A decade ago, someone knocking on your door to sell you solar panels would have been selling you solar panels. Now, they are probably selling you a financial product—likely a lease or a loan.
Mary Ann Jones, 83, didn’t realize this had happened to her until she received a call last year from GoodLeap, a financial technology company, saying she owed $52,564.28 for a solar panel loan that expires when she’s 106, and costs more than she originally paid for her house.
In 2022, she says, a door-to-door salesman from the company Solgen Construction showed up at her house on the outskirts of Fresno, Calif., pushing what he claimed was a government program affiliated with her utility to get her free solar panels. At one point, he had her touch his tablet device, she says, but he never said she was signing a contract with Solgen or a loan document with GoodLeap. Unbeknownst to Jones, the salesman used “yoursolarguyujosh@gmail.com” as her purported email address—that of course, was not her email address. She’s on a fixed income of $960 a month, and cannot afford the loan she says she was tricked into signing up for; she’s now fighting both Solgen and Goodleap in court.
Her case is not uncommon. Solar customers across the country say that salespeople obscure the specific terms of the financial agreements and cloud the value of the products they peddle. Related court cases are starting to pile up. “I have been practicing consumer law for over a decade, and I’ve never seen anything like what we are seeing in the solar industry right now,” says Kristin Kemnitzer, who represents Jones and says her firm gets “multiple” calls every week from potential clients with similar stories.
Angry customers aren’t the only reason the solar industry is in trouble. Some of the nation’s biggest public solar companies are struggling to stay afloat as questions arise over the viability of the financial products they sold to both consumers and investors to fund their growing operations.
These looming financial problems could topple the residential solar industry at a time when solar is supposed to be saving the world. Though solar represented just 3.4% of the nation’s electricity generation in 2022, studies show that rooftop solar could eventually meet residential electricity demand in many states if deployed widely, freeing American homes from dependency on fossil fuels. To help speed adoption, the Inflation Reduction Act extended a 30% tax credit for residential solar and battery installations.
Still, the residential solar industry is floundering. In late 2023 alone, more than 100 residential solar dealers and installers in the U.S. declared bankruptcy, according to Roth Capital Partners—six times the number in the previous three years combined. Roth expects at least 100 more to fail. The two largest companies in the industry, SunRun and Sunnova, both posted big losses in their most recent quarterly reports, and their shares are down 86% and 81% respectively from their peaks in January 2021. (This isn’t because of an economy-wide trend; the S&P 500 has grown 26% over the same time period.) Sunnova is also under the microscope for having received a $3 billion loan guarantee from the Department of Energy while facing numerous complaints about troubling sales practices that targeted low-income and elderly homeowners. Another solar giant, SunPower, saw shares plunge 41% on Dec. 18 after it said that it may not be able to continue to operate because of debt issues. Sunlight Financial, a big player in the solar finance space, filed for Chapter 11 bankruptcy in October; it also faces a lawsuit alleging that the company made false and misleading statements about its financial well-being.
At the root of these struggles is the complicated financial engineering that helped companies raise money but that some investors and analysts say was built on a framework of lies—or at least exaggerations.
Since at least 2016, big solar companies have used Wall Street money to fund their growth. This financialization raised the consumer cost of the panels and led companies to aggressively pursue sales to make the cost of borrowing Wall Street money worth it. National solar companies essentially became finance companies that happened to sell solar, engaging in calculations that may have been overly optimistic about how much money the solar leases and loans actually bring in.
“I’ve often heard solar finance and sales compared to the Wild West due to the creativity involved,” says Jamie Johnson, the founder of Energy Sense Finance, who has been studying the residential solar industry for a decade. “It’s the Silicon Valley mantra of ‘break things and let the regulators figure it out.’”
How financialization raised the cost of rooftop solar
Residential solar has always faced a big impediment to growth: installing and maintaining solar panels is expensive, and few consumers wanted to spend tens of thousands of dollars in cash to pay upfront for what was a relatively untested product. To get around this problem, a company called SolarCity came up with a new model in the early 2010s—leasing solar panels to customers, allowing them to pay little to no upfront cost. Companies like SunRun quickly followed; by 2014, this “third-party owned” kind of leased solar accounted for around 70% of total residential installations.
Besides enabling sales, there were other, even bigger, financial benefits of this practice for SolarCity. Since the company, not the consumer, owned the solar panels, SolarCity could claim the hefty 30% tax credit for solar panels the government approved in 2005. It then took those tax credits and sold them to companies like Google or Goldman Sachs who, unlike SolarCity, were making a profit and so owed money on their taxes. Those sales helped fund SolarCity’s further growth.
A SolarCity installer on a Los Angeles rooftop.Los Angeles Times via Getty Images
SolarCity’s other innovation was to package together thousands of consumer leases and sell them to investors as asset-backed securities, which enabled the company (and others that followed suit) to move debt off their balance sheet. Investors liked buying these asset-backed securities because they had higher rates of return than government bonds, and were perceived as relatively low risk—the assumption was that homeowners would make the monthly solar-lease payments to keep their electricity on. It didn’t hurt that these securities made investor portfolios look more climate-friendly. By 2017, the sale of solar asset-backed securities (ABS) by companies including SolarCity and SunRun had reached $1 billion.
However, these financial innovations also increased the pressure on companies to grow quickly. Solar companies needed lots of new customers in order to package the loans into ABS and sell them to investors. Public companies especially faced intense scrutiny from investors who expected double-digit quarterly growth. And with upfront costs no longer a barrier for new customers, solar companies began to see almost every homeowner as a target, and they deployed expensive sales teams to go out and sell as aggressively as they could.
“It is genuinely hard for these national businesses to maintain profitability—if you want to grow, you have to spend a lot of money on customer acquisition,” says Michelle Davis, head of global solar at Wood Mackenzie.
SolarCity ran out of money in 2016 and was acquired by Tesla, but the problems created by its expensive model have persisted. (Tesla did not respond to a request for comment.) Even today, about one-third of the upfront cost of a residential solar system goes to intermediaries like sales and financing people, says Pol Lezcano, an analyst with BloombergNEF. In Germany, where installation is done locally and there are fewer intermediaries, the typical residential system costs about 50% less than it costs in the U.S. “The upfront cost of these systems is stupidly high,” says Lezcano, making residential solar not “scalable.”
Energy News Beat