Fair market value of solar system at end of lease

[mukg]

Hello,

I am currently trying to solicit solar bids. What is the expected FMV of a solar system percentage wise at the end of a lease (say 20 years)?

I have talked to a couple of Sunrun representatives, and both suggested that FMV would be zero, and that it is not worth the company's time to uninstall the system at the end of 20 years, as long as you resist the up-sell pressure. In contrast, SunPower does not even offer an option to purchase (either renew lease or return system).

Can anyone who have leased a system provide their options for elase expiration (especially for Sunrun)?

[silversaver]

There's none 20 yrs old used solar system for sales on the market, so it make really difficult to predict the market value. Are you thinking to lease a solar system now and sell it after 20 yrs later and making some profit since the residual money is $0?

There's labor involve removing and repairing the roof after 20 yrs, but I don't think I saw anywhere in a lease contract(only see it once for solarcity) mention the system removal includes roof repair....

[mukg]

There's none 20 yrs old used solar system for sales on the market, so it make really difficult to predict the market value. Are you thinking to lease a solar system now and sell it after 20 yrs later and making some profit since the residual money is $0?

There's labor involve removing and repairing the roof after 20 yrs, but I don't think I saw anywhere in a lease contract(only see it once for solarcity) mention the system removal includes roof repair....

Not with an intention to sell. I think a 20 year old system would have limited value (assuming solar technology continues to progress). Currently, I am getting approx equivalent pricing for 20 year pre-paid lease vs purchase. I was thinking that if the system was left on my home after the lease expiration, it would be equivalent to paying/purchasing the system, but receiving the servicing and an inverter replacement for free.

That is of course subject to the answer to my question. Have hard time seeing it truly free, but was looking for answers from more experienced folks, especially contract info from those leasing in CA.

[silversaver]

Not with an intention to sell. I think a 20 year old system would have limited value (assuming solar technology continues to progress). Currently, I am getting approx equivalent pricing for 20 year pre-paid lease vs purchase. I was thinking that if the system was left on my home after the lease expiration, it would be equivalent to paying/purchasing the system, but receiving the servicing and an inverter replacement for free.

That is of course subject to the answer to my question. Have hard time seeing it truly free, but was looking for answers from more experienced folks, especially contract info from those leasing in CA.

Got it, that is a good thinking. but....

1. most of the leasing company don't offering you good brand name panels. I'm not sure if those panel can last that long or still keep its 80% output at end of 20yrs. You can try SunPower lease, but the lease payment isn't really cheap...

2. you can purchase a 20 yrs extended warranty on almost any inverters.

3. Pre-paid lease and purchase are amost the same cost unless you cannot get the 30% fed incentive because of income.

[russ]

At the end of 20 years there will be value in a system. Specialized companies will be removing the systems for resale. To think otherwise is being foolish.

[Alisobob]

I got a few lease quotes from all the guys you hear on the radio before I bought.

The "buy out" at the end of a 20 year lease was ridiculous.. between $4k and $8k.

Thats 30% of what my total purchase price was....

Every lease quote I got was a scam..

[Ian S]

My thoughts on the FMV at the end of a 20 year lease are explained in this post:

Now let me put on my business hat for a moment. I don't think we know what costs will be in 20 years but let's assume, reasonably I think, that we can pretty much price things in today's dollars. Today, you can buy 250 watt solar panels for about a buck a watt. Based on a warranty of 25 years, our 20 y.o. panel has about 20% of its warranted life left so you might assume that it would be worth about 20% of the price of a new panel. But of course, the panel is still outputting most of its original power so 20% seems too low a value. So, let's double it to 40%: which translates into a "value" of maybe $0.40/watt. So let's say I can sell 20 y.o. used panels at $0.40/watt in competition with brand new warranted super high efficiency ones with the latest technology costing $1.00/watt. To make it easy, let's assume we're dealing with 250 watt panels but obviously, we're going to have a wide variety of sizes and manufacturers. So I assume I can sell each panels for $100. My source of used panels is all those systems coming off leases from 20 years prior. These are owned by a variety of lessors and that's from whom I will be buying them.

I want this to be a profitable enterprise so let's back out of the retail value of the panel - $100 - what it is I can pay the lessor for them and still turn a profit. Let's take profit out first: I don't think $10 is unreasonable. Now those panels are on roofs so I'm going to have to get them off the roof and do it without damaging the roof. A typical installation might be 20 panels. To have a rental truck and a couple of guys going to a site, removing the panels and loading them into the truck in some manner and returning them to our warehouse and unloading them is liable to cost a couple of hundred $$ let's say $200 to keep it simple. That's $10/panel. At the warehouse, the panels have to be cleaned, sorted, inspected, and tested. There will likely be some damaged/rejects. I think this might all cost another $25/panel. The panels will then have to be packaged for protection which I assume would cost probably a minimum of $5/panel. The cost of the warehouse, office, insurance, contractor's license, computer, telephone, utilities, misc. overhead etc. is probably going to cost at least another $20/panel. What's left is probably the most you can afford to pay the lessor for the panel:

So: $100-10-10-25-5-20 = $30/panel

That actually represents fair market value. For a five kW installation, that's about $600 worth of panels. If I were the homeowner, I'd say to the lessor: I'll give you $700 just to avoid the hassle of having to deal with people running around on my roof. What do you think the lessor is going to do? And how long is the used panel business owner going to be around in that event?

[mukg]

Thanks Ian. I can see the argument for both the sides, just trying to guage how much attention I should pay to the lease expiration FMV in the lease vs buy argument.

A few follow-up Q:

1. When is FMV set for a lease/PPA (beginning or expiration)? Assuming expiration, by leasor or independent agency?
2. How much does home insurance increase due to a solar system?
3. How do natural disasters / accidents (tree fall etc) affect leases/PPA's? And is this any different from the way such disasters affect home insurance on a solar system?

[Alisobob]

A few follow-up Q:


2. How much does home insurance increase due to a solar system?

I just sent all my pricing... photos... everything over to my insurance company.

Its covered at a 150% replacement cost.

Premium didnt go up a nickle...

[Ian S]

Thanks Ian. I can see the argument for both the sides, just trying to guage how much attention I should pay to the lease expiration FMV in the lease vs buy argument.

A few follow-up Q:

1. When is FMV set for a lease/PPA (beginning or expiration)? Assuming expiration, by leasor or independent agency?
2. How much does home insurance increase due to a solar system?
3. How do natural disasters / accidents (tree fall etc) affect leases/PPA's? And is this any different from the way such disasters affect home insurance on a solar system?

Some older leases tried to set FMV at the start but that's not really kosher and may run afoul of the IRS. My 2012 SunPower lease is that way. With a leased system, the lessor usually insures the entire system against damage/loss. I asked my insurance agent about it and they have not charged me any more on my insurance since installation.

My feeling is that in 20 years, my roof will need major work perhaps replacement and that I will have to remove the system anyway. I will ask SunPower to do so and believe they will not want to spend the money for that and abandon it and cede ownership to me. They have a paragraph in my lease specifying that they have the option to do just that if I request they remove the system. In the event they actually opt to remove the system, that will be fine - I will let them do so then replace the roof and re-evaluate whether a new solar system makes sense. Of course I could be six feet under by then and probably won't care much one way or another.

[pleppik]

At the end of 20 years there will be value in a system. Specialized companies will be removing the systems for resale. To think otherwise is being foolish.

Assuming the modules haven't broken in 20 years there should be some residual value. Presumably the residual value would be somewhat below the per-watt price of brand-new panels in 20 years.

It's hard to make predictions, especially about the future, but it can be fun. 20 years ago, in 1995, PV modules cost about $10/watt in inflation-adjusted dollars (without installation). I don't think anyone then would have predicted PV prices below $1/watt today, but here we are.

I happen to think that there's room for modules prices to drop a lot more over the next 20 years, but another factor of ten? That sounds like too much...

But let's suppose it is a factor of ten. So in 20 years, what is a 300-watt panel today might sell (used) for $25 or so in 2015 dollars. That's not exactly zero, but probably not worth the effort to remove and recondition it.

Or PV module prices might only drop by a factor of two over 20 years, in which case a 300-watt panel might be worth $125 in 20 years. At that price you might see recyclers offering to remove your old PV system for free, but you won't get paid much (if any) of the value of the system. That $125 will all go to labor, reconditioning, disposal of unusable parts, and overhead.

It's also possible that sometime in the next 20 years the solar industry will standardize on some particular way of building modules (size, mounting, built-in electronics, etc.) that makes today's modules incompatible with future installations. That would make it very hard to resell used modules and reduce the resale value of old modules to close to zero, even for perfectly functioning systems.

[SoCalsolar]

I still see 30 year old

I still see 30 year old garage doors loaded on picks headed South. I imagine that some entrepreneurial soul will figure out how to make a buck off of 20 year old panels. Every lease and ppa contract is different. Some are worded the higher of FMV or a stated amount some are the lessor of. I would guess 10% of original value? No one knows at this point and does anyone even know a solar panel appraiser?

[scenomo]

I am assuming that future lease prices will be tied to electrical rates at that time, meaning that if in 30 years if tier 1 price is 40c/kwh and tier 3 is lets say 60c/kwh, the lease would be approx 50c /kwh.

With that said, I feel its fair to say that if used solar panels are still operating, their prices would also be tied to kwh pricing. I am going to guesstimate that the price of used panels will not be too much cheaper than new panels are costing us today. (lets say 50% of todays price, considering inflation and power cost increases).

What FMV would be assigned to these used panels by "an independent party" which is solely hired by the leasor? Im guessing a pretty high value so that you would not want to buy them out or if you did, the leasor made out like a bandit.

[Ian S]

What FMV would be assigned to these used panels by "an independent party" which is solely hired by the leasor? Im guessing a pretty high value so that you would not want to buy them out or if you did, the leasor made out like a bandit.

Fair market value is not what the panels are worth to YOU or the LESSOR, it's what they are worth to a completely independent buyer and that means the cost of removal from your roof and all the other costs associated with preparing the panels for resale would have to be included. Of course, the panels, if they are still producing at 80% of original are worth FAR more to you but that's irrelevant to the FMV. I stand by my previous calculation of that value. And if we can't come to a deal at the end of the lease, I will call their bluff and demand that they remove them as per the terms of my lease.

[russ]

Fair market value is not what the panels are worth to YOU or the LESSOR, it's what they are worth to a completely independent buyer and that means the cost of removal from your roof and all the other costs associated with preparing the panels for resale would have to be included. Of course, the panels, if they are still producing at 80% of original are worth FAR more to you but that's irrelevant to the FMV. I stand by my previous calculation of that value. And if we can't come to a deal at the end of the lease, I will call their bluff and demand that they remove them as per the terms of my lease.

Their bluff? Bull Ian, you are dreaming.