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PenFed deal could heat up solar energy lending in 2020

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An expanding solar energy market could signal a bright opportunity for credit unions in the year ahead.

Earlier this month, Pentagon Federal Credit Union announced a partnership with Loanpal, a residential and commercial solar energy lender. Through the partnership, the $24.8 billion-asset credit union will purchase solar loans from LoanPal with exact amounts to be determined on a monthly basis. Loanpal, which has helped originate $2 billion in residential solar loans in the last two years, will oversee loan originations, manage installment of the individual solar units on borrowers’ homes and businesses and service the loans.

The move comes as credit union lending continues to slow, and while a limited number of CUs have entered the green loan market, PenFed’s entrance as one of the nation’s largest credit unions could spur more institutions to follow suit.

“Now that there’s a bit more of awareness, people are actually shopping for solar loans which was unheard of one or two years ago,” said Jay Fee, PenFed’s vice president of lending.

Fee explained that the partnership is an opportunity for PenFed to broaden its suite of loan products and gain experience with solar lending with an eye toward purchasing additional loans.

Renewable energy continues to be a growth sector. The 2020 Renewable Energy Industry Outlook from Deloitte projects that solar energy is likely to compete strongly in the year ahead with not only traditional energy sources but also competing renewables such as wind power. Deloitte reported that 2019 marked the first time renewable energy outpaced coal in terms of U.S. power generation, at 23% and 20%, respectively.

As solar energy usage has become more mainstream in recent years, costs have come down and reliance has increased, boosting the business case. Tax incentives for businesses and homeowners have also boosted the transition toward renewables. The solar tax credit, available to business owners and individual consumers, allows users to claim up to 30% of all installation costs with no cap.

Peter Duffy, managing director for Sandler O’Neill in New York, suggested there may be a larger reason for CUs to get into the solar space. Financial institutions of all stripes have “begun to recognize the margin erosion that’s occurring from so much competition on auto loans and mortgage loans that [they] have started looking at other ways to interact with consumers and what loan products they can interact with them on,” he said. That’s pushing lenders toward solar products, fintech platforms and other strategies to boost revenue.

“It’s happening one institution at a time, but it’s really taking off,” Duffy added.

Differentiating a loan product offering is a key strategy as the foundation of banking continues to evolve, Fee noted. It’s another way for PenFed – which has an open charter giving it a nationwide reach – to expand its field of membership to those familiar with solar energy, but not credit unions.

But even if startup costs have come down, solar energy still faces significant hurdles, including transmission infrastructure. Unlike a traditional power plant which can be turned on and off, the same autonomy can’t be exercised for natural resources. Intermittent sources require means of generation when the demand is high and supply is low, noted Jim Spano, co-founder and head of originations at the first solar mortgage real estate investment trust RadiantREIT.

“You can’t increase the sun, you can’t increase the water flow, and you can’t increase the wind,” Spano said. “As we go to a renewable grid, it’s going to require a different infrastructure.”

Right now, PenFed and LoanPal are focused on the solar panels and batteries, but the credit union isn’t stopping there. According to Fee, PenFed is looking to expand into additional solar lending products such as electrical charger units in homes and electrical car batteries. Though the wind and other clean energy alternatives aren’t currently on the table, they’re not being ruled out as options for the future.

Loanpal CEO Hayes Barnard suggested renewable energy lending is likely to expand to other products and solutions to help homeowners live a more sustainable life. He nodded toward a new mandate in California beginning next year which will require all new homes to have solar paneling built into the roof.

Barnard suggested converting consumers to solar energy won’t be a one-and-done process. As more people adopt solar and renewables as an energy strategy, he said, “You’re going to see homeowners consciously say, ‘What are all the things that I can do inside my home that save me money from the very first month with zero-down financing and allow me to help me lower my carbon footprint in a more sustainable way?”

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