SolarCity 20-year lease too good to be true?

[nate]

Hi Nate - Welcome to Solar Panel Talk!

Say a system would cost you 5$ per DC watt installed - 3680 watts * 5$ = 18,400$

less federal rebate of 5,520$

less state kickbacks of 6,000$ and 1,750$ (some of this is taxable)

18,400-5520-6000-1750 = 5500$

You didn't mention your annual kWh use - typically they size the lease units so there is no export - just as well as you don't get any credit for it - right?

You probably have 50% of your electric bill to continue paying.

These leases cherry pick the easiest part of the electric bill. Why not consider a larger system. Does Oregon have net metering available? Can you use excess power generated in the summer to help with the winter bill?

I assume you are in Portland or at least on the valley side?

Russ

Hi Russ, Thanks for the welcome and quick reply.

Yes, I'm in SW Portland / Beaverton area. The utility bill ave is $100 a month. My understanding is that I do have net metering. I'd consider a larger system, if it would make sense. Seems like the strategy all companies go for is (lease or purchase) is to maximize the available credit from the state so most quotes have been around this 3k size. I haven't been shown a better return or lower cost per DC watt for a larger system. The consensus seems to be that usable roof space I have wouldn't produce more energy than I would use in a year, at least with current technology.

The best quotes for purchase I see are around 5.5/DC not 5.0, but if I go with your numbers I would need to stroke a check for $12,880 upfront, get $1750 +$1500 back one year from now, and $1500 back from the state then next 2 years after that for the Oregon Residential Credit. At the end of 4 years I"m down to $5520 net cost. Compared to the lease, at the end of 4 years I'm down to $247. The savings in the energy bill will be the same up to that point, and for the next 11 years. 11 years later will the system be worth more than $5273 plus the interest that $5273 could return if I leased the same system instead of purchase. None of us have a crystal ball to know for sure.

If Solar City exercises their abandonment clause I've effectively purchased the same system for $5273 less. Again, no one has a crystal ball here but unless there is one heck of a recycling program years from now I'm not sure it is worth the labor to uninstall, transport and try to resell 15 year old equipment so I don't think this is out of the question.

I don't understand where you say these leases cherry pick the easiest part of the electric bill. The savings in the energy bills is consistent comparing the lease and purchase quotes I've received.

Thanks for the help!

[russ]

The leasing companies don't explain the various benefits as they do not plan to pass them on to the customer - that is part of their profit. They will make most of their money on this type of thing.

The solar leasing companies have no intention of 'making this (SRECs) work in your favor'. They are in business to make a profit and you are the mark. The contract specifically states that you give up all rights to any such benefits.

The inverter (in the case of a central inverter) can be expected to be replaced in maybe 10 years. Enphase claims and guarantees longer but until more time passes it can not be backed up - the projection is not based on accelerated testing.

Technology changing - the solar PV silicon cell technology isn't changing all that much. If the efficiency goes up it simply means a smaller panel would have the same output as an older and larger one. Panels from 30 years back still work today. Thin film is changing and will change more.

Electronics (inverters) can be expected to constantly be improved. However, if one waits due to that reason it would be the same as not yet having bought a PC because they are going to change. I remember my first computer in 1981 - an Apple 2+ - a bit of an antique by today's standards.

Russ

[nate]

I would as an owner of a system bolted to my home not even consider depreciation do you depreciate your new bathoom?

I don't expect to necessarily get 100% or more of my money back on a bathroom remodel in terms of what a buyer would be willing to pay for my home. Under the right circumstances you may but not always. It would depend on how bad and outdated the bathroom was to begin with, and how much time had passed since I remodeled the bathroom vs. when I intended to sell.

For Solar PV, do we expect technology to not improve in the next 15 years, making the system bought today outdated and inefficient compared to what is available 15 years from now? One of the arguments for the large credits is as this industry develops that cost of the systems will go down, and so will the need for the credits.

Also, do we expect all the parts of the system to work indefinitely? 15 years from now, I were to have purchased, can I expect another 15 years out of my current inverter.

You need to check into the Oregon SREC market to see what you are missing out on income wise from a lease.

If it is so lucrative how come the quotes from companies offering purchases aren't explaining how this would work to my advantage in Oregon? How come I'm seeing 7-8 year payback times and smaller returns on investment than what you're quoting? I don't understand why companies selling the systems would hide this information from me if they could sell me a product that would return 250% on my investment. I'm getting multiple quotes, and am open minded to purchasing or leasing. Maybe your roof has a much higher energy potential than mine does, but I'm just not seeing that kind of return.

[russ]

Right Rich - I don't think Solar City or other leasing firms mention anything they don't have to.

SREC - potentially big savings as you point out.

Net metering - without that you lose any power generated above your usage at that point in time.

Type of billing program - many utilities have several options it looks like.

Russ

[Naptown]

There has been no mention of renewable energy credits in any of these lease agreements. Oregon I am sure has a RPS and most likely a healthy market for them.
This is where the leasing co makes it's money and they don't tell you what the value of those credits are. In Maryland where I am on your system they would account for about $900 per year on your proposed leased system. They decline over time but will remain at that level for 4 years. What we are seeing here is a payback of about 5 years. then over the life of the system a roi of about 250% after it has been paid off. I would as an owner of a system bolted to my home not even consider depreciation do you depreciate your new bathoom?
You need to check into the Oregon SREC market to see what you are missing out on income wise from a lease.

[russ]

Hi Nate - Welcome to Solar Panel Talk!

Say a system would cost you 5$ per DC watt installed - 3680 watts * 5$ = 18,400$

less federal rebate of 5,520$

less state kickbacks of 6,000$ and 1,750$ (some of this is taxable)

18,400-5520-6000-1750 = 5500$

You didn't mention your annual kWh use - typically they size the lease units so there is no export - just as well as you don't get any credit for it - right?

You probably have 50% of your electric bill to continue paying.

These leases cherry pick the easiest part of the electric bill. Why not consider a larger system. Does Oregon have net metering available? Can you use excess power generated in the summer to help with the winter bill?

I assume you are in Portland or at least on the valley side?

Russ

[nate]

I'm in Oregon. The state tax and Energy Trust of Oregon incentives are strong right now and I have been getting quotes for purchase options. I'm also comparing lease.

Through Solar City, I was quoted a 3.68 kw (3.11 AC) system for $2,247 for a 15 year pre paid lease. This comes out to 4.8c/kwh. This price takes into account the 30% federal and $1.750/DC incentive from Energy Trust of Oregon. The performance is guaranteed at 3213 kWh. At current prices this should be a $315 a year in savings.

For 2011, residents who lease can take advantage of the Oregon state tax credit of up to $6000 ($1500 over 4 years). Since Solar City can't take this credit, they add $1000 to the cost for 4 years. Basically, each of the first 4 years I net $500 due to the Oregon tax break - Solar City's cut.

So in 3 years, I'm supposed to get $945 in savings that I'm not paying to PGE plus $1500 back from the State of Oregon. This means I've paid off the lease in 3 years plus put $198 in my pocket. Year 4 I get another $500 back from the state and $315 lower power bills. After that, I only get the savings in the power bills.

The purchase options I've been looking at have a net cost after all credits of about $1800, so compared to the $247 net for the lease option I'm about $1500 more. These are also slightly smaller systems producing about 2750 kWH compared to 3200 so I my power bill wouldn't drop quite as much. Also, I'm paying more up front since i have to wait for one year for the Federal Tax Credit as well as the state tax credit. Day one I'd be paying about $12500 vs. $2247 with the pre paid lease. For the purchase option this would have to be partially borrowed for a year. There are some good local financing options for 'green' housing projects though.

Summary from the quotes I have so far...
--Purchase has greater up front cost and total cost, even with a slightly smaller output
--Purchase has longer break even point
--Warranty is over on inverter a few years after break even point

On the plus side for the purchase, you own the system outright after you've paid things off. I'm unsure of what the value of this is, because I'm pretty sure it will be a depreciating asset. I don't think it will depreciate as bad as a car or computer, but it will still depreciate. Its interesting, the lease agreement has a clause that gives Solar City the option to not pick up the equipment if I were to exercise my option to return the system at the end of 15 years. The cost of picking it up may be more than what the wholesale cost of the system is at that point.

[russ]

Hi BenBen - Welcome to Solar Panel Talk!

I would be happy to answer any questions you put forward but the copies I have were sent to me with a request they go no further or that they be deleted after review so I am not free to forward copies.

Russ

[Benben]

Solar Lease

I would love to see a copy of any leases anyone has available. Please send it to bentley@theleveredge.com.

[Naptown]

Hey Rich, Are you talking about if I went with Purchase or Solar Lease option? or in either case?
thx
FT

That would apply to a purchase mostly. A lease at 5 years out would be a considerable less value as there are still payments due on it and the potential problems of transferring the lease. Generally we find at least in Md that systems are paid off in 5 years with SRECS still to be collected and the savings are all yours with no lease costs.

[funkytipu]

If you follow the apraisers guidlines for every dollar saved on utilities this equates to a gain in equity of between 15 and 20 dollars. This is based on the principal and interest over 30 years at 6%. The lower number is probably more accurate. Even if it only adds a marginal value to the property it will sell much faster particularly as energy costs rise. And this is not like a swimming pool people place value on energy efficiency and reduced utilities costs.

Hey Rich, Are you talking about if I went with Purchase or Solar Lease option? or in either case?
thx
FT

[funkytipu]

Hi Russ, Rich and Mike,

Thanks for responding. Mainly after going through the whole forum and then talking with PGE and Solar City Salesperson, I have now a very good understanding of how things work.

Now I just have to decide if I want to go with Lease or Purchase. With FIT, purchase is definitely looking good if I can cover the $17000 upfront for the system. The system would hopefully pay for itself within 4-5 years with 46.8cents/kWh that PGE will pay and the tax credits. PGE will actually pay me upto the amount of power I use with this Pilot which I did not realize till last night.

Mike,

I like the idea to see if they would be willing to put it on the ground but I doubt if it will get the best sunlight.

Also I found out from PGE, that any power that I do not use, goes into an energy bank that I can tap into during winter months like Net Metering.

I asked the Salesperson why they suddenly added the $1966 to the lease when initially they said it was $0 out of pocket and he explained that Oregon dropped the rates in Pilot which increased the cost for me at the last moment which is true. In october when they ran this Pilot, the FIT was around 59.8 cents/kWh.

So need to take some time and make a decision

[Naptown]

If you follow the apraisers guidlines for every dollar saved on utilities this equates to a gain in equity of between 15 and 20 dollars. This is based on the principal and interest over 30 years at 6%. The lower number is probably more accurate. Even if it only adds a marginal value to the property it will sell much faster particularly as energy costs rise. And this is not like a swimming pool people place value on energy efficiency and reduced utilities costs.

[Mike90250]

Also keep in mind that I am thinking of moving out of this house in probably 6 yrs as my kids grow older and I will need more room.

Then forget it. If a lease, there may be problems selling the house. Then transfering the billing/payment to/from the utility.

If you were staying, I'd say BUY, but for 6 years, I don't know if it's worth it. Can you put a ground mount in the yard, and take it with you ?

[Naptown]

Hey Russ,

I have a very similar but unique situation. Slight difference is that in Oregon, they are running a Pilot Feed In Tariff program. In this case, if selected in the Pilot, Portland General Electric pays 46.8 per kWh for any electricity sold back to the grid. The rate is lockd in for 15 years.

https://www.pgesolarprogram.com/NoCapacity.aspx

Only a handful of residential customers were chosen and I was one of the lucky ones.

Solar City gave me 3 options - 1) 0 down Solar lease option, 2) Pre pay $1966 solar lease option 3) Just purchase the system for $4450 (With FIT, the system will be $10000 because I won't get $6000 Oregon tax credit due to the requirements of the FIT Pilot program.)

In my initial meeting, they had said that If I get chosen in the pilot program, there are no out of pocket expenses. However, once I got selected, they are saying that I need to pay $1966 to cover part of the cost.

So my question - is it worth purchasing the system for $10000 and then sell to PGE any excess power at 46.8 cents or do the lease in which case I only pay $1966 but Solar City will sell any excess power to PGE instead of me.

Send me your email and I will send you the proposals I got?

I will also attach a document that i sent to my Salesperson to address the concerns that I had regarding FIT and some comparisons.

The key is I am running out of time to take advantage of being on the Pilot as I have to say Yes or No to Solar City by end of Thursday morning as Oregon has a very tight timeline in getting all the paperwork in to them

Thanks for looking into it. Also keep in mind that I am thinking of moving out of this house in probably 6 yrs as my kids grow older and I will need more room.

FT

By the way, I really appreciate what you all are doing here. Without this kind of conversations, I would not have been able to make a sound decision on such a big investment.

The FIT is that for all electricity generated or for only excess generated this point makes a huge difference. Generally here SRECs which are similar are for all power generated and essentially you are selling to the grid all of the electric generated and buying back most of not all. If you have a lock and get credit for all of it this may make for a different decision.