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Today’s market conditions have created a landscape that is flourishing with energy efficiency opportunities, prompting a growing number of credit unions to give the green light to solar lending. Not only is solar predicted to enjoy sustained growth through 2030, as reported by pv magazine USA, but ever-increasing electricity rates, tax incentives and growing eco-awareness have boosted consumer demand for green energy solutions, increasing the need for more lending options.
At the same time, amid predictions that interest rates will remain high, Americans will likely continue to defer new-home purchases in favor of existing home renovations – with solar representing one of the most common additions.
Simultaneously, a series of adverse economic factors are heightening risk for credit unions; a recent NCUA Supervisory Priorities report revealed continued signs of financial strain on balance sheets, coupled with the overall loan delinquency rate having reached its highest point since year-end 2013 and the rolling 12-month net charge-off rate at its greatest since Q2 2012. As a result, many credit unions are exploring mitigation tactics, such as diversifying funding and managing liquidity risk, both of which can be addressed by solar lending.
There are numerous reasons why sustainable lending represents an ideal niche for credit unions, ranging from their close member relationships to their experience working with various asset classes. More importantly, green lending opportunities around the country are simply becoming too big for credit unions to ignore. Here’s why:
1. Solar lending provides a path to diversify. Amid current economic uncertainties, solar lending offers credit unions a way to augment their loan portfolios with the security of a grant funding guarantee. Even more, solar loans have proven to showcase strong performance and very low default rates, according to AVANA CUSO. Furthermore, adding solar loans to the portfolio composition, can help credit unions to diversify their liquidity sources and reduce their risk, especially amid decline in other asset quality.
2. Solar loans attract and retain members. Solar loans represent an opportunity for credit unions to increase and retain membership by diversifying their product offering ― with the potential to spark significant growth. As an example, the Massachusetts Clean Energy Center reports that 90% of solar loans under its program were obtained through new lender relationships.
3. Green lending supports your community. By offering loans that enable members to save money by reducing energy expenses, credit unions invest in the local economy. In addition, solar loans may be eligible for credits from the Community Reinvestment Act (CRA), which is designed to encourage institutions to help meet the credit needs of the communities in which they operate.
4. The green lending segment is growing. Based on data from the NCUA and Inclusiv, approximately 7% of U.S. credit unions have already incorporated green lending products, and tapping into this expanding market is proving prosperous. For instance, one Vermont credit union, Vermont State Employees Credit Union ($995 million, South Burlington) has cultivated its green lending portfolio from $2.5 million to $92 million in 15 years, representing a monumental 3,660% increase, according to AVANA CUSO.
While solar opportunities are clearly thriving, credit unions must be aware that it’s not easy being green. Sustainable lending is complex and requires subject matter expertise and streamlined processes, as lenders must juggle a variety of operational challenges including scaling operations to accommodate fluctuating transaction volumes, quick turnaround and managing the portfolio through the lending lifecycle – all while keeping operational costs down.
Credit unions can optimize their solar lending strategy by engaging with an experienced provider who can assist in establishing best practices, developing sound practices, and advising on the best tools and procedures to streamline operations.
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