When deciding to invest in a photovoltaic solar system one of the first questions everyone has is how to finance the cost. While solar continues to be a great long-term investment, with payback periods often in the 4-7 year range, the hefty outlay is more than many homeowners feel comfortable fronting. Hence, the concept of the zero-down solar lease financing model and third-party system ownership (TPO) was born. While SunRun invented the model in 2007, the three behemoth national solar companies - SolarCity, Vivint Solar, and SunRun - rose to the top over the last five years due to the popularity and ease of the model for customers. Until this year, nearly 100% of Vivint Solar’s business was with solar leases and power purchase agreements (PPA’s).
However, as we at Run on Sun point out to all of our potential clients and in various blog posts, solar leases are simply a bad deal. And, what do you know, finally the wider public seems to be coming around to this fact! GTM’s recent report, “US Residential Solar Financing 2016-2021“, showed that for the first time since 2011, direct ownership of residential solar systems will surpass third-party ownership in 2017. The solar lease has been rapidly decreasing in popularity since it peaked in 2014 with 72% of the market. GTM predicts that in 2017 55% of residential solar systems will be bought outright through cash or loans, and the trend will continue with 72% of all systems sold owned directly by 2021.
GTM Research: Residential TPO Penetration and Installations by Ownership Type, 2011-2021
There are several factors at play in this shift. The total cost to go solar has declined rapidly in recent years meaning the upfront cost continues to be less frightening. Today there are more attractive solar loan options available to homeowners as well. One popular option in California is the PACE (Property Assessed Clean Energy) government loan program which is repaid as an assessment on the homeowners property tax bill. Mosaic is another solar loan program available nationally. While loans do have interest rates and dealer fees to be aware of, the benefits of owning a system outright far outweigh the costs of third party ownership - such as financially damning escalator clauses, the inability to take the tax credit or local rebates, and the risk of selling your home to buyers who don’t qualify for (or want) the solar lease.
Overall growth of the solar industry is also beginning to slow this year. After growing at more than 50% annually for the last four years, the residential market is expected to see a slower growth rate of 16% this year. The report shows that growth has slowed among all solar installation companies, but much more so for the top three national companies who previously relied upon the popularity of the solar lease. For the first time since 2013, these three will together install less than half the market’s solar systems as their growth slows to just 12%. By contrast, growth among the remaining solar power installation market will slow to 36% according to GTM. It will be interesting to see how the “big three” handle this shift in the coming years.
One thing to note is that while growth is slowing among the largest companies, solar continues to grow overall. Smaller local companies have always offered, and preferred, to sell systems outright rather than through leases and these companies are becoming more popular as more research shows the true value of ownership vs leasing. As one of those companies, we have always stood by the data and educate all our clients on the realities of financing options as the last thing we want is to be in the business of locking people into a twenty-year-long bad deal! Curious as to the specifics of leasing vs owning? Check out our blog from almost two years ago: Top Five Reasons to Stay Away from that Solar Lease!
At Run on Sun we don’t take partisan stances on politics. We believe everyone, regardless of politics, benefits from harnessing the unlimited resource of sun-powered PV systems. However, the recent election has raised questions about the future of federally-backed support for solar - specifically the federal solar investment tax credit (ITC). The short answer is, we are optimistic the current plan for the ITC to continue for three years at 30% then gradually sunset after five will be unaffected. Here’s why:
The fact is, the ITC is federal law and laws are not easily changed. Even if it did somehow manage to be changed before the 5-year planned sunset, we are confident our state will step up to make sure adequate support continues to make solar an economically viable option for the public. Never fear! Solar is here to stay.
(Thank you to CALSEIA and Executive Director Bernadette del Chiaro for the inspiration for this blog and for their invaluable efforts to advocate on behalf of the solar industry.)
Bad news for Pasadena Water and Power customers - we have just learned that PWP’s solar rebates will be dropping by 1/3 effective August 1st! Here are the details…
As we have noted many times in the past, Pasadena has one of the best solar rebate programs around - decent rebates, a well managed program, and good communications. Consistent with that approach we have just learned that the solar rebates are going to be reduced effective August 1st. That means that rebate applications submitted prior to then, and which are deemed complete when submitted, will qualify for the current rebate. Once the rebate is reserved, you would then have a year to complete the project.
Here are the current and upcoming rebate rates:
Potential residential or commercial clients, your rebate will drop from 45¢/Watt to 30¢/Watt. That means that for a typical residential project of 5 kW, the rebate will drop from $2,250 to $1,500.
Non-profits will leave even more money on the table if they miss the August 1 deadline. For a typical 40 kW school project, the rebate will drop from $36,000 to $24,000! Ouch!
If past is prologue, this drop in the rebate amount will create a stampede as folks try to lock in the current rebate rate before it steps down. If you are in PWP’s service area, please don’t wait, give us a call today!
(Editor’s Note: This is our second of two articles looking at data provided to us by NREL researcher Benjamin Sigrin as part of his SEEDS investigation. To read more about that project and our first post analyzing this data, please see: Who Chooses Run on Sun?)
While some 400,000 California homes and businesses have gone solar, there are still many folks out there who think about solar but ultimately don’t pull the trigger. The SEEDS data provides some interesting insights into the reasons why that might happen - and in the process, provides some pointers for what we as an industry can do better.
To get a handle on why consumers don’t become solar clients, it is first important to know why they were looking into solar in the first place…
It should come as no surprise to anyone that the number one reason that non-adopters cited for looking into solar was to save money on their energy bills. After all, that is what most advertising in the industry is focused on, “Save money by going solar!" Which is fine, as far as it goes, but there is the risk that some of those ad claims create unrealistic expectations among consumers.
Some of the other initial motivators are quite interesting, including seeing solar being installed on another person’s home. This is classic secondary-adoption behavior, and it suggests that we are moving away from the pioneering, early-adopters and into the general public. But unlike those pioneers, the general public is likely to be far more skeptical regarding claims by solar sales people!
So how are folks first connecting with a solar installer? For folks in SoCal, this chart will come as no surprise…
Nearly 60% first made contact by having someone show up at their door! This gives rise to the following likely scenario: consumer has been suffering from high energy bills when an aggressive salesperson shows up on their door, promising amazing savings (and frequently at “No Cost to You!”), and then doesn’t leave until the hapless homeowner signs on the dotted line. The likelihood of this scenario is bolstered by this graph that we used in our initial post…
More than 40% of all solar consumers spoke to only one solar company! Clearly for a sizeable percentage of consumers those high-pressure tactics are effective in closing the sale, but we are very concerned that they are breeding a backlash that will damage the industry in the long term (more on that in a future post).
The second most common way to first come in contact with an installer is via a recommendation, although that only occurs one-third as often as finding a stranger on your doorstep! As solar becomes more mainstream, we expect the number of first contacts by way of recommendation to go up, and hopefully the number of uninvited house guests to decline.
The bottom ranked means are particularly depressing as they include conventional advertising, review/research websites (like Yelp or Angie’s list) and the ever popular, but obviously ineffective, website forms.
These are all the means by which prospective clients are getting into the solar sales funnel, but where are they dropping out? The survey data provides some insights there, too…
Money, it seems, is still the number one impediment to going solar - and this despite the availability of zero-money down leasing programs. (Perhaps people are looking more closely into the fine print of those programs and realizing that they aren’t the great deal that they are cracked up to be?) However, the dataset of folks who did not go forward reaches back several years, and prices (and consumer access to financing) were more daunting years ago than they are today.
Which makes the second reason cited a greater cause for concern: nearly 40% cited the inability to find a “trustworthy and competent installer!" To be sure, there is no shortage of installation companies out there, so it is in the trust and competence areas that we are failing as an industry to meet more than a third of consumers’ expectations!
While we like to think that we score well on both counts (and our clients would agree!), we think there are some simple ways for consumers to overcome this hurdle. First, do some homework - if you want to find a competent installer, go look where they hang out: the NABCEP website. Second, talk to your family, friends, and co-workers. With 400,000 installs in California alone, you already know people who have gone solar, so seek them out and hear what they have to say. And finally, get more than one bid! A solar installation is a major purchase (no matter how it is financed) so it is in your best interest to shop around.
Almost a year ago, Run on Sun agreed to participate in a study sponsored by the National Renewable Energy Laboratory (NREL) - the premier lab looking into all aspects of renewables generally, including solar. The study, known as SEEDS - Solar Energy Evolution and Diffusion Studies - is a Department of Energy-funded, industry-wide effort to “identify the drivers and barriers to the adoption of residential solar power." To achieve their goal, the research team, led by Principal Investigator Benjamin Sigrin, asked residential solar installation companies to provide them with lists of both clients who went forward, and contact information for people who, for whatever reason, did not.
We now have some results and they are fascinating. (One caveat - we do not know from the report provided to us the sample size for the industry as a whole or even the number of our clients who responded. If we get that data we will update this post.)
In this first of two parts we will look at what the data has to say about those consumers who chose to become Run on Sun clients. In Part Two we will see what the data says about “those who got away.”
There can be lots of reasons for choosing to go solar, but for almost everyone the high cost of energy is a major driver - especially during the summer. So one of the interesting charts that we are able to share with you shows just how high that cost is for most of our clients:
(In all of these charts, the red bars represent the results from Run on Sun clients, while the grey bars are the overall averages for the survey as a whole.)
The largest segment of our clients are spending in the $100-200/month range during the summer, with a median of $235, compared to the national average of $183.50. (If your bills are lower than $100/month, a solar system will take a long time to pay-off economically.) But another 50% or so are seeing bills well above that, with some over $800/month! Ouch! If your bills are anywhere near that high, you need solar NOW!
While support for solar is overwhelming among Millennials, very few of them own homes where they could be installing solar. So what is the age of most solar adopters?
Not surprisingly, the bands between 45 and 65 are the most heavily populated, with the median age of Run on Sun clients coming in at 55 - just slightly younger than the overall median age of 58. While the survey didn’t evaluate attractiveness, we are quite confident that not only are they younger, but Run on Sun clients are way better looking, too!
Run on Sun’s clients tend to be more affluent than most…
Part of that is no doubt due to where we operate - Pasadena and the surrounding cities tend to be more affluent than many other parts of the country. Another factor would be that since we have been in business now for 10 years, some of our earlier clients were purchasing systems when the installed price was twice what it is today, thus requiring a greater household income!
Going forward, as growing numbers of people with more modest means realize how much solar costs have declined - and how high their energy bills are going - we would expect to see more participation on the lower end of the economic scale.
A final point regarding the rest of the market. Much of the industry is built around leasing - which we don’t do for a host of reasons - and that has historically been viewed as the way for people with lower household incomes to get into solar. But today, with PACE financing and solar-specific loans (as well as the return of home equity lines of credit) becoming more broadly available, we will be able to help folks with lower incomes get into solar without getting stuck with a lousy lease.
Ok, didn’t see that coming! Again, part of this might be where we do business as the Pasadena area is pretty progressive these days. That being said, we welcome prospective clients of all political persuasions! Really!
We know that going solar is a bright idea but does it follow that the smarter you are the more likely you are to do so?
This is my favorite graph of the bunch!
While the overall market is centered around folks with a bachelor’s degree, the majority of Run on Sun’s clients have professional degrees (e.g., lawyers) or Ph.D.’s! As a recovering lawyer myself I find this result gratifying. Part of the motivation for founding Run on Sun arose from when I was looking to have solar installed at my own home and was dismayed by the lack of knowledge from the people who were trying to sell me a system. I figured then that there would be a niche for a company that could answer a potential client’s questions in a sophisticated fashion that wasn’t tied to a sales script. Ten years later and it looks like we have filled that niche!
Given all that education, it should come as no surprise that our clients really do their homework before deciding to go solar…
This is a very telling chart, both as to Run on Sun and to the overall industry. The majority of our clients have spoken to at least 3 companies before deciding (something we always advise them to do), with more than 20% contacting 5 or more! That is a lot of research! Which suggests to us that the more research you do - the more likely you are to choose Run on Sun!
But it is a bit startling to realize that over 40% of the general market only speaks to one company. We suspect that means that some pushy salesperson shows up at the door and they don’t leave until the hapless homeowner has signed on the dotted line - most likely to some no-money-down, lousy lease!
In contrast, we don’t do business that way, which is why none of our clients come from that segment. That probably means we are leaving money on the table, but we like the fact that our clients know exactly what they are doing when they choose Run on Sun!
Of course the most important question you could ask of folks who have gone solar is: Would you recommend going solar to your friends, and beyond that would you recommend the company that you chose. So how did we do?
* The net promoter score measures the percentage of respondents that were considered promoters (responses greater than or equal to 8) minus the percentage that were considered detractors (responses less than or equal to 7). The net promoter score is useful for assessing market performance compared to other installers.
On that first question we did amazingly well! Over 92% of our clients would recommend going solar to their friends and neighbors as compared to just 63% for the market overall.
But what about Run on Sun specifically?
That result is also terrific with 85% of our clients saying that they would recommend us, compared to just 52% of the overall market. That being said, we constantly strive to improve, and we would really like to get that “would recommend score” up to 100%! (And the industry as a whole needs to do quite a bit better at meeting expectations.)
So that is what we know about our clients who responded to the survey. In Part Two we will take a look at those that got away. Watch this space!
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