Your input on my situation is much appreciated!

[solarbogle]

My situation is as follows:

I live about 50 miles north of Los Angeles in CA. I have a 5 bedroom home that is on a hillside with plenty of unobstructed sun. My electrical bill through Edison averages about $140/mo. It may go up a bit as we put in a small hot tub last week. Through estimates, I am told that a 4.94 kWp system would produce 98% of my annual production, 7,718 kWh. My family and I plan on living in this home for at least another 15 years. My wife would like to buy a second fridge for the garage which will use some power so I doubt my usage will go down, if anything up.

I have had quotes from Solar City, Sun Run and California Solar Electric (small company in Ojai, CA). I have the ability to access money to purchase a system with cash. This would be accomplished by taking a loan against my 401k that will not cost me any interest, the only downside being time out of the market. As the market has run up substantially, it might end up being a good move to take a little out now and put it back in over the next few years if the market dips (sell high, rebuy low



Here are my questions:

Should I lease or buy?

Should I buy a system that covers 100% of my usage, or less?

Sun Run is pushing a prepaid 20 year lease for $13,000. They claim that they guarantee it all for next 20 years. At end of the lease, option to buy at the value set then which they claim to be little to nothing. The purchase price in cash for same system is $18,500 and of course, I would get 30% back in tax credit. The sales guy claims the prepaid is better because the warranty is better for that system since it is all inclusive. The warranty for the purchase isn't all inclusive, it is 25 years for panels, 12 year inverter, and 10 year on "workmanship."

California Solar Electric designed a 5.04 KW DC with an annual production of 9,311 KwH supplying 111% of annual usage. 18 x solar world model SW 280 mono black. 1 x SMA America model SB5000TL-US-22. This would cost $18,533 ($3.68/watt) or $12,981 after tax credit ($2.66/watt). This is a smaller company and I am uncertain if that should come into play for decision making.

Solar City: $26,520 for a 5.2KW system! Yikes. Yingli and Trina panels. Full 30 year warranty on EVERYTHING. AFCI or SolarEdge inverter.



Another option from the companies is a month to month lease where I pay them for the kWh and it has a 2.9% annual escalator. Obviously this is the least money to be saved, but no money up front.

I would appreciate any input!! Thanks!

[Mike90250]

BUY, not lease.. When you buy, YOU get the credits, and the ownership. If you lease, you share any savings with the lease company.

Sizing. Anticipate your load increases and shoot to offset 90% of your consumption. Does your gird company do monthly or annual averages ? Any excess you "gift" them, is money you overspent on panels.

Panels have +20 year lifetimes, if not damaged with big hail or flying lawn chairs in wind.

inverter has 10 year lifetime (high powered electronics) and you can expect to have to replace it.

Be sure they install PV array lightning protection AND Grid side protection for your inverter
(Midnight SPD is a good brand)

Ask for a Transfer Switch bid (for a backup generator you can plug in) This is the time to install it.

[Ian S]

First of all, since you have access to a chunk of money by borrowing it from your 401K, I'd forget about the monthly lease. There are two problems with it that make it very unattractive: the escalator and the added difficulty in getting a home buyer to take over the lease should you sell your home before the end of the lease. If I were buying your home, I'd use that monthly lease as a point of negotiation to get you to lower your price. Others would just walk away once they learned of it. There's a thread on this forum with a real life example - the potential buyer eventually walked away even though it was his dream home.

So you're left with the choice of a prepaid lease and outright purchase. Both run about the same amount after tax credit but that tax credit is not immediate. Most here would recommend an outright purchase but it really depends on your individual situation. Yes, there's that feeling of ownership through purchase but along with that comes responsibility of dealing with any warranty issues on your own after the installer is out of the picture. Just my opinion but I'd bet on SunRun being around longer than a small local outfit. Plus, if you are there for 15 years, there's a very good chance you'll have to replace the string inverter that would be covered under the lease warranty but not under purchase unless you pay for additional coverage. Some would say that the buyout price for the equipment at the end of the lease will be a large outlay but I don't buy that argument - it will be nominal IMHO but who knows for sure. You don't mention the equipment for the SunRun lease but if you go for the SMA inverter which I prefer, make sure it has the emergency power outlet specced into the price.

So it's really whether the comfort of ownership outweighs the hassle of dealing with various entities if anything goes wrong under warranty. Minor issues might include the higher initial outlay and the possibility of added insurance with purchase - check with you agent and also see if the SunRun lease insures the equipment. Another minor issue might be the terms of payment: usually with a purchase, you have to put a significant amount upfront especially with a small installer. With my prepaid lease, I didn't pay a cent until nearly two months after the system was up and running. Oh and make sure you get a copy of the lease before you sign and read it thoroughly. They are usually in plain English but check with a lawyer if you have any questions.

[Ian S]

Some might wonder how the lessor makes its money on a prepaid lease if they are on the hook for inverter replacement sometime in the future. It's because they are entitled to accelerated depreciation on the price of the system over and above all the other incentives. As an individual buyer you don't get that benefit.

[J.P.M.]

Buy it !! You will spend less in the long run, have more options, and not be dragging some P.O.S. lease into the future, probably with a 2.99 annual increase to add insult to injury. Renting solar equipment is a lot like renting furniture and appliances. In the end you simply pay too much and get screwed.

[J.P.M.]

Some might wonder how the lessor makes its money on a prepaid lease if they are on the hook for inverter replacement sometime in the future. It's because they are entitled to accelerated depreciation on the price of the system over and above all the other incentives. As an individual buyer you don't get that benefit.

Not to mention the annual escalator that's usually included.

[sensij]

For an electric bill that averages $140 / mo, I don't think I would be taking money out of my 401(k). It would be great if you are timing the market as you hope, but if that is really how you feel about it, you could just go to cash (or some cash-like instrument) within the 401(k) and see what happens. With a loan, if something causes you to change jobs, that amount comes due immediately... not a great position to be in if the job change was already unexpected. The investment return from the system is unknown, but it might take 5 years or more just to break even, and then another 5 years or so before the electric cost avoided starts to be significant enough consider the system an actual investment. A lot can happen between then and now.

If you start saving now (without diminishing your 401(k) contributions), do you think you can set aside enough over the next year or so to buy the system for cash without tapping into a tax-advantaged account? SCE is nowhere near their net metering cap, so as long as you install before the end of 2016, you are not giving up any incentives that I am aware of. Who knows, maybe panels and inverters will continue falling in price and it will be cheaper next year than now.

[TD22057]

FYI I put in 18 solar world 275W panels (4.95 kW) w/ a SB5000TL-US exactly 1 year ago in Santa Clarita. 200 deg azimuth roof with no shade and my yearly production was 9200 kWh. No idea how stable that will be but I've been extremely please with the system and it's performance. I used a smaller company which I can't recommend because of some issues w/ their electrician. I definitely think buying is the better option even if it means replacing the inverter in 10 years (I mounted mine in the garage to try and reduce heat load and prolong it's life) - especially if you plan on staying in the house. I'd recommend paying close attention to the roof mounts (I insisted they use the kind that slip under the roof tiles instead of drilling them) and generally staying on top of things and insisting that things get done to plan (true for just about any contractor I've found). The extra backup power system in the SB is a nice feature as well for earth quake emergency power (batteries, radios, etc).

[Ian S]

Not to mention the annual escalator that's usually included.

Just to be clear, there's no escalator on a prepaid lease.

[Willaby]

The prepaid lease is not that bad but I would still purchase. You'd definitely need to know the final payment though. Is "almost nothing" a dollar or $3k or ?? What ever the final payment is, adding 50% of it to the prepayment will give you a fairly close apples to apples comparison to a purchase deal.

From the investment side and considering your 401k option, you can compare ROI against a tax free investment. If your $13k after tax credit system will eliminate net $110 a month, that is 10% return but equivalent to a ~13% taxed return (depending on your tax situation and ignoring true depreciated value).

Factors to consider if you wait: utility rates will rise and net metering contracts can only get worse.

[J.P.M.]

Just to be clear, there's no escalator on a prepaid lease.

OOPS ! I better invoke my speed reading class money back guarantee clause.

[sensij]

The prepaid lease is not that bad but I would still purchase. You'd definitely need to know the final payment though. Is "almost nothing" a dollar or $3k or ?? What ever the final payment is, adding 50% of it to the prepayment will give you a fairly close apples to apples comparison to a purchase deal.

From the investment side and considering your 401k option, you can compare ROI against a tax free investment. If your $13k after tax credit system will eliminate net $110 a month, that is 10% return but equivalent to a ~13% taxed return (depending on your tax situation and ignoring true depreciated value).

Factors to consider if you wait: utility rates will rise and net metering contracts can only get worse.

Do you work for Solar City or something?

Net metering rates for SCE customers will not "get worse" until July 1, 2017. The current agreement will be available until then, unless there is a massive increase in the rate of installations, almost an order of magnitude.

Your definition of "return" could use some work.

Take that 13000 and see what it does with a 10% compounded return each year:
y0 = 13000
y1 = 14300
y2 = 15730
y3 = 17303
y4 = 19033
y5 = 20937
y6 = 23030
y7 = 25333
y8 = 27867
y9 = 30653
y10 = 33719

Now, look at the cumulative savings on the electric bill, assuming a 5% increase in rates each year (higher than average), and also assuming that the savings on the bill is invested at the same hypothetical 10% rate each year

y1 = 1320
y2 = 2838
y3 = 4577
y4 = 6563
y5 = 8824
y6 = 11391
y7 = 14299
y8 = 17585
y9 = 21295
y10 = 25472

It would take 15 years for the two investments to have been worth the same... 15 years of discipline to avoid the temptation to spend that savings each year instead of invest it. The fact that the 401(k) loan will be getting repaid will help, but another negative consequence of that loan is that no new money can be contributed until the loan is paid off.

I'm not against investing in solar if you think it will save money. I would be very cautious about borrowing money from a retirement account to do it. 10% is clearly a round number and is unlikely to reflect the actual market return over that time, but the point is to do this analysis with whatever numbers best reflect your outlook and not accept the BS that most solar sales people will shovel in your direction.

[Spektre]

but another negative consequence of that loan is that no new money can be contributed until the loan is paid off.

Unless this is a feature of your 401K, it's simply not true. I have taken out 401k loans several times while working for different companies, and have continued contributions and payback of loan simultaneously.

As an interesting aside, which many people don't seem to know, the interest you pay on a 401K loan (currently 3.25% in my plan) goes back into your 401k - in effect you pay yourself interest on the loan.

[sensij]

Unless this is a feature of your 401K, it's simply not true. I have taken out 401k loans several times while working for different companies, and have continued contributions and payback of loan simultaneously.

Thanks for the correction, it is indeed plan specific. Something for the OP to look into anyway.

As an interesting aside, which many people don't seem to know, the interest you pay on a 401K loan (currently 3.25% in my plan) goes back into your 401k - in effect you pay yourself interest on the loan.

If you are going to point this out, you should also include the fact that the interest (and loan balance) is paid from after-tax income, which will be taxed again at ordinary income rates at the time the money is eventually distributed. Better than paying interest to some financial institution, I guess, but a poor option when compared to taking that interest money, parking it in a brokerage account, and eventually paying long term capital gains on only whatever it yields.

[bronxnua]

To purchase or lease

The prepaid lease is not that bad but I would still purchase. You'd definitely need to know the final payment though. Is "almost nothing" a dollar or $3k or ?? What ever the final payment is, adding 50% of it to the prepayment will give you a fairly close apples to apples comparison to a purchase deal.

From the investment side and considering your 401k option, you can compare ROI against a tax free investment. If your $13k after tax credit system will eliminate net $110 a month, that is 10% return but equivalent to a ~13% taxed return (depending on your tax situation and ignoring true depreciated value).

Factors to consider if you wait: utility rates will rise and net metering contracts can only get worse.

I don't pay much in Federal or State tax. So for me to purchase I can't use the Credits. My system is being leased $207 per month fixed for 20 years. I get some benefit first 4 years on property taxes and state credit.


My Con Edison bill is anywhere from $250-$350 monthly and that is only going to increase in the future.