SolarCity Corp (SCTY) Solar Loans Will Beat Leases by 2017: Credit Suisse

solarcity corp scty

SolarCity Corp (NASDAQ:SCTY) launched a new solar loan program last week. It will replace its previous MyPower initiative and adapts to the current trend of loans over leases. The loan endeavor will eventually overtake leases by 2017, says a new report.

SolarCity Corp’s Loan Program is a Win

In recent months, SolarCity has seen its market share in the industry dip. One of the reasons is because homeowners are opting for solar loan products. Many small businesses and banks are now offering these loans. Consumers think the loans are a better alternative to the leasing.

SolarCity’s new loans – 10 years at 2.99 percent interest or 20 years at 4.99 percent interest – is a win, says Credit Suisse analyst Patrick Jobin. Writing in a research note Monday, he thinks these new loan programs will overtake leases by next year. Loans are soaring in popularity.

Power purchase agreements (PPAs) and leases have dropped since 2014. They tumbled 72 percent in 2014 and 62 percent in 2015. It’s projected that third-party ownership of solar power will slip 48 percent next year. The savings will play a big part.

A California homeowner can save $272 for a solar loan, compared to $261 for a PPA.

“With the potential for 30% more realized savings than from a solar lease by year five, coupled with the simple proposition that the consumer will own the system free and clear after 10 or 20 years and generate ‘free’ power, we expect the transition to loans to continue,” he wrote.

Moreover, loans give firms much needed upfront cash flow. This reduces the long-term lease risk, and prevents companies from taking on debt to maintain operations. Also, SolarCity can enter into more markets where third-party ownership is prohibited.

Is SolarCity Corp Dying a Slow Death?

Seeking Alpha‘s Paulo Santos opines that the new loan program is unprofitable for SolarCity. Its new business model will only inflate revenues and supposed growth. Simply put: it won’t work.

Meanwhile, SolarCity could be facing another net metering change.

It’s been reported that Arizona Public Services (APS) is looking to cut net-metering rates. This could hurt solar firms like SolarCity by the summer of next year. The state would maintain solar-friendly rates until July, 2017.

It’s warned that, unlike Nevada, Arizona’s idea could kill off solar demand statewide. Right now, the APS buys extra solar energy sent back into the grid at a wholesale rate for energy from solar firms. The proposal would see a 73 percent cut in savings for homeowners. This means that developers have to slash their costs in half.

If the proposal goes through in 2017, users would lose $184 per year compared to $1,530 in annual savings.

“The proposed rates are negative for sentiment, would significantly reduce demand after July 2017 in Arizona and potentially act as a harbinger for rate reforms in other states,” Jobin wrote in a research report. “To maintain at least a 10% savings … solar companies would have to offer less than 6 cents per kilowatt-hour PPAs (power purchase agreements).  This would require all-in system costs fall to below $1.50 per watt from $3 per watt today.”

The Elon Musk-backed firm has been struggling in 2016. The stock has shed 53 percent year-to-date and is trading at just under $24 a share. This is a far cry from where it was last year: $60.

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Adam Green is an experienced writer and fintech enthusiast. He he worked with LearnBonds.com since 2019 and covers a range of areas including: personal finance, savings, bonds and taxes.


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