This article was originally published by Energy News Network.
Smaller regional banks and credit unions are increasingly looking to help homeowners finance solar installations, a sign of growing recognition of clean energy financing opportunities.
In the Midwest, Iowa-based Decorah Bank & Trust is among the latest to begin marketing loans for solar and other clean energy projects. The community bank recently relaunched a digital subsidiary called Greenpenny to serve residential and business customers in Iowa, Illinois, Missouri, Minnesota and Wisconsin.
It joins the Twin Cities’ longtime clean energy lender, the Center for Energy and the Environment, and a handful of credit unions and other community banks offering products in a space traditionally dominated by more large national companies.
Clean energy advocates hope the availability of local lenders will increase options for borrowers and provide a greater level of comfort for those who might be less inclined to trust online lenders or large national banks.
Jeremy Kalin, an Avisen Legal partner who helped the Minnesota Credit Union Network create its CU Green solar loan program, said typical residential borrowers are sensitive to “long-term value and trust” when they are looking for lenders. A personal connection with a bank or credit “makes a difference”.
The process often starts with referrals from solar installers. St. Paul-based All Energy Solar offers Greenpenny and Center for Energy and Environment loans to customers, as well as domestic lenders.
“Historically, we see national players pushing the boundaries here very consistently with innovations and competing to provide a diverse range of financing options that will help each client get the most out of their project,” said Ryan Buege, All Vice President of Sales and Marketing of Energy Solar. Still, he said, if more banks developed clean energy loans, more consumers would likely become more comfortable installing systems.
Jessica Reis, vice president of communications and marketing for Greenpenny, said the bank creates a transparent lending process with no hidden fees or upfront fees, unlike some national lenders who use these fees to lower interest rates. The bank calls each client who requests it and the communication continues by telephone or e-mail.
Building on local knowledge
Greenpenny was revived last year after struggling with an earlier deployment during the pandemic. Now, the Iowa credit union has added staff to manage a growing portfolio. CEO and chairman of Decorah Bank & Trust, Ben Grimstad, said his father, Larry, started lending to organizations with renewable energy projects decades ago because of his concern for the environment.
Decorah, home to Luther College, has a strong green ethic that has seen the bank gain experience financing more than 100 local, mostly solar, projects. Grimstad wanted to expand the bank beyond Decorah and decided to create a digital offering to leverage the bank’s experience in clean energy.
“It’s been 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 carbon reduction projects. The digital bank serves residential customers as well as small and medium-sized commercial and industrial projects, but not large-scale wind or solar farms.
Loans are secured by the value of equipment, from panels to storage devices. Greenpenny chairman Jason MacDuff said the bank is trying to set up loans to match the amount customers save on their utility bills on a monthly basis from a new solar or HVAC system. The loans require no down payment.
“These borrowers, by definition, are all homeowners who tend to be quite sophisticated and because they’re making a pretty large investment in their home, they tend to have the means to be able to do that,” MacDuff said.
A single short-term solar loan offered by Greenpenny matches the tax credit a customer receives. The customer pays a small interest and then repays the loan when the federal government allocates the 26% tax credit. A second loan covers the remaining 74% of the project cost.
The average residential loan size 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 due to low energy reimbursements from utilities or other issues.
When he joined the company in 2021, he was surprised to find so few banks offering clean energy loans. “For us to accomplish the renewable energy transition that this country needs, we need more banks to help fund these projects,” MacDuff said.
Growing solar portfolios
In Minnesota, the biggest local option remains the Center for Energy and Environment, which has partnered with several cities and neighborhoods and funded $22.7 million worth of projects last year. Of these, 145 loans totaling $3.5 million were for residential solar power, up from 89 loans in 2019. Director of Loan Services Jim Hasnik said the organization had been lending for years for efficiency improvements before developing a solar loan in 2014.
Loans vary in term and loan-to-value ratio, with interest rates increasing as loan terms increase. Project sizes have increased and business has been brisk this year as the popularity of solar energy has increased. The center requires installers to hold a building contractor’s license following a recent series of solar company bankruptcies in the state.
Solar loans remain a niche product. The Minnesota Credit Union Network’s CU Green program launched with two credit unions — Affinity Plus Federal Credit Union and Hiway Credit Union — and saw no one else join the effort. Mara Humphrey, head of advocacy and engagement for the network, said some credit unions have started discussing whether to add solar loans to their portfolios, but she thinks many still lack understanding of the clean energy projects and will need to see demand increase before creating products for customers.
Affinity Plus had a rocky start before dropping the requirement that homeowners first hire someone to do a home appraisal. Members can now apply for loans digitally and receive the money the same day.
Retail manager Corey Rupp said the new solar loan program generated more volume in six months than the home equity-based one in four years.
“I think the owners are a little more comfortable with that,” Rupp said. The credit union is currently exploring loans for electric vehicles, business efficiency and solar projects.
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