Solar Contract Signed with Sunpower

[pleppik]

(if someone has any inputs on this I would like to hear it thank you,

It sounds like you did your homework.

Good luck, and post photos when they do the installation.

[TJBOB]

Installing solar panels

I live in Staten Island (part of New York City five boroughs) I just signed up with a company called Trinity solar company is based in New Jersey, I did get at least another 3or4 estimates (EmPower solar,GEOPEAK ENERGY, SEA BRIGHT SOLAR, sungevity solar) but they were all close to double the price that I wind up signing for so I believe I did get a good deal.?? I did a prepaid lease with a up front payment of $ 9777.00 for a 6400 kwh system, (with 23 Trina panels /sb5000tl inverter) panels are guaranteed for 25 years and inverter is guaranteed for 20 years, (parts and labor )the panels are insured against liability breakage or theft by the company that's installing them (my homeowners premium will go up approximate $ 66.00 a year,) Because I live in one of the five boroughs I will get a 10% property tax rebate which comes out to $2060.00 spread over a four-year period plus $421 back on tax that I paid on the system, plus savings on my con Edison energy bill of approximately $1700 a year I would estimate in approximately 4 1/2 years I will break even , I am retired and I do not have any taxable income. If I was still working and I had a taxable income I would be able to claim New York State tax rebate of approximately $2600. Solar prepaid lease works out better for me than the outright purchase, because of not having any taxable income, (if someone has any inputs on this I would like to hear it thank you,

[Ian S]

I suspect that the problem is actually lowballed purchase prices which allow the lessor to keep the accelerated depreciation they took instead of recapturing it and also makes the contract look more attractive to the prospective lessee.
The value of the components will not decrease very fast, and the cost of installation may be of no value whatsoever, but that is hard to account for.

The IRS seems to believe the purchase prices are inflated. Recapture will not occur until the disposal of the system at lease end and at that point recapture is only an issue if the value of the system >0. As far as the lessor is concerned they would really prefer to have that value zero and not have to be bothered with removal and/or selling and paying recapture taxes. My detailed Sunpower buyout schedule suggests that they'd prefer to get rid of the system in year seven. By that time they've got all they are going to get out of the system and subsequent years will just increase their maintenance costs.

[inetdog]

The IRS' main concern right now is possibly inflated "purchase prices" that the more aggressive lessors have used to enhance both the tax credit and depreciation value. Frankly, I don't know how they will keep track of the disposal of 20 y.o. leased systems. It will be small potatoes at that point anyway.

I suspect that the problem is actually lowballed purchase prices which allow the lessor to keep the accelerated depreciation they took instead of recapturing it and also makes the contract look more attractive to the prospective lessee.
The value of the components will not decrease very fast, and the cost of installation may be of no value whatsoever, but that is hard to account for.

[Ian S]

Ah, of course. Not black magic after all, just old-fashioned tax arbitrage.

I wonder how long it will be before prepaid leases like this go away. The IRS probably doesn't see much difference between a 20-year fully prepaid lease on something likely to have zero residual value and a plain old purchase. I'll get the popcorn ready.

The IRS' main concern right now is possibly inflated "purchase prices" that the more aggressive lessors have used to enhance both the tax credit and depreciation value. Frankly, I don't know how they will keep track of the disposal of 20 y.o. leased systems. It will be small potatoes at that point anyway.

[pleppik]

The financial black magic is the tax loophole that gives businesses the ability to take accelerated depreciation of their assets (in this case the solar system) much faster than normal, something that the homeowners can't do. By accelerating the depreciation, it helps maximize their tax deduction and thereby minimize their tax liability. This allows them to pass on some of this tax savings (and probably some of the 30% tax credit savings) to make the lease terms attractive enough to goad the prospective buyers into leasing instead of buying. So the lessor wins (tax savings), the homeowner wins (lower lease cost than purchase cost), and Uncle Sam loses.

Ah, of course. Not black magic after all, just old-fashioned tax arbitrage.

I wonder how long it will be before prepaid leases like this go away. The IRS probably doesn't see much difference between a 20-year fully prepaid lease on something likely to have zero residual value and a plain old purchase. I'll get the popcorn ready.

[Ian S]

Honestly, if this lease is how you say it is, then there's some financial black magic going on here I don't understand. Reclaiming a car or a Boeing after a lease expires is one thing, but dismantling a solar array? How is that worthwhile?

It probably isn't but they can't say they will abandon the system because it probably would run afoul of the IRS rules on leases. The "financial black magic" going on is simply that in addition to all the other incentives available to an individual homeowner who purchases a system, the lessor also gets to write off the entire value of the system over a short timeframe of a few years. The way the lessor is structured business-wise, that can amount to a lot of value tax-wise. This accelerated depreciation is not available to an individual homeowner who purchases the system. Many now say "fair market value" at the lease end but IMHO, that's at most going to be a few hundred $$ for a typical residential system.

[Volusiano]

Honestly, if this lease is how you say it is, then there's some financial black magic going on here I don't understand. Reclaiming a car or a Boeing after a lease expires is one thing, but dismantling a solar array? How is that worthwhile?

The financial black magic is the tax loophole that gives businesses the ability to take accelerated depreciation of their assets (in this case the solar system) much faster than normal, something that the homeowners can't do. By accelerating the depreciation, it helps maximize their tax deduction and thereby minimize their tax liability. This allows them to pass on some of this tax savings (and probably some of the 30% tax credit savings) to make the lease terms attractive enough to goad the prospective buyers into leasing instead of buying. So the lessor wins (tax savings), the homeowner wins (lower lease cost than purchase cost), and Uncle Sam loses.

That's the basis of Solar City's business model and why they would rather lease than sell -> more profit for them at Uncle Sam's expense. They get to double dip -> claim the 30% tax credit and whatever other state and local incentives, and claim accelerated depreciation. If they sell, they can't double dip -> the owner gets the 30% tax credit and state and local incentives, Uncle Sam gets more taxes from the seller.

[pleppik]

After 20 years, I can either buy the system at the "fair market value" (which will be appreciably less than $3,000), or sign a new lease for new equipment, or have the company take them away at no additional cost and do a new lease or purchase based on a financial evaluation of my options at that time.

There's a fourth option not stated which is that the leasing company goes out of business at some point in the next 20 years (that's a really long time for any company--20 years ago, Polaroid and Enron were both Fortune 500 companies). Given the labor of removing solar panels, whoever buys the assets out of bankruptcy may decide it's cheaper to abandon the system in place. Voila, you get the residual system for free.

Honestly, if this lease is how you say it is, then there's some financial black magic going on here I don't understand. Reclaiming a car or a Boeing after a lease expires is one thing, but dismantling a solar array? How is that worthwhile?

[Volusiano]

I don't owe anyone one red cent - I don't have any lease or such for anything - Why would anyone want to have a lease and have to deal with it - if they don't have to?

I think with a prepaid lease that MrBoylan is talking about, he doesn't owe anybody one red cent either. He paid for it all up front (for a lot less than a purchase, in his case at least). The difference is he paid for the right to use it for 20 years, just not the right to own it. But it is paid for up front nevertheless.

If you can find a good deal on a prepaid lease like MrBoylan did, then it makes economic sense to lease. It seems like very good deals on prepaid lease could be found in earlier days, but maybe harder to find nowadays.

One should also be careful not to eat the lessor's words that a purchase price would have been that much compared to a prepaid lease, without independently verifying it by shopping around to know what the real and competitive purchase price really is. You don't really know that the purchase price of $10K (vs a prepaid lease price of $3K) is legit unless you check it out for yourself.

Solar City and other leasing entities have been under investigation for artificially inflating the purchase price to maximize their 30% tax credit. It would also be in their interest to tell prospective customer that the purchase price would be that high, too, to goad buyers into doing the lease route instead.

[MrBoylan]

I don't owe anyone one red cent - I don't have any lease or such for anything - Why would anyone want to have a lease and have to deal with it - if they don't have to?

Then by that argument, why mortgage a house? Answer: because the money can be better invested elsewhere for a superior return on investment.

But to get back to the topic, the economics of a solar lease were superior to the economics of a solar purchase in my specific case and may be for others. Always best to do the math than to make blanket statements that one way is better than another.

Why give anyone $8000 more up front for the same product? I have no lease payments and have a legal agreement where those panels remain on my home generating power for me for 20 years. The agreement is transferable to any potential new home buyer with (again) no payments required by the buyer. The lease is pre-paid up front.

After 20 years, I can either buy the system at the "fair market value" (which will be appreciably less than $3,000), or sign a new lease for new equipment, or have the company take them away at no additional cost and do a new lease or purchase based on a financial evaluation of my options at that time.

You feel better about a purchase. That's entirely valid. But it doesn't make it the best choice for everyone.

Regards,

-Chris

[russ]

But for us, leasing was a no-brainer.

I don't owe anyone one red cent - I don't have any lease or such for anything - Why would anyone want to have a lease and have to deal with it - if they don't have to?

[MrBoylan]

Guaranteed buying is the better option IF you have the money to do so.

I know this is an older thread but I wanted to chime in too. Buying was not the better option for me. A 20-year lease was a much better option. When I signed up with Sungevity, the purchase price outright would have been about $10K for my system (albeit a small system due to the small roof and NYC fire code restrictions), vs. a $3,000 paid-up-front 20-year lease for the same system. That $3000 was reduced to $2,000 due to an instant $1,000 referral bonus. So, $2K out of pocket up front for a 20-year lease on a system that would have cost $10K.

Plus I still qualified for:

* NY State Tax Credit (25% of lease price) - this is available for purchased *and* leased systems in NY State
* NY City property tax abatement ($500 per year for 4 years) - this is a NYC-only thing which is calculated based on actual system cost *not* on lease cost (5% of the $10K system cost per year for four years)

So even if you consider the 30% Federal Tax Credit for purchasers, my out of pocket for a purchased system would have been at least $3,000 higher than the cost of the 20-year lease after the tax credits/rebates.

Is a 20-year old 1600 kWh/year system going to be worth $3,000 in 2032? Probably not. And even if it is, I would have sunk $10K into that initial investment rather than $2K and that capital could be better used in other investments. Due to the scheduling, I actually had the $1000 referral check in hand *before* I wrote them the $3,000 check for the lease.

Also, the 20-year lease includes replacement of the inverter if necessary ($1,000 on its own), which, from what I understand, is fairly likely over the course of 20 years. That would be an out of pocket expense had I purchased the system outright.

From what I've heard, those who have gotten quotes from Sungevity more recently in New York City have seen higher lease quotes than what we got. But for us, leasing was a no-brainer. Net positive pretty much right out of the gate (including the property tax abatement) with about $50 of free electricity every month since going live.

YMMV, of course...

-CB

[ajpslp]

Finally!!! You start this solar project back in May 2013 lol Looks like leasing does take longer than purchase. Good luck!

Actually no , the original sign up was may with install for september. Then NYS rebates went up almost doubled, and re did lease to save $50 a month and was put back on the bottom of the list on sun power side. Redid that lease in mid august and dec weather has delayed me a bit , so 4 months in NYC is accurate. Also sun power x21 335 panels were back ordered for a bit .

[silversaver]

Finally!!! You start this solar project back in May 2013 lol Looks like leasing does take longer than purchase. Good luck!