This article was originally published by Energy News Network.
Smaller, regional banks and credit unions are increasingly trying to help homeowners finance solar systems, a sign of growing recognition of the opportunities for clean energy financing.
In the Midwest, Iowa-based Decorah Bank & Trust is among the latest companies to begin marketing loans for solar and other clean energy projects. Community Bank recently relaunched a digital subsidiary called Greenpenny to serve retail and business customers in Iowa, Illinois, Missouri, Minnesota and Wisconsin.
It joins longtime Twin Cities clean energy financier, the Center for Energy and Environment, and a handful of credit unions and other community banks offering products in an area traditionally dominated by larger, national companies.
Clean energy advocates hope that the availability of local lenders will broaden options for borrowers and provide more convenience for those who may be less inclined to trust online lenders or major national banks.
Jeremy Kalin, a partner at Avisen Legal who helped the Minnesota Credit Union Network create its CU Green solar loan program, said typical home borrowers look for “long-term value and trust” when looking for lenders. A personal connection to a bank or loan “makes a difference”.
The process often begins with recommendations from solar installers. All Energy Solar, based in St. Paul, offers Greenpenny and Center for Energy and Environment loans to customers and national lenders.
“In the past we have found that national players are very consistent in pushing the boundaries with innovation and competing with each other to offer a variety of financing options to help each client get the maximum benefit from their project,” said Ryan Buege , All Vice President of Sales and Marketing at Energy Solar. Still, he said, if more banks developed clean energy lending, more consumers would likely feel more comfortable installing systems.
Jessica Reis, Greenpenny’s vice president of communications and marketing, said the bank creates a transparent lending process with no hidden fees or upfront payments, unlike some national lenders who use such fees to lower interest rates. The bank calls each customer who makes an application and communication continues by phone or email.
Draw on local knowledge
Greenpenny relaunched last year after struggling with an earlier launch during the pandemic. Now the Iowa credit union has hired staff to manage a growing portfolio. Decorah Bank & Trust CEO and President Ben Grimstad said his father Larry started lending to organizations that run renewable energy projects decades ago because of his environmental concerns.
Decorah, home of Luther College, has a strong environmental ethos that has enabled the bank to gain experience financing more than 100 local projects, most of them solar projects. Grimstad wanted to expand the bank beyond Decorah and decided to create a digital offering to leverage the bank’s clean energy experience.
“We’ve been on it for about a year and a half and it’s been going pretty well,” he said.
Greenpenny offers solar loans and a green mortgage product for efficiency, geothermal, battery storage and other low-carbon projects. The digital bank serves residential customers and small to medium-sized commercial and industrial projects, but not utility-scale wind or solar farms.
The loans are collateralized by the value of the equipment, from switchboards to storage devices. Greenpenny President Jason MacDuff said the bank is trying to set up loans that match the amount customers save on their electricity bills each month by installing a new solar or HVAC system. The loans require no money down.
“By definition, these borrowers are all homeowners who tend to be quite demanding, and because they’re making a fairly large investment in their home, they usually have the means to do so,” MacDuff said.
A unique short-term solar loan that Greenpenny offers is equivalent to the tax credit a customer receives. The customer pays a small interest payment and then pays off the loan when the federal government distributes the 26% tax credit. A second loan covers the remaining 74% of the project costs.
The average loan size for residential real estate is $40,000, with commercial projects ranging from hundreds of thousands to millions of dollars. He noted that the bank could soon fund up to seven community solar projects in Minnesota. But many deals fail because of low utility bills or other problems.
When he joined the company in 2021, he was surprised to find so few banks offering clean energy loans. “In order for us to achieve the renewable energy transition this country needs, we need more banks to help fund these projects,” MacDuff said.
Growing solar portfolios
In Minnesota, the largest local option remains the Center for Energy and Environment, which has partnered with several cities and boroughs and has funded $22.7 million in projects over the past year. Of those, 145 loans, totaling $3.5 million, were for residential solar panels, up from 89 loans in 2019. Jim Hasnik, director of lending services, said the organization had issued efficiency-enhancement loans for years before issuing one in 2014 developed solar credit.
The loans vary in term and loan-to-value ratio, with interest rates increasing as the loan term increases. Project sizes have grown and business has been brisk this year as the popularity of solar systems has increased. The center requires installers to have a contractor’s license following a string of bankruptcies by solar companies in the state.
Solar loans remain a niche product. The Minnesota Credit Union Network’s CU Green program was created with two credit unions — Affinity Plus Federal Credit Union and Hiway Credit Union — and no one else has joined. Mara Humphrey, the network’s chief advocacy and engagement officer, said some credit unions have begun discussing whether to add solar loans to their portfolios, but she believes many still have no understanding of clean energy projects and need to grow demand before doing so they develop products for customers.
Affinity Plus got off to a rocky start before dropping the requirement for homeowners to first hire someone to do a home appraisal. Members can now apply for loans digitally and receive the money on the same day.
Chief Retail Officer Corey Rupp said the new solar loan program has generated more volume in six months than the home-equity-based program has in four years.
“I think homeowners are a little more comfortable with that,” Rupp said. The credit union is currently reviewing loans for electric vehicles, economic efficiency and solar projects.
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