SolarChargedDriving.Com interviews Brian Sharpe, a solar consultant for REC Solar's Colorado office, about the comparative advantages and disadvantages of a residential solar lease vs. buying a solar system outright.
REC Solar was founded in 1997 in California and is one of the nation’s largest photovoltaic installation companies with several million watts of solar installed. It has more than 250 employees and currently serves Arizona, California, Colorado, Hawaii, New Jersey, and Oregon residents and business owners.
What is the difference between a residential solar lease and solar power purchase agreement? Is one better than the other? If so, how so? How do each of these work, from a consumer perspective?
SunRun does a great job of explaining the basic differences between a residential solar lease and a solar power purchase agreement on their web site: www.sunrunhome.com. Here is their explanation:
Solar Power Purchase Agreement (SPPA)
With a solar power purchase agreement, your solar company will buy solar panels on your behalf. You may also pay a small installation fee up front. Your solar company owns the panels on your roof and is responsible for any maintenance or repairs. After the panels are installed, you pay a fixed rate for the solar electricity produced by the panels on a monthly basis. In other words, your payments are based entirely on how much energy the solar panels produce. You only pay for the power you get and you own all the solar electricity the panels produce. In some instances, to avoid monthly payments, homeowners can pay in advance for all the solar electricity that will be produced over many years. Power purchase agreements are the way that most businesses go solar. Companies like Wal-Mart, Whole Foods, Safeway, Staples, and Macy's use solar PPAs, for example. This setup allows these companies to get the benefits of solar power without paying a lot up front and without the responsibility of owning solar equipment.
With a solar lease, your solar company owns your solar panels for you and you pay a monthly payment to rent the equipment. The amount of your monthly solar lease payment is the same each month, regardless of how much solar electricity your system produces. This is the main difference between a solar lease and a solar power purchase agreement. Your monthly lease payment may increase a small amount each year, but it will generally be much less than electricity rates. You may also have a small installation fee at the beginning of the lease. The company that leases you the solar panels will often provide some kind of maintenance and repair services for your panels. But these services are sometimes less extensive than with a power purchase agreement. In some cases homeowners can pay all their lease payments in advance to avoid monthly payments but take advantage of any maintenance and repair services.
In which U.S. states can homeowner’s now lease a solar system and/or enter into a solar power purchase agreement?
SunRun has presence in California, Colorado, Arizona and Massachusetts. However, there are other solar leases and power purchase agreements offered in several states at the commercial level. There are some residential lease offerings through other companies in Oregon and a handful of other states as well.
When did solar leasing become available in Colorado? Where is it available in Colorado?
Solar leasing became available in Colorado just a few months ago, in October of 2009, when state legislation (Amendment 51) went into effect. This allows for third-party ownership within the rebate structures of industry-owned utilities (like Xcel) in Colorado.
Which solar companies are offering solar leasing in Colorado?
REC Solar was the first solar company to offer a lease, through our partner SunRun, in the state of Colorado. We have worked together with SunRun for almost three years in other states like California and Arizona. You can check out www.sunrunhome.com to find out which other companies are partnering with SunRun for a solar lease program in Colorado. There are a handful of Colorado solar companies that are partnering with banks or financial institutions to come up with their own solar leasing programs as well.
What are some of the comparative advantages and disadvantages of solar leasing and residential SPPAs as opposed to buying a solar system outright?
There are two primary advantages to solar leasing or PPAs when compared to a direct purchase of a solar array: 1. Leasing and PPA’s allow a customer to go solar for a much lower upfront cost; and 2. Full system management is provided under a solar lease. Maintenance, monitoring, insurance and warranties are often times provided and managed for you under a lease program. For instance, with a solar lease the leasing company insures your system so that you do not have to include it on your homeowner’s insurance or deal with the headache of filing a claim yourself should something go wrong. Another advantage is that most third-party leasing companies (like SunRun) are able to monetize the rebates and tax credits for solar in a different way than you can as an individual homeowner. This makes leasing an attractive solution for those customers that don’t have the tax appetite to take advantage of the Federal Tax Credit.
The disadvantages associated with solar leasing are specific to individual situations. Over a 20-year timeframe, the total cost of a leased solar system is probably more than what you would pay in a direct cash purchase. However, there are advantages to keeping a large percentage of system cost in your pocket up front as well. Because solar leases and PPA’s are based on production of the system, projects that do not have optimal solar conditions (i.e., major shade concerns, West-facing roof surfaces, complicated design) tend to take longer in terms of the payback or return on investment (ROI).
Who should buy a solar system and who should lease a solar system?
Anyone who wants to go solar should look at both solutions and determine which approach best suits their needs. In general, customers that are thinking about financing their solar system in one way or another should strongly consider the lease option. There are advantages to both and it will depend on the individual homeowner’s personal goals.
In the long run, what will cost more, buying a system or leasing a system?
Leasing a solar system will cost more over the long-term. However, the smaller up-front payment required for a lease frees up finances that can be used for other investments.
Under a solar lease, who pays for the replacement of the solar inverter, which typically lasts about 12 to 15 years?
Under most lease programs, the leasing company offers some kind of warranty for the duration of the contract which includes replacement of the inverter should it malfunction. I can only speak for SunRun, which offers a 20 year warranty on the complete solar array, inverter included.
Are all homeowners candidates for a solar lease, or are there mitigating factors – size of the roof, roof orientation, average monthly electric use, the particular utility one has, etc. – which might prevent homeowners from having a shot at a solar lease? What are some additional mitigating factors that might prevent a homeowner from being able to take advantage of a solar lease?
Currently in Colorado, only customers of industry-owned utilities that have a rebate structure which allows for third-party ownership models can take advantage of a lease program. This means Colorado homeowners must be an Xcel customer in order to take advantage of a program such as SunRun. In the case of SunRun, customers must also have a decent credit rating to be approved. Cell phone service is also required for SunRun customers, as this is necessary for SunRun to be able to monitor the system’s production. Usual factors for solar also apply, such as shade-free roof or ground space to install the system, connectivity to the grid, etc.
How much choice do you have on system size if you lease? For example, can you over-size the system – within the utility rebate size limits – to power a future electric car?
The same limitations and requirements for direct-cash payment solar projects also apply for solar lease projects under Xcel’s rebate program. Xcel requires that the system size does not have an estimated production that exceeds 120% of the customer’s 12-month historical kWh usage on the property.
Will all homeowners who enter into a solar lease see their total expenditures for electricity be equal to, or less, than what they are currently paying for electricity right now?
Generally speaking, most of the customers who have looked into SunRun find that their total electricity expenditures are less than what they’re currently paying Xcel. However, customers with complex system design needs or high-cost solutions may have a slightly higher bill than current rates at first. This is usually only in cases in which a customer has many variables such as concrete tile roof, complex conduit runs, less-than-ideal roof surfaces or orientation, or specialized equipment that drive up the cost of the installation. Depending on how quickly rates from utilities increase, it is usually just a matter of time before even those customers with complex projects are paying less for their electricity with solar.
How much money do you need to put down for a solar lease?
Depending on the various factors that go into a solar project for your home, the down payment ranges from $0 to a few thousand dollars. Some of these factors include system size, additional installation costs, panel type, or complexity of design.
How long does a lease typically run?
This depends on the leasing company but SunRun offers a 20 year lease program here in Colorado.
What’s covered in terms of my solar system on a lease (for instance, the inverter)? Who covers and maintains my system and for how long?
This depends on the leasing company. SunRun offers a warranty that covers everything in the system from defects, inverter included. They also insure the system for you. Damage from natural causes such as hail would be covered under their insurance.
What happens if I want to sell my house before the lease is over?
This also depends on your leasing company. In the case of a SunRun lease, they have very flexible payment terms which allow for a few options in the case that you need to move: 1. Transfer the agreement to the new homeowner. In this option, the monthly payments will be the responsibility of the new homeowner and maintenance will continue under SunRun’s program. 2. Pay for the remaining electricity in the contract. There is a discounted rate for buying the rest of the electricity remaining in the contract ahead of time. The new homeowner would not owe a monthly payment to SunRun for the power remaining in the agreement and full system maintenance would continue under the SunRun contract. 3. Purchase the system. In this scenario, the homeowner could purchase the system from SunRun at Fair Market Value. Maintenance and repairs would be the responsibility of the homeowner, not SunRun.
What happens if my solar installer and/or third-party financing company folds during my lease period?
SunRun has built in several protections for the customer for this scenario. Let me start by saying that SunRun is very well financed by foundations that have invested in their business, and they have been growing steadily since they began a few years ago. Fiscally they are a strong company and we do not anticipate they’ll be having any problems in the future. With that said, in the doomsday scenario that they went bankrupt or disappeared, there is language in their contract which ensures customers will be able to keep their solar array and continue receiving the benefits of generating solar power with the system.
In the case of installers, this is a very real risk and one that customers should take into consideration when they are getting bids for a solar project. If something goes wrong in year 5, 10, etc and the solar installer that designed and installed their system no longer exists, it will be much harder to manage the manufacturer warranties on panels or an inverter. There will also likely be labor costs associated with finding another solar installer to perform any repairs or maintenance needed. This is where REC Solar has a decided advantage as the nation’s largest solar installer and having completing more installations than any other company in the industry. This allows us to weather regional hiccups that can happen in local markets (such as changes in rebates, government programs, etc).
On the surface, residential solar leasing and SPPAs seem like a no-brainer for an environmentally minded home owner. After all, why would I pay more to my utility to power my electric usage mostly with coal if I could pay the same, or less, per month – with no upfront costs – and power my home’s electricity with solar? What’s the catch on solar leasing? And if there is no catch, why isn’t every green-minded homeowner doing a solar lease or SPPA yesterday?
The solar leasing model is a very good way for homeowners to go solar without having to pay a large upfront sum of money at installation. It is a great option for those customers who want to finance a solar project and still take control of their energy costs while helping the environment. I hesitate to call it a “catch”, but the reality is that you’ll pay a slightly higher amount of money over a 20-year period by leasing than you will with a cash purchase. This is somewhat offset when you consider the time-cost-of-money. SunRun and other leasing companies do check the credit history of their customers before moving forward with an agreement, so interested parties either need a decent credit history or must have the ability to have someone (that has decent credit) co-sign the agreement with them. Also, as I stated earlier, customers with less-than-optimal solar design on their home tend to have a longer payback period through the leasing model.
How has solar leasing affected the solar business in Colorado – and elsewhere – has it increased growth in solar? How much? And how much do you think leasing might boost solar in the future?
Solar leasing and third-party ownership models will be a huge factor in the growth of the solar industry in 2010. Not only does it make solar accessible to customers that previously couldn’t come up with the large upfront cost of a cash purchase, but it enables companies such as SunRun to monetize the rebates and tax credits in a way that will spur more growth in this industry in Colorado.
Do you think solar leasing and SPPAs will undercut outright purchases of solar systems? Why or why not? And, if they do, what might this mean for the solar industry as a whole?
No, I do not think that solar leasing will undercut outright purchases of solar electric systems on homes. It is simply an additional way to go solar, and provides customers even more choice in terms of how they finance a solar project. Customers who want to buy their system outright still have that option available to them. With that said, in Colorado, I think you’ll see a larger percentage of solar purchases come through the leasing option as Xcel rebates for direct cash purchases continue to decrease over the next year.
Do you have anything to add?
(SolarChargedDriving.Com would like to thank Brian Sharpe and REC Solar for agreeing to do this informational interview comparing solar leasing with solar purchasing)
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