What's driving the US solar power boom? A bit of creative financing.

The fast recent growth of rooftop solar power in the United States has been absolutely stunning. The number of homes with rooftop panels has roughly tripled since 2010. By one count, a new solar system is now installed every four minutes.

innovations in lending and leasing are a big reason for the fast growth of rooftop solar

So what's driving this? It helps that photovoltaic panels keep getting cheaper, thanks to a surge in Chinese manufacturing and various efficiency improvements. It also helps that the federal government offers a 30 percent tax credit for rooftop systems (at least until the end of the 2016).

But one of the biggest factors rarely gets as much attention — major innovations in solar financing. Case in point: This week, Solar City, America's largest solar provider, unveiled a new loan program to make it even cheaper and easier for people to buy their own panels without paying a lot upfront. This is only the latest of several creative financing schemes that have bolstered the US solar boom.

Leasing programs have been a huge part of solar's growth

SolarCity is currently the largest installer of rooftop solar systems in America, with more than 100,000 customers and one-quarter of the market. And one of the company's big innovations was a solar leasing program known as a "power purchase agreement."

SolarCity installs panels for no upfront cost — in exchange for monthly payments

Here's how this works: SolarCity comes and installs solar panels on a customer's roof, usually for little or no upfront cost. The customer then agrees to buy the electricity generated by those panels from SolarCity for a set number of years. In certain regions, this is actually cheaper than buying that electricity from the local utility. Both sides benefit. (Although the local utility ends up losing out — see here for more on that.)

This sort of leasing is easier for many people than buying solar panels outright. After all, solar panels have a huge upfront cost — say, around $30,000. Many people don't want to plunk down all that cash and only make it back slowly over time via electricity savings. What's more, many households can't take full advantage of the 30 percent federal tax credit for solar. But SolarCity can.

This sort of financing has proven very popular — and many solar companies offer similar programs. In 2013, roughly two-thirds of all solar installations were done through leasing (and the number is expected to increase in 2014).

SolarCity is now offering a new "loan" program for panels

SolarCity installers arrive at a home in Quartz Hill, California. (Thomas Hart/Flickr)

But there was always a catch with leasing. Many people actually prefer to own their solar panels. So, this week, SolarCity unveiled a new innovation that would merge the two. The company will now start offering loans for homeowners to buy a solar panel. The homeowner then pays SolarCity back over an extended period by, again, "buying" electricity.

'We found that a lot of our customers wanted to own panels instead of just leasing'

In an interview, SolarCity CEO Lyndon Rive explained that this new loan option — dubbed "MyPower" — was best-suited for people with enough of a tax burden that they could take full advantage of the 30 percent federal tax credit (if you pay little or no federal taxes, then a $9,000 tax credit isn't very lucrative).

But the new program has a few other differences, too: "We found that a lot of our customers wanted to own panels instead of just leasing," Rive said. "There's an important emotional attachment to owning. And then the other benefit is that, when you sell your home, you can include the system into the price of your home, because it's your system."

There are other companies out there that offer similar loans — including Sungevity, Clean Power Finance, and Mosaic. The big difference is that SolarCity's loans allow you to repay based on how much power your rooftop system produces. (SolarCity's loan program will originally roll out in Arizona, California, Colorado, Connecticut, Hawaii, Massachusetts, New York, and New Jersey, but will gradually extend elsewhere.)

Rive said that the loan program would be a better value for customers so long as the 30 percent federal tax credit for solar installations was around. (It is currently set to expire at the end of 2016.) But even if the tax credit does expire, many customers would still pay less for solar electricity than they did for regular electricity — particularly at peak hours in sunny areas.

It's not clear whether SolarCity's new loan program will attract an additional set of customers, although Rive said he expects MyPower to make up half of the company's business by mid-to-late 2015. Some analysts think that this sort of loan program will mostly attract people who would have otherwise leased.

Even so, these financial innovations are a big reason why solar power is catching on so quickly in the United States — though solar still makes up 0.4 percent of the electricity generated in America. So they're very much worth keeping an eye on.

Further reading: Solar power is growing so fast that older energy companies are trying to stop it

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