SolarCity 20-year lease too good to be true?

[SolarSurfer]

Leases, at least every lease I have ever encountered through SUn Run, Sunpower, Sungevity, Verengo, Blah BLah BLah...sign you up on a 15-20 year program. From there your rate is set to go up at 2.9% per year during that time frame. I don't have much solar city experience, but thats the lease hook.

A string inverter is outdated equipment, absolutely in regards to how much energy it can harvest and the fact that it doesn't consider cloud cover/shading and the fact that the panels can only operate as strong as its weakest link due to the system having to balance itself. But the real kicker is the fact that you can monitor all this online and see in real time your panel production. Finally, the costs is only about $100 more per panel, at least with us, and when you hedge your bets against say 1 in 20 micro-inverters failing vs. 1 in 1 with a central inverter your odds are heavily decreased. And if production were to fail, you don't care because you are getting $.20 per kwh in lost production through the uptime guarantee. The Enphase technology sends an email alert that an micro-inverter is down and its fixed before you even knew there was a problem.

New product, sure, thats a fair statement...so is gaining 17% market share last year. The stone age didn't end because we ran out of stones.

Its your money and it doesn't matter to me, just trying to help out and show you what the bottom line is. I hope you can appreciate that.

[sacsolarquest]

Some good points, SolarSurfer, thanks.

1). Not an issue for me, since I'm comparing the lease vs a purchase net of the tax credit and utility rebate.
2). I don't understand this point. What rate increases 2.9%? We aren't buying electricity from them.
3). The only way the system is going to overproduce is if we're out of the house for several months in a year. I don't see that happening, but if it does, it's true, they will get the money from the excess production.

I'd hardly say a string inverter is outdated equipment. I do agree that micro-inverters have some very nice advantages, but a 15-year warranty doesn't mean they'll actually last that long. They use electrolytic caps just as (most?) string inverters do. If we were to use a micro-inverter, I think we'd go with Enecsys' new ones, which use thin film caps. I'm pretty wary of using something that is brand new with no track record, but it's the added cost that deters me the most.

They guarantee a minimum of 4.1k kWh in the first year, and it goes down a bit each year after that (as expected). That's the only number I think we really care about.

Thanks for your thoughts.

[SolarSurfer]

The issues I have with the lease a 3 fold.

1.) You give up your 30% federal tax credit and your utility rebates.
2.) Your rates increase incrementally 2.9% per year, whereas electric is roughly 7.5% over the past 10 years, this is a lesser of the two evils.
3.) If your system over produces, you don't get credit for the extra energy sold back to the grid, solar city does.

Another thing that you need to look out for is the fact that they are selling you a 3.44 DC system. The number you need to pay attention to is the AC number. Finally, I know you are buying out dated equipment because you talked about a 10 year warranty of the central inverter. You really need to look into the Enphase micro-inverters, their 15 year warranty, their 100% uptime guarantee, and their ability to harvest 10-20% more energy.

Beware of companies that have gimmicks and tricks and its too good to be true. You have to pay someone. You either pay the energy company, or you pay yourself by going solar and investing in your home. Solar leasing is like sticking your toe in the pool and thinking its going to cool you off...jump on it, finance that structure, and start saving $$$.

[sacsolarquest]

No, he just asked that as a favor, please don't distribute the document. He spoke with my wife, so it's third-hand, but I believe he had said something about them having problems with other people trying to pass themselves off as SolarCity or using it as for their own leases. (I think he meant someone had gotten a copy of a lease and used it as their own, or something). Anyway, I can understand the desire to protect their work product -- they probably paid a large sum of money to several attorneys (or in-house legal staff) to come up with this document. Of course that wouldn't stop me from showing it to our own attorney (not that we have one at present).

[Mike90250]

But I was specifically asked (even though I hadn't mentioned a word about this forum) to not distribute it in any form, so I won't be posting excerpts.

Did they get that in writing from you ? otherwise it's BS. Any contract with fine print should be subject to any scrutiny from anywhere, especially if you are going to be on the hook.

[russ]

Happy studying!

When some party gets secretive I always wonder why.

Excerpts would be most interesting and useful to all.

Russ

[sacsolarquest]

I now do have a copy of the lease and will be looking through it today for gotchas. But I was specifically asked (even though I hadn't mentioned a word about this forum) to not distribute it in any form, so I won't be posting excerpts.

One thing I didn't like was they have the right to transfer (sell) the lease/equipment to another party without our consent. If this were a mortgage loan, that wouldn't be a concern. But the 20-year maintenance provisions are one of the things that make leasing attractive. While the lease requires the transferred party to also be responsible for the maintenance, it just doesn't give a good feeling to know it could be sold to someone who doesn't know a thing about maintaining solar systems. My hope is there's little value in re-assigning the lease or equipment so they wouldn't do it, but who knows the strange ways that companies come up with to make money?!

Of course, bankruptcy is a danger in buying or leasing, and the concerns with that aren't too different from the lease being transferred. So many intangibles to think about!

[russ]

Looking forward to gearing from you after you have the lease!

Like you say, unless there are some hidden 'kickers' that you haven't seen it is too good to be true.

Russ

[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.

[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]

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]

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

[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.

[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]

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.