Solar financing via Solar loan securitization or PACE bond securitization is the hot new consumer asset in asset-backed securities.
Mosaic just completed their initial securitization and SolarCity also just financed their fifth transaction.
As long as the solar loan providers are able to reduce the overall annual bills of the consumer, the consumer wins and will buy the loan product. The loan product interest rates may range from 3%-9% typically, but the actually installer who is selling the loan product isn’t getting 100 cents on the dollar when they sell the loan product, the originator is buying the contract between 85-95 cents which is required in order for the underlying equity investor to hit a 7-10% unlevered return depending on what coupon the installer is trying to sell to the consumer. The lower the interest rate, the lower the discount they will be able to achieve. Therefore wherever electricity is expensive, the loan products will continue to make sense and yes the installers will continue to make money, but they are not making 100% of the coin if it is financed through a loan product.
As more and more competition comes in, then ultimate winners will be the consumer as the sales and marketing companies and the installation companies will need to lower their margins in order to keep the business. As there is more and more competition in the ABS market, spreads will come in on the bonds that are being sold, allowing for either lower interest rates to the consumer or purchasing at a higher cost from the installers.
Just a few cents from the ABS market side of the house.
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