Secrets of Residential Solar Lease – Sweet Deal or Disastrous Rip-off?
A scam? A rip-off? A deal of the century? Ready or not folks, it’s here! A solution that gives access to solar power even to the most cash strapped green minded suburbanites and….… it’s brought to you by the very people who delivered to us the sub-rime mortgage debacle. It’s called a “residential solar lease” which is a “no money down” program that can get you electricity cheaper than what you cash out to PG&E on monthly basis. Sounds familiar?
The idea is simple; instead of buying your panels by dishing out thousands of dollars upfront you lease them for “one low monthly fee.” You win, the solar company wins, environment is happy. So what’s not to love? How about a 15 year contract, a 3.9% increased payment every year and our Wall Street friends who have their fingers all over this sweet deal?
On the surface, this sounds like a viable option for many home owners. It solves an expensive problem of purchasing the panels outright for around 27,000 dollars (average 1,700 sq. foot home). It works a bit like a car lease where home owners sign a deal that locks them in for 15 years with the option of extending their lease or buying the panels at the end of the contract. With a solar lease, your monthly payments can be around $110 which, according to the service providers, will normally be around 15% less than your PG&E bill. Are you sold yet?
After all, the way these companies and even our media like to paint it – it’s a no brainer deal. SolarCity, which is based right here in our backyard of Silicon Valley, is one of the very well financed operations that is the first to start aggressively market this contract for home owners all over Bay Area and western states. SunRun is another similar co. based in San Francisco.
Who really finances these deals? Banks on Wallstreet of course. And there’s serious money to be made… “Investors historically expect seven percent to eight percent, which includes the tax benefits and a slice of profit during the life of the fund,” wrote Green Tech Media about the amazing profits being squeezed out of the residential solar market. “Now they want ten percent or more.” 10 percent?! It sure reinforces how much some of these schmucks really care environment or our dirty energy crisis.
So before you jump on the band wagon, let’s look at a bigger picture and examine this “best new thing after sliced bread” from all angles:
Pros:
- Easy access to solar without high initial costs.
- With growing energy costs, this caps your electric bill for the next 15 years.
- Reduced monthly payment than what you would pay PG&E.
Cons:
- 15 year contract which is not easily transferrable if you decide to sell the house. (According to Solar City: “If you sell your home before the end of the lease, you can transfer the lease to the new owners if they qualify with excellent credit, or you can prepay the lease and add it to your home asking price.” That’s 700 and above FICO score.)
- Not for everyone. If your electric bill does not exceed $110 this program makes no sense financially.
- You never own the solar panels. In fact you will have to either return them after 15 years or purchase them from the solar company at the end of the lease.
- Your payments are actually going to go up 3.9% every year.
- You are not the one who gets the rebates for the purchase of solar panels.
- You maybe going off of the PG&E’s grid but you’re sure are tied into Wall Street’s grid.
- Many Home Owner’s Associations will not allow this.
Now at a first glance, this deal sounds very appealing but if you really look, this scheme makes no financial sense. Why? Because you are simply better off buying the panels by financing your payment. You save big time this way!
Perhaps, your biggest conniption should be with the fact that it’s not you who gets the subsidies and rebates, it’s the solar company! By paying lease payments throughout the life of the contract you become a cash cow owned by the solar company. While they get the panels for the fraction of the cost you end up paying a full price and then some. Doesn’t this just kill your mojo?
Here’re some numbers to demonstrate this. This scenario considers a 3.9% increase in your yearly payment throughout the 15 year tem lease:
1st Year Monthly Payment: $110.00 Total per Year: $1,320.00
5th Year Monthly Payment: $128.18 Total per Year: $1,538.16
10th Year Monthly Payment: $155.08 Total per Year: $1,860.96
15th Year Monthly Payment: $187.74 Total per Year: $2,252.88
Total Investment for the life of lease: $26,217!
Ladies and gentlemen, $26,000 is what an average 4KW solar system would cost you today without the 40% rebates that are currently generously offered to you by the state and federal government.
Why lease when you can buy them?
It’s obvious; your best bet is to find a solar company that will give you a good price and a good payment plan. Put a couple grand down and buy the panels yourself. Your monthly payments would still be lower than PG&E’s bill and they would stay the same till the loan is paid off. Once you’re done with your payment plan, you OWN that panels. When all will be said and done, your total investment will be closer to $17,000.
Here's how to build a solar panel for under $200!
And if you’re strapped on cash, can not afford a down payment and that “0% down” sounds so appealing then it may be a good idea to avoid this dismal deal altogether. We’ve seen this bank trap before, haven’t we?
I’m not against Wallstreet. Being a Realtor, it is very clear to me that we need the banks to extend credit to qualified home buyers and keep small businesses going. Wallstreet is an intrinsic part of this economy. It’s just some of the financing deals that they cook up are so dangerous. This whole solar lease hype is starting to smell like another credit bubble that’s going to enrich the banks and eventually blow up on the rest of us anyway.
I know you want to save the planet. Me too. But let’s not let the big boys take advantage of our sentiment.
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[...] Maple Flats…. you are not reading the information. NO ONE ELSE CAN SELL THE PRODUCT. That is the problem. First Solar is only allowing SolarCity to sell their new under $1 per watt to produce technology. It would not matter if I opened a retail solar business or not. I can't obtain the product, nor can anyone else. So I could not compete. The Solar manufacturer IS selling their product at a price I want them to sell at. The problem is the ONE retailer allowed to sell the product is marking the product far above what they should. They are using a ZERO down, no money out of pocket – still pay less than your electric bill" sales pitch to hide the actual cost. The end user should be able to take advantage of the new lower cost to produce solar…. and they are not being allowed to. Please read the information/links provided, and also do some research on what I am referring to. I am sure you will come to the same conclusion. See this article as well. the gentleman is spot on: Secrets of Residential Solar Lease – Sweet Deal or Disastrous Rip-off? | SanJoseGreenHome.com [...]
Great dissection of the program and problem! Thanks!
I have heard of these programs under various names. One thing I heard is that they will upgrade and replace the panels during those 15 years, if they break or if new technology invented. So they say. I imagine if you buy them, they are obsolete within a few years. New technology being developed every day. Would like to know the pros and cons of that as well.
Great article! I often hear people comment about “emerging technologies” that are going to make today’s solar panels obsolete. What many people don’t realize is that there is a theoretical limit to the amount of energy that can be produced from sunlight. Rigid silicon absorbs about 30% of the bandwidth of light rays emitted by the sun. Today’s highest performance panels are converting close to 20% of the sun’s rays into clean electricity. Thus, theoretically, rigid silicone panels could become up 50% more efficient. A lot of experimentation is going on with materials other than silicone. However, silicone is still the top performer.
Anyway, you don’t need a company like Solar City to guarantee your solar panels for 15 years. In fact, all panel manufacturers are required to guarantee their modules for at least 25 years to qualify for utility rebates and tax credits.
Ah… good insights guys and god questions too. Yesterday I also heard from a fellow USGBC member that when PG&E starts actually paying home owners for the excess power fed back into the grid that it is the solar leasing company that will get the benefit and not the home owner. Seems wrong, because technically it’s the home owner that is feeding the power back, so why should it matter whether the panels are leased or owned? It’d be interesting to find out what’s the real deal with this. Anyone knows?
Actually there is a rental power company that does not take any “excess credits” and guarantees that the production will not be below what is contracted for.
Also no deposits etc up front so it is a win-win-win. Rental is nothing up front, no rate increases, and no surprises. As the field widens there are better solutions out there.
Best wishes
Paul
All,
I’m a solar designer and work with the Sunrun PPA every day. I work for one of the leading installers in San Jose and have many very happy solar customers. I feel it’s necessary to set the record straight and get the right information to readers of sanjosegreenhome.com. Unfortunately, this article leaves out a lot of important details about the benefits of a PPA vs. a Solar Lease and lumps Sunrun in with Solar City. These two products are not the same.
Sunrun’s PPA is a fantastic product that leverages additional incentives for solar when owned by a business, primarily accelerated depreciation on their investment in the panels. Yes, they keep the CSI rebate and the 30% tax credit, but they charge you less than if you purchased cash and kept the rebates. The PPA also provides proactive monitoring, maintenance, insurance and an extended warranty on the solar installation.
80% of my solar customers choose this option vs. a cash purchase. That includes Engineers, CEO’s, CFO’s, VC’s, Bank Managers and everyday hardworking homeowners. Some, who have the ability to pay cash for solar, prepay the agreement and do not experience any financing charges. For those that can’t prepay, the PPA is the only reason they can afford to go solar. I’ve designed systems for low income homeowners in San Francisco that, after rebates, incentives and a PPA, were essentially free to the homeowner.
A couple of comments to address the above:
1 – There is no need to upgrade and / or replace solar panels until they have lived a long, productive life (usually 25-30 years). Photovoltaics degrade about .5% per year. Replacing panels while they are still working would be contrary to sustainable business practices and would ruin the financials of any solar installation. These systems should be built to last.
2 – Usable new solar technology is unfortunately not being developed every day. We hear a lot on the news about interesting lab experiments, but the residential solar marketplace has been and is still best served by a mono-crystalline silicon based photovoltaic. This is the most efficient and cost effective way to harness the photovoltaic effect. If we are always waiting for the next greatest thing, we’ll never make forward progress!
3 – The PPA warranty covers much more than the 25 year limited warranty provided by a solar panel manufacturer. The manufacturer is only providing a warranty for output degradation over time. The manufacturer’s warranty does not include installation, balance of system components (nuts, bolts, wires etc.) or roof damage. The PPA’s does.
4 – The PPA company has no relationship with PG&E. The homeowner pays the PPA separately and the keeps their account with PG&E. After AB 920 goes into effect, any excess power generated by the solar installation will be sold back to PG&E by the homeowner and the homeowner will profit from that.
Please do not view Power Purchase Agreements as a “problem”. To the contrary, they are very much part of the solution. I will not comment on the solar lease …
Hope this helps,
Jamie
Jamie, actually this does help a lot. Thank you so much for a valuable and insightful comment. It nicely clarifies the difference between Power Purchase Agreement (PPA) and solar lease. This is what it’s all about, digging through the facts together.
It will be interesting to see what becomes of the financial part of these products. Case in point Solar City is offering a 15 Year Pre- Paid program on an installed 4.028KW System – Ok Rough Numbers – about 110,000KWH produced in a 15 year lease period – You pay the $8100 upfront and this covers materials, labor soup to nuts – This works out to about 7.5 cents/KWH making a number of rough assumptions (Average 5 Hours of full production – 365 days of the year) you get the picture – Now ..7.5cents/kwh is about 2.5 cents cheaper than PG&E on their baseline cost per KWH – This is GREAT! – So having paid the lease upfront – you nullify any breaking the lease agreement – you are getting the same energy for less – All you have to do is stay in the same house for long enough to recover the $8100 – For someone trading 300% over baseline kwh at 35 cents/kwh for 7.5 cents – it won’t take long – but – I’m a skeptic because salesman will tell you just about anything just to get you to sit down and invest time in something…
This is a fantastic article and I urge everyone that reads this to forward it to their friends or share on facebook.
I own a solar company in The greater Sacramento area and we considered offering solar lease. After all we are competing with Solar City and on the surface the solar lease is a pretty sweet pitch. We knew that we could be competing with them frequently considering that have just secured 120 million in financing which explains the fact that I hear their radio ads dozens of times a day while driving.
Recently we were able to get our hands on a Solar City lease proposal for a customer that we did an install for. When we sat down and did the math….well you read the article above. This program is definitely not the best value for the customer. Needless to say, we decided not to offer a lease program although the option was readily available.
Another thing that’s forgotten here is that the leasing company keeps the “green tags” or “SRECs” or “TRECs” or “RECs.” There are many names for these but they’re the same.
Essentially, the utility is required to produce so much green energy. If they can’t produce it themselves, they’re allowed to buy a “Renewable Energy Credit” (REC) from the solar owner who is producing it. In California, that’s not a lot of money right now. For the next two years, it’s only going to be $50 per 1000 kilowatt hours (kWhs) produced. That might be 50 bucks a quarter for an average home in California. In New Jersey, it’s around %650 a year right now.
RECs are tradeable in in NJ and many other places, so the price will vary.
And yes, if you lease or have a PPA, the owner gets the REC cash, and the home owner is NOT the owner in a lease or a PPA.
Bottom line, as noted above, it is always more cost effective to buy. With the new Property Accessed Clean Energy (PACE) programs coming to states, this will be better than a lease or a PPA, and you will get to own your system, get all of the above benefits of Federal tax credit, RECs, and rebate.
For more info about PACE programs, check out the San Francisco example here.
http://solarpowerrocks.com/san-francisco/san-francisco-picks-up-the-solar-pace/
I actually don’t want to knock SunRun, Solar City, Sungevity, Infinergy, CT Solar Leas. (These are the lease leaders.) If you don’t want to think about solar, these guys are great. However, for that “let’s not think about it and just get it” service, you will not save (or earn over time) as much as money. The most money always goes to the person or company that takes the financial risk, and if you solar lease or solar PPA, these companies are the people fronting the cash. Again, PACE will change that dynamic, because essentially, a private bond issued through your local government will be fronting the cash, and you pay it back through a special property tax assessment on your very own property for the next 20 years at around 8% interest. If you sell your property before then, the new home owners take over the extra payments. And again, you benefit from the rebates, etc.
One last thing. In terms of maintenance, solar has very little. Just wipe the panels down and clear off any snow or bird poop every once in a while. The inverter does typically conk out in 12 to 15 years. At today’s prices, that might cost you 1500 to replace. But in 15 years, that price might cost…. %500? Or the same. So, a solar leasing company taking care of maintenance is not a huge deal compared to your overall savings.
At solarpowerrocks.com, we believe in transparency. Obviously. Solar is good, no matter how you slice it. If you’re lazy and don’t care about every dollar, go with the lease. If you can swing a home equity loan or PACE loan, go with that.
8% x 20 years – why?
Because unlike a bank loan, you only have to pay 8% (or whatever the prevailing rate is right now) for however many years you own the property. Again, unlike a bank loan, you sell your property, and the new owner takes over the remaining solar payment. With a bank loan, you have to pay it off. With a lease, you have to get the contract transferred to the new owner. That may or may not be easy. Also, you don’t get all of the benefits that I mentioned above: RECs, rebate, tax credit.
Solar Fred
With a PPA you get:
Rebate – taken off price
Tax Credit – taken off price up-front (I would only recommend paying cash for a system if one’s income is in a high tax bracket).
Transfer or Buy/Sell any time – no pre payment penalties and you get to buy the system at Fair Market Value.
REC’s – are any residential customers getting paid REC’s in Cal?
Oh, and with a PPA, you get a new inverter when it crashes after 10 years.
Alas, going solar is almost always a better deal than not. Personally, I see no value in owning the panels myself (although that is my case), it’s not like I get to
sell them later.
Paul, the inverter is warrantied for 10 years, but typically lasts 12 to 15 years. Who knows how much the replacement cost will be in 10 years, but even it’s the same as today (I’m expecting prices to be lower) you’ll still come out ahead buying, even with the replacement cost.
TRECs/SRECs in California aren’t worth that much for the next two years, but the open market for them starts in 2013, and then look out. Remember that solar systems last 20 to 25 years, so when the market gets past its pilot phase, this is cash in the bank. Right now it’s only 50 bucks/SREC. However, look at New Jersey, where they’re currently worth around $700 per SREC. That’s a nice benefit.
The Fair Market Value of used solar panels should be 0. Think about it. Who’s going to buy used solar panels when new ones are getting cheaper every day. There is no market for used. However, I doubt the lease contract will let you get away with paying 0. Like a car lease they set up a residual value, which you have no way to negotiate. Also, and this may have changed, but last year the contracts from SunRun and Solar City had an end of term buy out price of $1/watt at the END of the term (15 to 18 years!). That means after all of your payments, plus the 1000 to 3000 up front payment, you’ve got to buy the system at another $5,000 for a 5kW system. Not inexpensive. You could of course let them go, but if you bought, you could still be benefiting from the solar savings.
I could go on. But let’s stop this back and fourth. Solar is good, anyway you finance it. To see if leasing, PPA’s, buying, or PACE is right for you, just get quotes for each and compare! I’ve analyzed them all, and if you can swing buying with home equity or PACE, that has the best long term return on investment. If you’re thinking short term, then yes, a lease or a PPA will save you money from day one (assuming your electric rates rise faster than 2.9% to 3.9% a year). But the savings will be much more if you buy in the long run. But like I said, don’t take my word for it. Compare them all and see for yourself.
This information has been so helpful to me. Thanks to everyone for all of the insight. I am sitting here with the CT Solar Lease lease documents in my hand waiting to hear if we’ve been approved for the state incentives and am debating the details of the contract/lease. Our estimated project cost is $55860 and our only costs will be the monthly fee of $131 which remains the same for 15 years. (In reviewing our monthly electric bills of the past year, this is considerably lower than what we pay monthly.) We will also be participating in the Renewable Energy Credits program. Since we could not afford the cost of buying the equipment outright, and really wanted to go solar, I think this is our best bet in CT at the moment.
GreenCT, you know something…. I should have made the CT solar lease as an exception to the above general leasing deals. CT Solar is actually a state sponsored program. There are income limits, depending on the area where you live for you to qualify.
Unlike most leasing programs, YOU take care of the maintenance, which isn’t a bad thing. You also get to split the SREC income. That’s unusual, in that most leasing and PPA programs capture the entire SCREC program. There was an NREL analysis done in 2008 that showed the CT solar lease program as being as cost effective as buying.
Once again, I’m sorry for not mentioning this program above, but it is indeed an exceptional program. Sadly, this program is no longer available, as of February 2010 because they ran out of funding. But it may come back. Check with this site for more information about the CT solar leasing program:
http://ctsolarlease.com/
Interesting points all around. I’ve looked at SolarCity’s lease product very closely, and it seems there are some misunderstandings in the article & comments. Take a look under the hood of their SolarLease, and you’ll see that it has as many benefits if not more to purchasing outright, PACE programs, SunRun, etc.
15 years of monitoring and services (including Performance Guarantee of system, full-coverage insurance, repairs, inverter replacement if necessary).
Gives people with little available cash to lock in low cost of electricity.
Work with one of the top (if not the top) solar integrator in the industry – adds peace of mind that it will be installed right.
Transfer (if necessary) should be easy – who is buying a house that doesn’t have a 700 FICO? Even if credit is an issue for the incoming buyer, pre-paying the remainder of the lease, and putting that amount into the sale of the house is a no brainer.
SolarCity’s lease does give homeowner the rebates and tax incentives, only it’s not a direct payment; instead those rebates are buying down the investment amount, making the overall savings fantastic with minimal up front investment.
Their pre-pay lease option let’s customer afford electricity around $.12-15/kwh for 15 years, which is where baseline is today.
If you can’t afford to buy a system in today’s economy, I suggest taking a closer look at SolarCity’s product. There is probably a reason that they have more solar customers than any other solar company in California.
Jeremy, that sounds like an advertisement for solar city, not genuine and transparent information for consumers.
I love solar and as I said, I don’t knock Solar City for charging more for a “let’s not think about it” product. They (you?) are taking the risk and capital investment, and deserve to profit more. But I think it’s an exaggeration to say that the rebates and all of the other tax incentives and RECs and everything else is fully “buying down the investment” whatever that means. It’s buying down Solar City’s investment, not the consumer’s
Honestly, I just think it’s best to be transparent. Customers will appreciate that so much more, and I urge all solar leasing companies and PPAs to change their communications strategy, not so much their product. As with this website, the information is out there and with a little bit of research, customers will discover the half truths and be upset. You want referrals, not angry customers feeling they’ve been taken advantage of by marketing.
Honestly wishing Solar City success,
Solar Fred.
Jeremy,
Solar Fred is right on, that sure did sound a like big advertisement, not subtle at all
Solar City sure brags about all these customers and even if it’s true that they sell a large amount of these leased systems, that still does not make it a a great service.
I will echo a quote used by Rob Moody in the previous post (about energy efficiency efforts that don’t work) – “Empirical evidence is absolutely necessary to support universal truths. Without the knowledge of that evidence, untruths can be repeated so much by so many people that they become “fact.”
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This article contains COMICALLY bad information. Tadas, you sure are a lout. Where to begin?
You seem to object to the fact that “Wall Street” stands to gain from these solar financing deals. Ignorant populist. You are right that firms like US Bancorp are heavily leveraged in companies like SunRun and SolarCity. Would you rather have “Wall Street” make a profit off of solar electricity or PG&E make a profit selling electricity from a coal-burning plant (not to mention the coal mining profit as well as the freight profit)? Your low-brow critique of this very rudimentary and sound solar financing arrangement really demonstrates your lack of knowledge for the market society we all live in.
Think of a solar lease as a house mortgage. Before mortgages (another basic financing arrangement intended to HELP people even though “Wall Street” stands to profit), you could either rent or pay cash for a place to live. Right now, most people “rent” their electricity. If you think it is a sound idea to rent electricity then look up the history of PG&E’s rates. As for paying cash, most people just can’t come up with that kind of dough.
It also seems like you have some sort of visceral objection to not “owning” the system. The advantage to this is the homeowner doesn’t have liability if the system breaks. Not a bad idea considering that these panels sit on one’s rooftop.
Here’s the bottom line: Anyone with a high enough electric bill (roughly $110 to $150 per month) will have saved considerably over the term doing a solar lease or a PPA than if they continued to buy electricity from their local utility.