Solar Loan Support Program Overview
First established in 2014, the Massachusetts Solar Loan Program is overseen by the Massachusetts Department of Energy (DOER) and the Massachusetts Clean Energy Center (MassCEC). The purpose of the program is to help single family households finance the purchase of solar panels in order to avoid the need for third party ownership (TPO) or leasing agreements, thus allowing them to gain the full economic and financial benefits of solar installation.
Initially utilizing $30 million raised via the state’s Renewable Portfolio Standard (RPS) Alternative Compliance Payment funds, which consist of payments made by electric companies for failing to meet the state’s RPS, the program seeks to provide support to private lenders in order to encourage loans to a wider range of homeowners. An additional $10 million was invested in 2017. Loan support incentives include an interest rate buy down, a loan loss reserve, and an income-based loan support program.
In order to participate, qualified lenders are required to offer fixed rate, 10 year loans between $3,000 and $35,000, with an option to offer loans as high as $60,000. Interest rates are allowed to be set by the lender, but must not exceed the Wall Street Journal prime rate plus 2.75 percent. Solar installers must also meet certain consumer protection guidelines in order to participate in the program. The installers act as the main promoter of the program to consumers.
Though initially open to all Massachusetts residents, in 2017 the program was restricted to moderate income (maximum income 120% the state median) and low income (maximum income 80% the state median) households. Low income residents are eligible for a 1.5% interest rate buy down, a loan loss reserve incentive to encourage loans to households with lower credit, and a loan principal buy down of 30% up to $10,500. Moderate income residents are eligible for a loan loss reserve incentive to encourage loans to households with lower credit and a loan principal buy down of 10% up to $3,500. However, the moderate income category will no longer receive any incentives after September 13, 2019.
Solar Renewable Target Program (SMART) Overview
Established in 2016, Massachusetts’s Solar Renewable Target Program (SMART) incentivizes the installation of solar panels by paying owners an incentive rate for each kWh of electricity produced over a ten year period. The program is funded by the state’s three largest electrical providers; Eversource, National Grid, and Unitil; via a small increase in the distribution charge paid by ratepayers. Each utility is granted funding for a certain number of kWh produced, with the incentive rate declining as more solar power production is enrolled in the program. A certain portion is reserved for smaller household projects. The actual incentive is based upon a large number of factors, which makes calculating the incentive rate quite complicated. However, most single family households can expect incentives between 15 to 20 cents per kWh.
In addition to various factors that can add further to the incentive, low income households enrolled in the program can expect an incentive of between 3 to 5 cents per kWh. The definition of low income for the program is decided by each individual utility, but in general those with a maximum income 80% below the state’s median income will likely meet such requirements, though this is not guaranteed.
We think Massachusetts has been pretty successful, with a few caveats
Massachusetts’s Solar Loan Program has proven to be one of the more successful solar incentive programs in the country. According to program data, between December of 2015 and July of 2019, it has incentivized over $163 million in loans resulting in the completion of 5,097 projects totaling 51.2 MW of installed solar capacity. By incentivizing lenders rather than issuing grants, the program has managed to spur significant investment beyond the funding directly available. This structure also gives the program a considerable amount of flexibility. Rather than trying to direct every portion of the process, the program instead creates incentives for targeted households to be better served by the open market, while at the same time ensuring a certain degree of consumer protection.
Though overall the Solar Loan Program has been successful, it has undoubtedly had some issues with targeting those most in need, resulting in a tightening over time of household eligibility based on income. As a result, the number of applications for the program has dropped since the end of 2017, when the last tightening of eligibility took place. This suggests that the program may be having some difficulties attracting lower income households with the current incentive structure being offered. It is possible that the incentives are not enough to overcome the capital and credit barriers faced by many lower income households.
SMART also has some issues. Though the incentives paid by the program for solar power production are generous, even more so for low income households, the biggest factor limiting their usability by single family households is the complicated regulations and calculations surrounding signing up for the program and figuring out what the incentive actually will be. This effectively acts as a barrier for those who do not have the time or knowledge base to work their way through the complexity.
Last modified: August 9, 2019