Has the solar slowdown just begun?

Investors fear the worst for the solar market, as stock values for solar leasing giant SolarCity plunged in the first months of 2016. SolarCity finished 2015 with a $648 million operating loss, according to the New York Times. While solar customer growth continues, operational costs far exceed revenue for the solar leasing company.

The biggest public-perception problem for the solar leasing company is Nevada’s recent cut to its net metering program. Nevada’s cuts not only reduce or eliminate net metering credits for new solar customers, but also for solar customers already under contract who strongly weighed net metering in their determination to go solar. This is a blow to SolarCity, and its Nevada customers. 20 other states are considering following Nevada’s example, clouding potential customers’ confidence in the financial viability of adopting solar technology.

Net metering is an agreement between the utility company and the residential or commercial customer. The property owner who generates excess solar energy can sell it back to the utility company for credit to be used later. Solar panels often produce more energy than the home needs during the sunny months. In the winter when cloud cover obscures more of the panels, owners’ net metering credits can be used to pay down their winter utility bills.

When net metering is not an option, property owners are less likely to be interested in buying or leasing a solar system, as this instinctual savings incentive is lost.

The good news for solar in California: net metering continues, and SolarCity is optimistic about potential for even more tax credit growth in the state.

Solar: a long-term investment

Going solar requires long-term planning. On average, it takes a homeowner 20 years to pay off the full cost of a solar system. Leasing solar panels eliminates the investment, but it still requires a similar, lengthy commitment.

What happens if the homeowner sells before the 20 years are up? There are three options:

  1. The seller may transfer the solar lease to their new home if it is in the same territory, for a cost.
  2. The seller may purchase the solar panels outright and include the cost in the home’s sale price, if they find a willing buyer.
  3. The buyer may assume the solar lease.

Since the solar lease is a contract, interested homeowners may be concerned that signing a solar lease will place a lien on the property. However, the lien is on the solar fixture — not the property. Therefore, if the homeowner stops paying for solar service, the leasing company’s sole recourse is to reclaim the solar system, not foreclose on the property.

On the other hand, taking out a mortgage to pay for the purchase of a solar system does create an additional lien on the property.

Another reason long-term planning is necessary before signing a solar agreement is the possibility of roof maintenance. That is, if the homeowner’s roof needs repairing, they will need to pay to have the panels moved before work can begin on the roof. Therefore, installing panels on a roof that will need maintenance in a few years is not wise.

However, the long-term investment does pay off, though it can take several years. The energy savings can be significant, especially for Southern California homeowners who receive the most sun. The average solar lease savings after the cost of renting the solar panels is a 15% reduction on monthly utility costs. Purchasing solar panels may provide bigger savings, but they won’t be realized until the system is paid off.

Read more about the details of solar leases here.

Read about prepaid solar leases here.

For a critical list of issues homeowners are to consider before signing a solar lease, click here.