SolarCity 20-year lease too good to be true?

[sacsolarquest]

We all know when things sound too good to be true, they usually are. But we're not able to figure out the "gotcha" in this proposed deal, so we're hoping someone here can.

SolarCity gave us an estimate for a 3.44 kW DC grid-tied system. One of their options is a 20-year lease plan. For about $5800, we'd get:

20-years of solar production
All repairs, including inverter, free of charge
Monitoring
Insurance
Free removal at the end of 20 years (or we could optionally purchase the system for an unknown price -- probably not!)

The lowest quote we've obtained for purchasing a comparable system is $10,000 net.

Over 20 years, assuming the only repair we would need for a purchased system would be a single inverter for $2000 11 years down the road, the IRR works out to be about 4.7% (terminal value at $10k) vs. 6.6% for a leased system.

So the return on a leased system is almost 50% higher than purchasing one, and we don't have to worry about insurance, higher property taxes, or dealing with repairs. And in 20 years we could get rid of it and replace it with newer technology at a reasonable cost .

The lease is fully assumable if we decide to sell the home within the 20-year time frame.

What's the downside? What are we missing? Any ideas?

TIA,

Ken

[Sunking]

Well no one is going to give you something for nothing. Read carefully and I bet you will find the company gets all incentives, rebates, refunds and credits like SREC, and all you get the electric billl.

[sacsolarquest]

Of course that's the case; sorry if I didn't make that clear.

The bottom line is, $5800 for a 20-year lease with all the stuff provided as I mentioned, versus $10,000 for purchase (net of all incentives, etc). Over a 20-year period, the lease option seems to give about a 50% better return on investment.

So, like I said, it just feels too good to be true.

[Sunking]

Guess it depends on what you call a good investment. IMO if you cannot double your money in 5 to 7 years, it is not a good investment. At 20 years to break even on you rinitial investment is lousy. In reality you are loosing your shirt as inflation would completely consume it.

Example if you invest $1000 today, in 20 years you should be able to cash out $16,000. So if you invest $1000 today and 20 years from now it is only worth $1000, you lost $15,000.

[russ]

Outside of the return not being great, paying a guaranteed escalating price for power for 20 years plus paying 5800$, giving away all credits, SRECs etc - you can not even claim to be solar powered as 1) you are grid connected and 2) the solar credits and equipment all belong to someone else.

That is very different than the Sungevity lease I saw (someone copied and posted on another site.

There are a few gottchas in that one that some would live with and be happy I suppose.

Can you copy the proposed lease and post it here?

At any rate - take it to a good lawyer and get their opinion.

Russ

[sacsolarquest]

Russ, sounds like you're comparing this to an off-grid system?

We don't (yet) have a copy of the lease. We only read over it with the salesperson. At the time, we didn't think we were interested (we've never leased anything). But after running the numbers, it seems to make more economic sense than buying.

I'm just trying to make a decision: Buy vs. lease. It sounds like you (and Dereck) are just saying to walk away from solar altogether? Keep paying the ever-escalating electricity rates ad infinitum, and invest my money in ... oh, I don't know, the stock market? Clearly not a 1% money market account, since that really is losing (not loosing, sorry) money every year. And not a Treasury bond at 3-4% -- that may or may not keep up with the costs of electricity increases.

In this "new normal" economy, a "guaranteed" 6.6% return (with the possibility of it being much higher, if electricity rates rise higher than the 4% figure I used) sounded pretty good to me.

I was asking for a reason to buy instead of lease, and so far, no one has addressed that, AFAIK. Instead, it sounds like neither is a deal to consider.

[Mike90250]

Unless you get some big tax advantage, a lease always makes more $ for the leaser, not the lessee. Why do you think they WANT to lease it to you. If you can afford to buy outright, and line up all their credits (sometimes only a large company gets the credits, homeowners only get offset) you get the benefits. Also, in 10 years, when you need to re-roof, "their" installers are likely going to soak you for the 2 days work to un-mount the racks, and likely force you to buy new racks, used racks are likely to be cut apart because of corrosion.

[russ]

Hi Ken - No, not comparing this to off grid. What I was saying is that one can not lease such as that and claim they have done a green thing as all the rights belong to company doing the leasing.

Have fun and enjoy the lease! I do not trust salesmen - they may have good intentions but also may not. They may or may not know what they are talking about. Most likely folks would have no idea if they are being fed a line or not.

1) They won't leave a copy with you? Why?
2) It is different than Solar City's in several ways you listed. Solar City you have to - 1) provide the insurance 2) provide a high speed internet connection 3) guarantee to keep the trees (even on the neighbors property) trimmed so the panels are not blocked 4) in the event you decease your heirs have to honor the lease and conditions and payments - even if they are in another country and the house is empty, 5) provide them with an easement to the system if they feel it is needed, 6) accept cost escalation for the duration of the lease, buy it out if you want the system to go away - and others I don't remember right now.The lease goes with the property - just hope the prospective buyer to in 2 or 5 years wants a solar PV system

3) Anyone signing the lease before a lawyer goes over it carefully deserves whatever they get.

I would think it far better if Uncle Sam would allow the consumer to have the same benefits that make this a good deal for the leasing company. The way it is new groups have been set up to milk the market for whatever it is worth - at the public's expense.

Please go ahead and lease. At least you will make the salesman happy.

Russ

[Sunking]

Russ, sounds like you're comparing this to an off-grid system?

It is a grid tied system. No one would lease you an of grid battery system, and people only go into business to make money by putting their money and effort to work. All excess capacity, incentives, SREC goes to the company providing you the lease. Any shortfalls goes to you, for example one month you use more than you generate, you get the bill. You also get the utility connect charges and taxes. It is no different than leasing a car.

Yes you can make good money on the market. Since the crash in 2008 I have made doubles and triples by buying companies like Ford, Toyota, GE, BP, Alcatel Lucent and a few others. Buy and hold is dead. Trick today is to buy and trade the ole fashion way, by low when a company gets beat up, ride it up and exit, start over again.

The only way you can come out ahead is to pay cash for the system, live in the right area of the country where your neighbors pick up most of the cost, have high electric rates, and good solar insolation. If you live somewhere like I do in TX where electricity is cheap and no incentives, solar does not pay. You have to weigh it all out instead of listening to the hype. You will not get hype here, just gut honest answers. You know something that is very politically incorrect, the facts and truth even when it hurts.

[sacsolarquest]

Mike - I'll admit to being ignorant in this area. I don't understand credits or offsets (I'm not even sure what an offset is). Our utility company offers a one-time rebate for solar installations, that's all I know about. So that does go to SolarCity instead of us if we lease, but the purchase figure of $10K already netted that out.

As for re-roofing, that's a good point in some cases, but it's a tile roof with a 50-year warranty (and 40 years remaining). So in our case, that's probably not an issue. But it sounds like it sure could be on some roofs.

Russ, if we are generating solar electricity, regardless of who the equipment belongs to, isn't that a green thing? I certainly agree with your general distrust of salespeople, that's why I started this thread. I want to learn what we're not being told.

1) They probably would leave a copy of the lease with us if we asked (which we should do next week if we're still thinking about it). But as I mentioned, we didn't think we were interested in the lease until the next day, after we ran the numbers of leasing vs purchasing.

2) I think you wrote "Solar City" when you meant Sungevity? In our (Solar City's) case:
-1) They provide insurance
-2) I assume we do need a high speed internet connection for the monitoring, but that's fine with us.
-3) The lease did say we had to keep trees trimmed, but that shouldn't be an issue on our property. It also said we had to keep them clean, which would require hosing them off once a year.
-4) There are no payments involved after the initial amount, so this isn't a concern.
-5) We have no problem providing an easement.
-6) There are no costs involved, so there's no cost escalation to worry about.
-7) I see the lease as a plus for a prospective buyer -- they don't have to pay a thing, and they get free electricity for the duration of the lease.

3) That's probably a good point about bring the lease to have a lawyer look at it -- thanks!

I suspect the company probably takes some sort of accelerated depreciation, but otherwise I don't know what extra benefits they get that make this worthwhile for them. I assume they also get a federal tax credit like we would with a purchase, and the utility rebate. But then they have to pay for at least one inverter during the next 20 years.

Dereck, our utility uses net metering for solar installations. So we total up our year's solar production, and subtract our usage, to determine our bill once a year. You're right, anything generated in excess would go to the company. But the proposed system meets only about 80% - 90% of our yearly usage, so unless our usage drops or the system somehow creates much more electricity than it's supposed to, there won't be any income generated by it.

Congratulations on your success in the market. Perhaps you should manage our portfolio! Yes, there were amazing opportunities in 2008 (in hindsight, especially), but today the pickings are very slim. It wouldn't surprise me to see the general market end the year lower than it started (it might surprise me if it doesn't). But I think this discussion is too far OT, so I'll refrain from further comments.

[Sunking]

Net metering is small potatoes. My bet is you live in a state where the utilities are forced to pay SREC's and that is where the real money is at for carbon trading scam. For each Kwh your system produces, your local utilities or some agency pays a set amount of money for each unit of CO2 emission reduction, that is the offset part you do not understand. Instead of you getting that check, the company you lease from gets it.

The way most leases work is in states that have SREC, state incentives and some states have forced utility incentives. So lets say it cost you $5000 out of pocket. The lease company comes installs a 3 Kw system on your home. Once they take your $5000 and all the federal, state, and local utility money it cost them little or nothing to install the system on your home. From that point on you pay for what ever net energy you use from the utility plus any taxes, fuel transmission charges your utility normally charges. The owner of the system receives the SREC money over whatever term your lease is of say 20 years. It is all profit for them. After the lease is up just like a car, you have the option to buy the system or give it back. If you buy it it is icing on the cake for them. If not no loss as the system has already been paid for many times and they just trash it. More than likely they will just leave it there and not bother with the expense of removing it. By then the SREC money scam will have been exposed and run out.

The scam part is the money comes from your neighbors via higher taxes and energy cost. Pretty much a classic legal Ponzy scam like Social Security.

All I am trying to tell you is you need to fully understand what the lease does, who gets what, and then determine if it makes economic sense for you. My bet even though it will cost you more up front paid in cas is to just install the system yourself and do not get a loan to finance it.

[russ]

Hi Ken - Right I turned the names around.

What is the guaranteed production?

What is your household consumption?

Sharp provides a free calculator that is good - 1) http://sharpusa.cleanpowerestimator.com/sharpusa.htm

You can see how what they are telling you matches up. I ran it for Mike's zip code - that said an average of 359 kWh per month production.

Something is strange though - you are getting electricity (360 kWh/month) for 24$ per month for 20 years? Less than 7 cents per kWh?
5800$/240/360 = 0,7 cents

If SRECs (or similar) become available there they will belong to the lease company - that can add up.

Reread the lease when you get ahold of it - it is hard to believe they are providing so much better a deal than Sungevity.

Russ
1

[sacsolarquest]

Derek, I believe you win your bet: I'm in CA, and they do have RECs (I don't know what the 'S' is in SREC).

It sounds like you've described the situation well. It seems like a win-win for all parties involved, except for the majority of people who don't partake who are forced to pay for the players. I can't do anything about the way the rules are, I can decide only to play or pay. Seems to make more sense to do the former. Usually we are the ones on the other side, paying for people to play when we can't. For once, we could join in on the party.

My IRR analysis was straight cash and cash. If we purchase outright, it would be cash. If we lease, it would be cash. And like I said in my OP, leasing seems to provide a 50% better return over 20 years.

Our household consumption is a meager (IMO -- we try hard!) 5500 kWh / year. That's a good question on the guaranteed production amount. They do claim a "performance guarantee", but to be honest, the number isn't clear. I think it's 4338 kWh, but I'll have to make sure (obviously!).

The Sharp calculator is interesting. After messing with the numbers to make it best reflect our situation, it comes up with a payback period of 22.5 years. The chances of us remaining here long enough to make a purchase pay back are pretty small. But it would add to the value of our home, probably more so than many home improvements. OTOH, you typically enjoy home improvements while you're living there. I don't think solar is going to provide any enjoyment other than maybe a small (if misguided) feeling that we're doing "good" for the environment.

Yep, indeed, less than 7 cents per kWh! LIKE I SAID: It sounds too good to be true! But maybe it really is true, and as Derek said, it's because our neighbors are paying for it.

[russ]

Nope - It was Solar City - the first lines of the lease -

[FONT=&quot]PERFORMANCE GUARANTY AND LIMITED WARRANTY AGREEMENT

Welcome to SolarCity!

This Performance Guaranty and Limited Warranty Agreement (this

[sacsolarquest]

Well, there were quite a few similarities between the two, so that isn't surprising. But it sounds like the terms in our lease are more favorable than the one you've seen. Actually, there are only 2 big differences: Since ours is a "pre-pay", there are no payments after the initial one. And ours includes insurance.

I recall one oddity from the lease when we went over it with the salesperson: At our expense, if we move, we can actually move the system. I can't imagine anyone doing that, considering not only the expense involved but the differences in components required from one house to another. I found it pretty funny they'd even put it in the contract.