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As the program ends, private solar lending will continue but low-income homeowners may be left behind.
Massachusetts’ lauded solar loan program is drawing to a close this month, leaving behind a more robust solar financing market but also taking away a tool that lenders and installers say has been invaluable in bringing the benefits of solar power to underserved households.
“It has allowed us to bring solar to people who might not have access to it otherwise,” said Richard Bonney, project developer for solar installer RevoluSun, which completed 141 projects through the program. “That is the biggest area of concern on our end.”
The Mass Solar Loan program was launched in 2015 with two goals: jumpstarting the market for residential solar financing and expanding access to solar for lower-income households.
At the time, residential solar was starting to take off in Massachusetts, but the majority of the installations were part of power purchase agreements, a contract in which a solar company essentially leases roof space for panels from homeowners, who then agree to buy the electricity generated at a discount price.
These arrangements achieved some cost savings for customers and contributed to reducing greenhouse gas emissions from electricity generation. However, the companies that owned the panels received the financial benefits of state renewable energy incentives and state and federal tax credits. And because most of these companies were from outside Massachusetts, the local economy was not feeling the full positive impact of the growing number of solar installations.
“We were essentially incentivizing solar, and 90% of the value was going out of state,” said Ben Mayer, vice president of marketing and residential sales for SunBug Solar.
The benefits were especially limited for low-income customers, who would already have qualified for a discount electricity rate through the utility.
The Massachusetts Clean Energy Center decided to design a loan program that would address these problems by making it easier for homeowners of all income levels to buy — and reap the rewards of — their own systems.
The agency ended up creating the Mass Solar Loan, a $30 million five-year program that encouraged banks to lend money for residential solar projects by requiring borrowers to work with an approved solar installer who had been vetted by the state, giving banks more confidence that the project would result in a working installation.
“I knew the project was going to be well built, within the budget, and when they turned it on it was going to work,” said Robert Terravecchia, president of Coastal Heritage Bank, one of the participating lenders. “It was sort of a gold rush for a while, and that gave me confidence that I wasn’t going to be dealing with a bunch of fly-by-nighters.”
The loan program also agreed to cover a portion of lenders’ losses should a loan default. This element made it less risky for banks to venture into a new market. It also allowed them to adjust their underwriting criteria and approve loans to applicants with less-than-ideal credit, creating more opportunities for lower-income residents to finance a solar installation.
To further target low and moderate-income homeowners, the program also included provisions that reduced the interest rate for income-qualified borrowers and pay off a portion of a borrower’s principal — 20% or 30%, depending on income level — after the project is completed.
“Those things together created a state loan that was kind of off-the-charts,” Mayer said. ”I mean, it was a ridiculously good program.”
The loan program received an additional $15 million over the years, but was not extended. Some of the provisions evolved over time, as well: The reduced interest rates were eliminated, and the principal payoff is now only available to the lowest income borrowers.
The clean energy center plans to sunset the program on Dec. 31, as originally authorized.
The program has succeeded, say lenders, in showing banks that solar loans can be a product worth offering. Default rates were generally very low on loans made through the program, lenders said. At Coastal Heritage Bank, fewer than 1% of loans went bad, Terravecchia said.
UMassFive, a credit union that has been the state program’s leading lender, has created its own solar loan program offering similar terms to the Mass Solar Loan. This new program loaned $6.5 million in 2020.
“There’s still tremendous demand,” said Richard Kump, president of UMassFive. “We have to provide that financing.”
Cape Cod Five did not participate in the state program, but, seeing the success of other banks’ solar lending, developed a modified version of its home equity loan aimed at solar borrowers.
“We stretched underwriting guidelines to take into account that the solar adds value and makes the property more affordable for the owner,” said Robert Talerman, co-president of the bank. “We will probably expand that to reflect that it is becoming even more common and maybe make it even a little easier for the customer.”
Without the income-based support of the state program, however, market-based lending programs are unlikely to reach lower-income households on anything like the scale of the Mass Solar Loan. Of 5,700 loans made through the program, 3,000 of them were to borrowers taking advantage of provisions for low-income customers.
Even as banks and credit unions seem to be stepping up their solar lending, they will not be able to fill all the gaps left by the state program. Nearly 30% of the program’s loans went to applicants with credit scores lower than 720, a level lenders generally consider quite risky.
And while many homeowners are expected to use home equity loans to finance a solar installation, borrowers who put down smaller down payments or haven’t owned their homes for long might not have enough equity to support a loan.
Massachusetts’ solar incentive program has provisions targeting low-income households, but does have any tools for helping homeowners get over the initial hurdle of the upfront cost to install a system.
There is nothing on the horizon to fill that gap, and the administration of Gov. Charlie Baker does not seem to see the value in funding more solar incentives for low-income residents, Mayer said.
“It would be funny if it weren’t so aggravating,” he said. “If anything, you should be figuring out how to increase the investment.”