Solar leases: too good to be true?

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Are solar leasing programs too good to be true? first tuesday responds to reader feedback on our recent interview with SolarCity.

The lowdown on solar leases

Purchasing and installing solar panels is expensive: it takes homeowners an average of 20 years to pay off a solar installation. Leasing solar panels is a cost-effective alternative to a solar panel purchase.

Most solar lease programs offer a zero money down option. Under these leases, homeowners lock in a reduced electrical rate and a full warranty for the duration of the lease. All a homeowner needs is:

  • an area to dock the solar panels (typically a roof);
  • adequate exposure to sunlight; and
  • a good credit score (680+).

Does a reduced utility bill with no financial investment on the homeowner’s part sound too good to be true? Some first tuesday readers thought so. Their concerns – and some resolutions – follow.

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From the experts: all about solar leases

Solar isn’t for everyone

Solar energy leases may be hot, but they don’t make sense for everyone. Before a homeowner puts themselves on the hook for a long-term lease, they need to ask themselves:

  • Will installing solar panels increase my home’s value?
  • Will installing solar panels save me money on my monthly bills?
  • Will the savings from solar panels outweigh the potential difficulties or extra costs of selling my house with an existing solar lease?

If their main objective is to save money on energy costs over time, a solar lease may be right for them. However, if they are planning to sell their home within the next few years, then the solar lease may not be the best idea.  Knowing the numbers and facts will help homeowners arrive at the best decision for them.

Actual savings from a solar lease will depend on the size and output of the solar panel system. The first step for homeowners is to get a free estimate of the solar panel system suitable for their home, and a general idea of the fixed-rate for solar power. The next step is for the homeowner to compare their current electric bill with the fixed-rate electric bill offered by a solar lease.

Consider a homeowner who spends $200 a month on electricity. If the fixed-rate solar lease saves them $30 a month (roughly 15%, the average savings per SolarCity), that’s $360 a year back in their pocket. If the homeowner plans to sell and relocate within two or three years, the $360 saved each year may not be worth the extra effort needed to transfer or terminate the solar lease.

For those homeowners who will not be in their properties long-term, other energy-efficient improvements may be a better investment. Upgrading to EnergyStar appliances, or installing a whole house fan, can reduce the homeowner’s energy bills without a long-term lease.

Related article:

Everything A Californian needs to know about energy efficiency

What’s your take on solar leases?

Subsidies are artificial

Solar leasing programs rely heavily on government subsidies to pay for the cost of solar panel installation.

One concern is that all this easy government money creates a fertile breeding ground for new solar companies which pop up overnight, offer cheap equipment and employ unlicensed installers. Before signing a lease, homeowners will want to check the panels will be installed by qualified  installers.

Who’s qualified? Any licensed electrician (electrical contractor with a C-10 designation),  general engineering (A designation) or general building (B designation) contractor  may install solar panels in California. However, a contractor with a C-46 (Solar Contractor) designation is specially trained and licensed to install solar panel systems. License validity can be checked online at the Contractor State License Board.

Related article:

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Another concern is solar company longevity. While the subsidies flow, business is good for solar companies. But once the government reduces subsidies in 2016, can these companies continue  to exist? More importantly for homeowners, what will happen to the solar panels (and their 20- and 30-year warranties) if their solar company goes under?

To reduce the likelihood that their solar lease will be impacted by their solar company failing, homeowners considering a solar lease need to do their homework. There are no guarantees, but solar companies with some longevity in the region, and financial stability will provide a buffer against interruptions or changes to the solar lease. Homeowners can ask how many solar installations the company has completed. They can also check to see if the solar company has insurance for its warranties, should the company go under or be bought out.

Derailing a sale

Every agent seems to have experienced or know someone who has experienced a sale cancelled due to an unwanted solar lease. Here are some tips to help your sellers navigate a sale with a solar lease in tow.

If they do not already know, have your seller ask the solar company these questions before you list their property:

  • What are the penalties for cancelling the solar lease prior to the end of the lease term?
  • What are the fees for transferring a solar lease?
  • What are the requirements for transferring a solar lease?
  • If the solar panels are removed, who pays the removal costs?
  • How will the solar company work with the homeowner to arrange a transfer or removal of solar panels?
  • Does the solar company return the roof to its original condition after the solar panels are removed?
  • Will the solar company provide their policies on these questions in writing?

Then, disclose the existence of the solar lease in the listing. This is to include the details of assuming the lease, or alternatives to assuming the lease. As with all property disclosures, it’s imperative that the prospective buyer and seller  have the same information about the solar lease before, not after, the purchase agreement is inked!

Related article:

Brokerage reminder: Does “as is” mean “no disclosures”?

The homeowner/seller can then plan for one of two events:

  • the buyer is willing and able to assume the solar lease; or
  • the buyer is unwilling and/or unable to assume the solar lease.

Most solar companies will transfer the solar lease, provided the homebuyer qualifies. Ideally, the homebuyer will agree to assume the solar lease upon purchasing the property from the seller. Even if they don’t qualify right away, solar companies will negotiate. They have an incentive to make it work: solar companies absorb the upfront costs of a zero-down lease, so the longer the lease runs, the lower the solar company’s turnover costs.

When the homebuyer doesn’t want to assume a solar lease initiated by the seller, agents can help negotiate by suggesting different options. For instance, perhaps the seller and homebuyer can split the cost of paying the lease cancellation penalty. Or, ask about options to move the solar panels so the seller can resume the lease in their new home.

U.S. taxpayer dollars don’t subsidize Chinese solar panels

Finally, some readers were concerned about foreign influence. It’s true that the majority of solar panels are manufactured in China. Many Chinese companies sell panels at below cost, using subsidies from the Chinese government, according to Forbes. So, are U.S. tax dollars going to Chinese solar manufacturers?

No, not really. Government subsidies (both here and abroad) have fueled solar use and thus the demand for solar panels. However, the rebate goes to the homeowner who purchases the panels. Or, in the case of solar leases, the company leasing the panels receives the rebate. Chinese solar manufacturers are being subsidized by their own government – not ours.

Sold on solar?

Energy costs (and energy savings!) are increasingly on the minds of homeowners and homebuyers. Solar is becoming more than a fad and the trend will continue beyond 2013. Therefore, information is key to preventing future issues when maintaining a system or selling a home. Agents specifically will benefit from knowing about potential issues arising from solar panel systems so they can ensure their sales involving solar leases goes smoothly.

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4 Comments

  1. Ray Boggs said:

    “Solar Leases: Too good to be true?” Not in today’s market. A solar lease is absolutely one of the worst ways to finance the rental of a solar system. First of all you have to forfeit the 30% federal tax credit which is worth about $10,000.00 on a typical 6 kW system. You’ll also have to forfeit any cash rebate.

    The leasing companies will tell you that they will apply the tax credit and cash rebate to the system price so that you’ll lower the acquisition cost but the leasing company’s pricing is so over inflated that the tax credit and rebate as large as they are will hardly make a dent in their price.

    Instead of an expensive solar lease or PPA, consumers are now getting $0 down solar loans that require no equity, that offer tax deductible interest and allows you to keep the 30% federal tax credit and any other incentives and own your solar system for a much greater return on investment than any lease or PPA.

    And good luck ever selling your home with a lease attached to it. What homebuyer will want to assume your lease payments on a used system, when they can buy and own a new state of the art system for less than $3.00 a watt, installed, before incentives? Don’t take my word for it, search the Internet and you’ll find many articles concerning homeowners who are having difficulty selling because they have solar leases attached to their homes.

  2. gary said:

    Thanks for the great additional info Allan!
    Another benefit is just shading the roof from the sun with these panels.
    The difference in heat gain to attic from the shade must be a large savings in that aspect alone.
    I went from pure white-very cool- elastomeric coated roof to a new layer of light grey (GAF torch down modified bitumin – GAF calls it “white” but it gets at least 120 degrees in hot afternoon sun, as its grey and raises my homes inside temps a lot compatred to pure white coating.
    Needless to say I will be covering it with white elastomeric soon!
    A dream is to have a Chevy Spark or Nissan Leaf powered by my roof panels….and burn no gas, on most local trips.

  3. Allan Timko said:

    The Solar Power Leasing article is mostly accurate, however, I would add the following. 1. not all solar leasing companies are created equal not all leasing contracts are created equal. Some lease agreements have a FIXED cost, some go UP 2, 2.5, or 3% per year.
    2. That $200/mo bill mentioned…in most parts of CA, that was a $100/mo bill in 2001, and in 7 short years if history repeats itself, it will be a$300/mo electric bill and so on….for using exactly the same amount of power. So if the bill is nearly fixed at $170, $190, or even $220…over time its a huge savings.
    3. companies that made the investment in advance have a vested interest not only in their Industry but in the home they’re investing in. So when it time comes time for the present homeowner to sell they will normally do everything they can to help the new homeowner retain the system and get electricity at a lower price than the utility Co. whether it means assuming the lease or having the residual amount added to the purchase price & amortized in.
    4.ask yourself who are the next generation of home buyers and what will they be looking for, not only in home features, but the skill base of the agent they choose to assist them with their biggest financial decision of their lives. you can position yourself as a knowledgeable person about this aspect of a home improvement and perhaps position yourself to get calls/referrals from people who are looking for homes that not only save energy (appliances, etc.)but have lower or fix cost electricity to go along with that purchase. what initially seems like a hassle to deal with to sell a home could become a unique asset to your skill base and your future business.

    AJT, Torrance, CA
    CA DRE 01114424
    Certified Building Analyst
    CA licensed solar consultant
    BA Arch

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