Just because you can get solar installed by making a small payment upfront completely ignores the total cost of ownership. As with any leasing agreement (e.g., cars) you are basically financing the solar company's investment in the solar cells on your roof. As such, among other things you are paying the interest rate on the money the solar company must borrow so it can purchase and install solar cells on your rooftop. It would be better to see if you can take out a loan and finance the purchase yourself. Quite often there are state and local assistance programs for renewable energy which offer loans with lower rates, or otherwise subsidize the purchase. If you purchase the solar cells yourself, you can usually get a tax credit which you can't if the solar cells remain owned by the solar company.
Ignoring the overall cost is a bit like thinking the cost of something you purchase on your credit card is only the minimum monthly payment. It's the kind of thinking that a decade ago got people to sign mortgages with balloon payments that they never could afford. I wouldn't sign a deal with one of these solar companies unless their contract spelled out all the costs, including the effective interest rate that I would be paying.
Ninety-seven percent American homeowners overestimate the cost of installing solar, according to a recent Harris interactive poll that illustrates public perception remains a major obstacle to adding more residential renewable energy to the grid.
The online poll, conducted on behalf of residential solar power company SunRun, found folks want to go solar. Nearly eight out of 10 of those who don’t already have solar panels say they would install a rooftop array if cost were not factor. But according to the survey, the perceived costs are wildly out of whack with the real expense of installing solar. (See new note below)
Forty percent of the 2,200 adults surveyed think installing solar requires $20,000 or more in upfront costs. Only three percent accurately understand that installing solar can cost less than $1,000 upfront, which is possible because companies like SunRun, SolarCity and Sungevity all offer solar financing that allow homeowners to lease the panels without putting any money down. SunRun’s solar power service, also known as third-party-owned solar, is structured similarly to its rivals. The company owns, insures, monitors and maintains solar panels on the homeowner’s roof. In return, the homeowner pays a monthly rate over a 20-year period.
Market share for third-party solar has grown, particularly in California where it reached 75 percent of the home solar market in February of this year. In Massachusetts, the share for third-party solar is more than 80 percent.
Note: Based on some comments, I thought I’d add more information about solar leases. A solar lease is essentially a power purchase agreement or PPA. Utilities often enter into PPAs to buy power generated from large-scale solar and wind farms.
How it works
Generally, homeowners sign a long-term agreement between 10 and 20 years. Customers agree to pay a monthly fee for the solar electricity. That fee should be at a lower rate (on average over a year) than what the customer is currently paying their utility. In return, the solar provider takes on the responsibility and cost of installation and maintenance of the panels.
Solar leasing experiment
Out of curiosity, I recently went through the process of getting a quote for a solar system. Here’s what I found out:
The solar provider suggested I install a 6 kilowatt system (the average residential is 5 KW). If I skipped the lease option and bought the system outright it would cost roughly $38,000. State and local rebates and federal tax credit would cut $13,000 off the price. In the end, I would spend $25,000.
If signed up for the lease, those state, local and federal incentives would go to the solar provider and my fees would be lower as a result.
If I put $0 down, my lease payment would average $115 a month and my electricity bill would average $17, for a total cost of $132 a month. Without solar (this information is based on eight months of my utility bills), I would pay an average of $91 a month. So, under that scenario, I’m actually spending about $500 more a year. The lease payments would be subject to annual increase of 2.9 percent.
To be clear, since I’ve lived in my current house for less than a year, I’m missing the most important months (summer) of utility bills. With a full year of my own electricity consumption information, I’d expect those numbers to shake out a little differently. I wouldn’t expect massive savings, but I would probably break even or see a small reduction in my energy bill.
Leasing would be a good option for folks who consume a lot of power, have high electricity bills (I’m an energy efficiency nut and thereby my bills are below average) and live in areas where there are local and state incentives.
So what happens if you move? According to the solar provider I checked out, you can assign the lease to the new homeowner, if they pass a credit check, you can prepay the remaining lease payments and assign the benefits and non-financial obligations to the new owner; purchase the system; or prepay the remaining lease payments and have the panels removed for no additional fee.
Photo: Flickr user Jeda Villa Bali, CC 2.0
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