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Little-Known Federal Agency Could Upend Financing for Residential Solar Market

Tuesday, Dec 20 2022

Sean Gallagher
residential solar installation

The expiration date for one of the most influential — albeit obscure — rules governing rooftop solar financing is fast approaching and will make it harder for Americans to switch to rooftop solar. Thousands of American families use solar loans to finance their rooftop solar systems every year, but if the National Credit Union Administration (NCUA) doesn’t extend a little-known COVID exemption, their inaction will ban Federally Insured Credit Unions (FICUs) from participating in 25-year solar loans on Dec. 31, 2022.

The NCUA has the power to extend the rule, or better yet, make it permanent. If they don’t, it would shrink the pool of financing available to homeowners that want to go solar at a time when the Biden administration is trying to tame runaway inflation and implement the most influential climate law in history.

This issue will only compound: According to Wood Mackenzie, the loan market in the U.S. solar industry increased by 37% from 2021 to 2022, and a record number of families went solar in Q3 2022. Homeowners see the greatest monthly savings on 25-year loans, which also match a residential solar installation's warranty period. Every month, more than 20,000 residential solar customers choose 25-year loans.

Interest in residential solar and financing for these systems will continue to grow now that the Inflation Reduction Act (IRA) has extended the solar Investment Tax Credit at 30% for another 10 years. This powerful incentive allows new rooftop solar system owners to deduct 30% of the value of the solar system from their federal taxes, making residential solar more accessible and affordable.

The impact of the IRA is nothing short of amazing, but the NCUA’s actions could cut off one of the most important financing mechanisms for rooftop solar systems, jeopardizing the many benefits of this law. According to the Solar Energy Industries Association (SEIA), over the next 10 years the IRA will drive an additional 222 gigawatts of solar capacity, create 200,000 American jobs and invest more than $600 billion in the U.S. economy. The IRA will also make a big dent in our carbon emissions. By 2031, U.S. solar installations could offset 492 million metric tons of carbon annually, which represents 32% of U.S. electricity sector emissions in 2021.

The NCUA’s inaction will hurt the financial health of FICUs, the same banks the NCUA was established to protect. It would also deny credit union members the financial opportunities they have come to expect and cut off an avenue for FICUs to reduce their climate-related financial risks. This is an important revenue stream that limits exposure to the fossil fuel sector, which carries the risk of stranded assets and is becoming less financially attractive amid technology, policy and economic shifts. At the same time, a growing number of financial institutions, including credit unions, are increasing investments in sustainability-based products and services to mitigate the financial and societal impacts of climate change.

The NCUA has the power to enable FICUs to fully participate in the solar and storage market. Ongoing access to 25-year solar loan products will help to ensure credit unions remain resilient while maximizing performance and creating new jobs and economic opportunities for credit unions and their members.

The NCUA already extended its temporary relief exemption twice, and it should do it again with a plan to make the rule permanent.

Inaction at this juncture would be antithetical and a grave mistake.

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