From the experts: all about solar leases
Solar energy has a high profile, especially since the federal government created the 30% federal tax credit that applies to solar power systems in 2006. But is solar energy practical for the average California homeowner? SolarCity says, “Yes!”
California-based SolarCity offers two ways for homeowners to get into solar:
- homeowners can purchase the system and installation from SolarCity; or
- homeowners can install the system for free and pay SolarCity for the power the systems produce, through solar service agreements like solar leases or power purchase agreements (PPAs).
For either program, SolarCity includes:
- repairs of the solar power system, if necessary;
- insurance coverage for theft or damage to the panels; and
- performance monitoring of each solar panel system.
But what happens when the homeowner sells their home? There are typically three options:
- the buyer can choose to assume the solar lease;
- the seller can purchase the solar panels and include the cost in the asking price; or
- if the seller is moving within the same utility territory, they can pay to have their solar panel system transferred to their new home.
SolarCity also offers solar options for commercial buildings, new construction and government buildings.
Does it sound too good to be true? And is solar really for everyone? first tuesday called up Jonathan Bass, SolarCity’s Senior Director of Communications, to find out.
What are the requirements for entering SolarCity’s programs?
Solar can work for a wide range of homeowners. SolarCity provides potential clients with a free assessment, either in person or over the phone, to determine whether one of our solar programs will work for them.
Roof position is a major determinant of whether or not you should get solar. Generally you need a largely unshaded section of roof that faces south, east or west.
If the customer wants a monthly payment option, there is a credit score requirement of 680. The FICO score is the only requirement – there is no income or debt-to-income (DTI) requirement. If the homeowner doesn’t have at least a 680 FICO score, they can either pre-pay for the solar power or purchase the system.
We also have a team of transfer agents who work with people who are buying a home with our solar system already installed. If the homebuyer can’t meet the 680 FICO score (which is pretty rare), then we can look at other credit criteria to transfer the lease.
Why do most homeowners consider going solar?
While there are environmental benefits to going solar, most homeowners go solar to control the price of their electricity. Our customers know exactly what they will pay for solar electricity for the length of their agreement, and their solar production is guaranteed. The agreements typically last 20 years, so the savings add up over the long-run.
A lot of homebuilders are actually adopting solar as well, pre-installing the system for the homebuyer. Our solar service to homebuilders has grown by more than 300 percent in the first six months of 2013 alone! This makes perfect sense, because installing solar panels increases the value of the home.
When is leasing solar panels more financially practical than purchasing solar panels?
It depends on what is important to the customer. Customers that want to see immediate savings generally choose a no upfront cost option. Customers that want more long-term savings choose a prepaid service agreement or purchase option.
The cost of purchasing a solar system outright is pretty high. For a five kilowatt system in Los Angeles, the upfront cost is typically greater than $20,000, and even with incentives, it can still be $15,000 or more out of pocket.
Are there any issues with homeowners’ associations (HOAs) or permits that SolarCity has become aware of with the installation of solar panels?
Many states, including California, have rules that prohibit HOAs from preventing customers from installing solar panels.* Solar panels have been demonstrated to increase home values in two separate studies conducted by Lawrence Berkeley National Laboratory and the National Bureau of Economic Research, so HOA concerns about solar panels are often unfounded.
Does leasing solar panels create a lien on the home?
SolarCity’s panels files what is called a fixture filing on the solar panel system, not on the home. So, if the customer stops paying for the service, SolarCity is able to reclaim the system. However, we remove the fixture filing for customers when they sell or refinance their homes, and we have a dedicated team of employees in house that exclusively work on home sales and transfers to ensure the process goes smoothly.
Does it affect homeowner’s insurance?
No, taking on a solar lease will not affect your homeowner’s insurance. SolarCity fully insures the system. However, some other providers may have you cover their panels in your own policy.
What happens if a homeowner stops making payments?
Similar to anything else, if a homeowner cannot make payments then the service will stop.
Do you receive any incentives or subsidies from the government?
Yes, there is a 30 percent federal tax credit that can be applied by the owner of the solar system. If the customer buys the system, they can write that credit off on the following year’s tax return if they have enough taxable income. If they choose a lease or PPA, then the incentives go to SolarCity, and are applied to reduce the cost of the system. Other incentives are generally treated the same way, and they vary by location and utility territory.
Will SolarCity be able to continue offering solar leases once the government stops subsidizing solar?
We plan to be able to do so, yes. Energy is heavily subsidized. Oil and gas, nuclear power have received far more subsidies than solar to date. Solar incentives are designed to start at higher amounts and gradually decline to give providers the opportunity to increase efficiencies and reduce costs over time. Many local incentive programs have already ended or significantly declined. At the federal level, the 30% tax credit is scheduled to drop to 10% at the end of 2016. We need to reduce our costs between 5-6% annually to offset the change in incentives, and we plan to do so.
If there was one thing you wish every California real estate agent knew about solar panels, what would it be?
Solar is not only a great way to reduce energy costs, it can be a powerful selling tool for real estate agents. Solar panel systems have been demonstrated to increase home resale value in two separate studies. SolarCity has a team of experts dedicated to help real estate agents and their clients sell solar-powered homes, and the interest in clean energy has never been greater than it is today.
National Bureau of Economic Research: Understanding the Solar Home Price Premium: Electricity Generation and “Green” Social Status
Jonathan Bass is the Senior Director of Communications for SolarCity.
Visit SolarCity’s website at solarcity.com.
*HOAs can specify regulations for solar panels in their CC&Rs, such as placement of the panels and notice of installation. However, HOA restrictions on solar installation must not significantly increase the cost of the project or decrease performance of the panels. [Tesoro Del Valle Master Homeowners Association v. Martin Grifin (2011) 200 CA 4th 619]