Solar panel financing company Mosaic has teamed up with Enphase Energy to offer a package of loans and system maintenance. The benefit is two-fold: homeowners no longer have to worry about upkeep and neither do potential investors in these loans.
Phil Narodick, Mosaic's senior manager of financial products, said that bringing in Enphase puts the lender “one step closer to securitization.” Narodick didn’t provide an estimate for when a first securitization of solar loans is expected to come to market however the lender expects to fulfill at least $100 million in loan volume with this new market initiative over the next 18 months.
Enphase provides microinverters, which convert the output from a single solar panel into electricity when sunlight hits a solar panel and it guarantees, through its remote diagnosis capabilities and proactive maintenance, that a properly installed system will be up and functioning 95% of the time or they “reimburse the customer for the difference.”
Solar contracts have characteristics suitable for securitization, namely long-term contractual cash flows from a potentially diverse and granular pool of obligors. However, lenders and investors have historically viewed solar loans as riskier than their lease counterparts because there is no assurance that the system will continue to produce energy after installation.
To date, issuers have tapped the securitization market with solar leases via two SolarCity deals and Property Assessed Clean Energy (PACE) bond assessments via Western Riverside Council of Governments (WROCG) $104 million securitization issued in March.
SolarCity completed the latest of its two securitizations of solar leases in April. Under the lease contract, SolarCity provides the administrative, operations, maintenance, collection, and management services.
According to a Moody’s Investors Service report published shortly after SolarCity’s first deal at the end of 2013, the longerterm nature (typically 20 years) of contracts accentuate a number of key risks that include the risk of obsolescence, owing to technological advances in the solar sector. Also at risk is the degradation of performance of solar panels, “supported by limited historical solar panel performance data, and, in cases of component failure, the limitations of manufacturers’ product warranties, especially in light of the intense competition among manufacturers, some of which have failed,” said Moody’s.
Nordick said there are similar challenges for solar loans. “In order for a portfolio of solar loans to be securitized, the industry must demonstrate that customers are very likely to repay,” he said.
Bringing in the O&M services of Enphase could go a long way to mitigate investor concerns regarding obsolescence and performance degradation risk of solar panels.
Currently, Enphase monitors 160,000+ systems globally and collects over 500 GB of performance data daily. “This service will increase investor comfort and aid the process in securitization because it greatly increases the probability that the customer will continue to benefit from the system and, thus, continue to make loan payments,” said Narodick.
The solar loans financed via the Mosaic platform have a term of up to 20-years and can be paid off at any time with no penalty or can be transferred to the new homeowner.
As solar modules and inverters get cheaper, a higher percentage of customers are able to go solar without putting any money down and save money from day one. This, said Narodick, “increases the probability they will continue to make their payments for the entire 20 years, because if they were to miss payments and default on the loan, it would actually be more expensive for them.”
That is because their system would be switched off and the money they save by not paying their solar bill would be more than offset by higher utility bills because they are no longer producing energy onsite.
However, the intense price pressure on panel manufacturers has caused worry that they aren’t made with the same quality as a few years ago. Opinions differ on how bad the situation might be, but there is worry that particularly Chinese-made panels may malfunction, and if the company has entered into bankruptcy (e.g. Suntech, which was the largest panel manufacturer in the world in 2011), they may not honor their warranties.
“If the systems stop working, there is obviously a much higher probability that the customer will stop paying their monthly payments because he or she is no longer receiving benefit from the system,” explained Narodick. “This evolution in the industry (if you can call it tech change) could make securitization harder.”