UPDATE: See end of post for National Renewable Energy Laboratory (NREL) report findings regarding solar leasing vs loans.
In the debate of owning versus leasing solar panels, the folks over at NPR weighed in with a story last week that caught our eye, er, ear. While it offers a fair explanation of some of the pros and cons, we don’t think it did a good enough job of highlighting just why that solar lease should be avoided. Here’s our top 5 reasons to avoid a solar lease.
As we noted in our recent post about solar ownership boosting your home’s resale value, if you don’t own the panels on your roof, they aren’t an asset toward boosting your home’s value.
Leasing companies tout that they cover the maintenance on your solar system, but the truth is that most maintenance is already covered by product and installer warranties. (For example, Enphase microinverters come with a 25-year warranty - longer than the typical lease term.) For most residential system owners the only maintenance their systems need is to wash the panels off with a hose.
The NPR story suggests that to own solar requires a very “hands-on” approach, with the homeowner being forced to navigate the shoals of rebates, tax credits and permitting on their own. Nothing could be farther from the truth. A reputable, local solar installation professional, like Run on Sun, will handle all of those messy details for you.
If you decide to sell and you have a leased system on your roof, your prospective buyer has to not only meet your required offer, they also need to satisfy the leasing company’s qualifications to assume the remainder of your lease. A buyer might qualify for a mortgage, but not satisfy the credit requirements of the leasing company, and even if they do, they might not be interested in the hassle of dealing with a lease payment for the remainder of your twenty-year term.
Bottom line, this is the number 1 reason to avoid a lease. But don’t take our word for it, let’s look at what one of the largest solar leasing companies says, right there in the tiny print on their website:
Savings on your total electricity costs is not guaranteed. Financing terms vary by location and are not available in all areas… A 3 kW system starts at $25-$100 per month with an annual increase of 0-2.9% each year for 20-30 years, on approved credit.
Just how bad a deal is that? Well, let’s take a typical 3 kW solar project. That is really small, so the cash price from a local installer is probably around $4/Watt - which works out to $12,000 up front. However, if you own, you receive the rebate (if any) and the tax credit. In PWP territory, that rebate works out to roughly $2,200 but in SCE territory, the rebate is zero. So to take the worst case example for ownership, we will assume no rebate. In that case, the tax credit is worth 30% of $12,000 or $3,600 leaving the ultimate cost to own at $8,400.
Now what happens in a lease for that same system? No rebate or tax credit goes to you - the leasing company pockets those. What about your payments? Well, let’s take the middle ground suggested in the leasing company’s quote above and look at a cost of $60/month in year 1, with an annual increase of 1.45%.
The orange bars are the annual payments which in year 1 amount to $720 (12 x $60) and by year 20 have increased to $947.
The red bars are the cumulative cost of leasing solar. By year 11, the owner has come out ahead. By the time the lease ends in year 20, the solar leasing customer will have paid $16,567 in lease payment - nearly twice what the system purchaser paid - and they still will not own the system on their roof!
While it may be true that not everyone can afford to purchase a solar power system outright, that is changing as solar becomes more affordable for more people. Plus, with the emergence of solar loans, which can provide for little or no out-of-pocket cost while still retaining the benefits of ownership, cash-constrained consumers can still go solar without resorting to the leasing trap.
For all of these reasons, and a whole bunch more, we at Run on Sun have never offered residential leases, and we never will. If you want to go solar but avoid the pitfalls of leasing, give us a call - we are waiting to help!
UPDATE: Two reports from NREL bolster our conclusions above: “To Own or Lease Solar: Understanding Commercial Retailers Decisions to Use Alternative Financing Models,” and “Banking on Solar: An Analysis of Banking Opportunities in the U.S. Distributed Photovoltaic Market“. Analysts found that businesses that use low-cost loans to purchase a PV system and homeowners who use solar-specific loans can save up to 30 percent compared with those who lease a system through a third-party owner.
Two weeks ago I included the looming 2016 expiration of the federal Solar Investment Tax Credit (ITC) as one of the “Top 5 reasons you shouldn’t wait to go solar“. The 30% ITC rebate for residential and commercial solar projects is slated to drop to 10% for commercial projects (effectively stopping utility-scale solar growth) and to zero for residential projects (making going solar much less feasible for many homeowners). I mentioned that the likelihood of an extension is far from certain given our partisan federal ‘climate’.
Then…on Monday the White House released President Obama’s fiscal budget for 2016. To my delight the budget includes:
The $7.4 billion figure is up from the $6.9 billion proposed in Obama’s fiscal 2015 budget, a 7.2 percent rise, and over the $6.5 billion actually passed by Congress for this year. The extension of the ITC and further state incentives to reduce emissions would be immensely valuable to keep the ball rolling in the solar field. Given that solar is booming - providing over 170,000 living-wage jobs and eliminating over 13 million metric tons of harmful CO2 emissions in 2014 alone - it makes sense to continue to incentivize.
However, it may come as no surprise to hear that some lawmakers have said they plan to block the President’s budget priorities entirely. An article in Politico titled “Republicans: Obama Budget ‘Laughable’” cites many congressional Republicans disdain for the budget.
“Obama’s budget is a retread of past proposals that died instantly on the Hill.”
Senate Finance Committee Chairman Orrin Hatch (R-Utah)
The website www.gop.gov cites the singular case of Solyndra as definitive evidence to oppose funding clean energy…despite also claiming to support job growth. (See here as to why Solyndra just doesn’t matter.) With Republicans now controlling both the Senate and the House of Representative, this party line opposition will be a serious challenge to overcome.
Even with the President himself in favor of extending the ITC, and improving funding to support clean energy, the fate of federal support for the solar industry is still quite uncertain.
Watch this space.
Many solar stakeholders have always assumed rooftop solar systems add to the resale value of a property. Homeowners and residential solar companies frequently use this benefit as one of the many reasons to invest in solar even though until recently there had been little statistical evidence to support the assumption.
So we were thrilled to read the new study, “Selling into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes,” which finally quantifies the resale value of residential photovoltaic (PV) solar systems. The study was a collaborative effort including esteemed scientists from the U.S. Department of Energy’s Lawrence Berkeley Lab, Adomatis Appraisal Services, Real Property Analytics/Texas A&M University, University of California at San Diego, San Diego State University, and Sandia National Laboratories.
The team analyzed some 22,000 home sales, of which nearly 4,000 had PV rooftop solar systems (more than double the number in previous studies), in eight states over a 12-year span including the housing market boom, bust, and recovery. This is by far the largest and broadest dataset ever analyzed on the subject.
Results prove that homebuyers are consistently willing to pay more for homes with host-owned solar systems — averaging about $4 per watt of PV installed — across various states, housing and PV markets, and home types. This amounts to a premium of about $15,000 for a typical rooftop system. Other important conclusions the team discovered are as follows:
As residential solar systems become more and more common, it is important to be able to value them accurately. The evidence of the added investment value shown from this study is a critical step for the growth of residential solar. And PV premiums are obviously a benefit homeowners should consider when doing their cost-benefit analysis of going solar.
Please note that this study only focused on host-owned solar, not those with leased systems. It would be interesting to see a future study including this growing portion of the PV market.
Who wouldn’t want to cut energy bills by 80% or more while effectively eliminating one’s negative energy impacts on air, water and finite natural resources? But with solar booming in recent years and technology updates reported almost daily, many home and business owners feel they should wait for the latest and greatest, or simply for the cost to continue to go down. However, there are a number of important reasons why you shouldn’t wait…
Research in the solar industry is ongoing and I have no doubt that panel technology will improve. However, most changes in design and efficiency are small. And the research and development necessary to ensure the technology works in the field and not just the lab takes time. The bottom line is this: the financial value of small efficiency gains from panel improvements is outweighed by the cost of waiting. Any money you might save by installing more efficient panels is significantly less than the money you would save immediately by installing solar today.
The cost of solar panels has fallen tremendously the last few years – now half of what they were in 2008, and 100 times lower than they were in 1978! So, should you wait for the price to drop lower? We’ve actually started to see the prices of PV solar modules begin to flatten and even slightly increase since 2013. Now that demand for solar is gaining momentum, the costs will likely continue to rise to meet that demand.
The rate of increase varies depending on your state and electricity source but based on the last decade you can expect around 4-5% hikes in grid electricity each year (Energy Information Administration). That means that if you invest in a solar system that meets 100% of your electricity needs today, you will fully save on this year’s costs. But each year thereafter you’ll save an additional 4-5% for the life of your solar system (up to 40 years). As energy prices skyrocket you can rest easy.
Rebates for installing solar, once as high as $4.00/Watt, have largely gone away (Pasadena being a happy, and notable, exception). Since 2006 many owners have benefited from the 30% federal tax credit to make a solar installation more economically attractive. However, on December 31, 2016, the 30% Solar Investment Tax Credit is scheduled to drop to 10% for commercial projects and to zero for residential projects. While we’re all crossing our fingers and toes hoping for an extension, with imminent grid parity – solar power reaching a cost comparative status with grid electricity – predicted to happen in 2016 in much of the US, and a federal government with little support for solar…it is entirely possible an extension is no more than a pipe dream.
If you’re concerned about climate change, you know that we need to act quickly, and in any way possible to prevent overshooting the global goal of a maximum 2 degree rise over pre-industrial temperatures. The typical residential solar system, about 5 kW, cuts about 6.7 tons of carbon emissions each year (using EPA’s CO2 emissions calculations). While there isn’t a dollar figure attached to that, you may want to consider the larger environmental value of going solar sooner rather than later.
Here in SoCal discussions on water conservation are a regular occurrence. We all know the management of water resources in California is critical given increasing populations, increasing strains on our enormous agricultural ‘breadbasket’, and ever-decreasing precipitation as the effects of climate change worsen. However, how many of us think about energy in terms of water conservation?
According to the International Energy Agency, energy production accounts for 15% of the world’s water withdrawal – water withdrawn from groundwater. Thermoelectric power plants account for over one third of the fresh water withdrawn in the US. Shockingly that volume is greater than the water used to grow our food!
So which energy sources are hogging our precious water and how? Actually, most energy generation technologies — including coal, nuclear, biomass and even concentrating solar power – consume astounding amounts of water. It is necessary primarily for cooling thermal power plants, as well as fuel extraction, transport and processing. This results in both the depletion of available freshwater resources and affects the quality of our remaining resources downstream due to the polluting effects of energy-related outputs.
Sunlight, on the other hand, is an infinitely abundant resource in most water-stressed parts of the world, including here in California. The World Energy Outlook, published by the International Energy Agency reported that photovoltaic (PV) solar energy is one of only two electricity generation technologies with negligible water consumption.
PV energy systems provide a sustainable solution to the water-energy nexus by generating clean electricity with little to no water use. With the smallest carbon footprint, lowest life cycle water use, and fastest energy payback time in the industry, thin-film PV modules provide a sustainable solution to water scarcity and energy security.
Water conservation must be a priority in water-stressed parts of the world. While PV solar is unlikely to provide enough power for the entire state any time soon, individuals and businesses installing roof-top solar can make a positive difference. It turns out, not only in reducing air pollution from dirty energy but also in saving our water resources!
It is important to note the other half of the energy-water nexus. Energy is required to produce, treat, and distribute water. So, even if solar is providing your electricity, the water you use is still linked to polluting energy sources. Combining smart water conservation techniques, such as those suggested in this EPA list of household water saving methods, with going solar is the best bet for ensuring our planet’s resources will continue to provide for our future.