Why solar loans make the solar market even bigger

The incredible growth of U.S. Home solar in the past 10 years – from almost non-existent to an annual addition of over 2 GW – was not as area-wide as you might think. The growth is due to solar-friendly U.S. States like california, hawaii, new jersey and new york, while most of the U.S. Has been left out.

The fact that sunny southern states like florida and north carolina have been almost absent from the solar market is certainly not due to a lack of sunlight. Often, state laws that stand in the way of installing solar are the reason the industry hasn't really taken off yet. But new developments in the solar industry could soon get the market rolling.

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Why the solar market has been almost nonexistent in florida and north carolina until now

In recent years, solar leases and power purchase agreements have contributed significantly to the growth of the home solar industry in the U.S. The business practice of solarcity (WKN:A1J6UM), vivint solar (WKN:A12AWB) and sunrun (WKN:A14V1T) is to install solar systems they own on their customers' rooftops and then sell them power over a set contract term (usually 20 years). This is also called third party ownership of solar roof systems.

But states like florida and north caroline are currently blocking this approach, stalling the market. Duke energy (WKN:A1J0EV) and nextera energy (WKN:A1CZ4H) have also successfully discouraged companies from resorting to this method of financing; even though they are building quite a few solar systems themselves.

Today, solar companies are beginning to reduce their reliance on solar leases and power purchase agreements to access new markets to which access was previously closed.

Image source: SOLARCITY

Solar loans are becoming increasingly important

While third-party ownership of solar systems has seen strong growth, companies that enable private customers to own their own solar systems have fallen somewhat into the background. And there was a good reason for this. Solar companies have been able to access a complex construct of grants and financing options more effectively than homeowners, who are often left with hard-to-access loans.

Now credit is becoming more accessible and subsidies are waning – so it's becoming more attractive for homeowners to finance solar with cash or loans. Sunpower (WKN:A1JNM7) sells nearly 70% of its rooftop solar systems for cash or credit. Solarcity, vivint solar and sunrun are blazing the same trail with new loans and cash offers.

This is critical because private ownership of solar panels is completely permissible in most states as opposed to third party ownership. The rise of competitive solar loans could bring new states like florida and north carolina closer to the solar market – and that could have a massive impact.

According to GMT research, 2.1 GW of residential solar was installed in the U.S. In 2015, and nearly half of that was in the state of california. In north carolina, it was 1.1 GW – but the residential market accounted for virtually none of it. And florida's solar market, which ranks only 16th compared to other U.S. States, is almost nonexistent. In the process, both states could easily develop into markets of 200 GW or more and contribute significantly to the growth of the residential solar industry.

Flexibility helps the solar market

Legislation is critical to the rooftop solar industry, and more funding options would help the industry adapt to different guidelines in different states. Greater availability of credit will help open up markets like florida and north carolina and further advance and diversify the industry. In the long run, all players will benefit.

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The motley fool recommends and holds shares of solarcity.