SolarCity, the largest US residential solar installer, could generate 50% of its revenue from its new direct loan approach to residential PV installations, according to investment firm, ROTH Capital.
In a research note to investors, financial analyst Andy Shen said the solar loan approach by SolarCity, “could be a potential game changer”.
Shen noted that the loan mechanism could be bigger than its lease model, driving both increased sales and higher margins. Shen based his analysis on the assumption that SolarCity could base its loans on fair market value (FMV), which could range from US$4.0/W to more than US$5.0/W, dependent on the variability of electricity prices in the US.
According to Shen, the loan payments could be based on the energy production and likely subject to a 2.9% escalator, while the consumer receives the Investment Tax Credit (ITC) and uses it to pay down the loan, the PV electricity pricing would likely step down as much as 25%, from 16c to 12c/kWh.
In contrast, Shen noted that in the leasing model SolarCity currently uses, around 20% to 30% of cash flows generated in the first five years were normally used to pay tax equity investors. The loan system would mean SolarCity retains the cash flows, cutting out a layer of financial administration and cost.
Such is the benefit to both SolarCity and consumers, ROTH Capital believes the loan approach could be 50% of SolarCity’s revenue stream in 2015.