 consumer finance solution for residential solar systems in 2018.

Source: Bringing Scale, Profitability and Value to the Residential Solar Market

This increase in solar lending comes at the expense of both the third-party-owned (TPO) and cash markets, which includes personal and home equity lending. The TPO market hit its peak in 2016 as companies like SolarCity and Vivint Solar spent tens of millions of dollars acquiring customers through purchased leads, door-to-door sales, and selling via big-box retailers.

But starting in 2016 and throughout 2017, these same companies had to grapple with increased pressure from investors to become profitable, marking a stark change in focus for these and other large residential solar installers. In 2016, 83 percent of systems installed by SolarCity were third-party owned. By 2017, that figure had dropped to 61 percent.

The drop in SolarCity’s TPO business in particular contributed to the 15 percent market decline of the residential solar industry in 2017 over 2016 (and a 36 percent decline for the national TPO market). Even the cash market fell 30 percent in 2017 as struggles with customer acquisition plagued both national installers and the long tail.

Meanwhile, the loan market had a breakthrough year in 2017. The rise of solar lending companies such as Mosaic and Sunlight Financial contributed to 81 percent annual growth in the loan market. Much of this growth…