SolarCity 20-year lease too good to be true?

[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

[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 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

[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]

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

[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]

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]

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!

[nate]

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

I'm baffled why no Oregon company has explained the benefits that the leasing company is hiding from me. If someone can explain to me how they can get me the previously mentioned 250% ROI, I'm all ears.

[Mike90250]

....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?.
....

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......

There is no realistic plan for PV to increase efficency in the next 15 years. Some ideas in labs, but no reality. Inverters are at 95%, not much room for growth there.

Inverter lifetimes, I've heard, are about 10 years. Again, it's a high power solid state device, and 10 years is a good lifetime, then another $3K and you are set for another 10 years. Panels, should be good for 20+ years till hail gets them. If they last the first five, you have a winner till a hail storm takes them out.

[russ]

Rich is talking about anything a person might make on the SRECs to get the best ROI.

When I say the lease companies cherry pick I am pointing out that if your annual bill is 1800$ they would be providing the bottom 342$ of that. It does not make much difference in good old western Oregon (the state where I grew up but on the east side of the mountains) due to the lousy sun or maybe a better way to say that is the excessive rain.

I wouldn't plan on the leasing company not bothering to come pick the system up when the lease is over. Worst case - they could easily sell it to a company specializing in that activity for a couple hundred bucks - easy way out for them and one final profit.

The closer you can get the system cost to 5$ per DC watt the quicker breakeven comes - Not considering any income from SRECs

at 4$ per DC watt the payback period for a 3500 DC watt system would be 2.6 years
at 5$ per watt that would be 6.9 years
at 6$ per watt that would be 10.2 years

Russ

[nate]

There is no realistic plan for PV to increase efficency in the next 15 years. Some ideas in labs, but no reality. Inverters are at 95%, not much room for growth there.

Inverter lifetimes, I've heard, are about 10 years. Again, it's a high power solid state device, and 10 years is a good lifetime, then another $3K and you are set for another 10 years. Panels, should be good for 20+ years till hail gets them. If they last the first five, you have a winner till a hail storm takes them out.

Thanks, I think this is consistent from what I head from the solar contractors. I think most likely you're right, we just don't know for sure. If I had to bet, efficiency won't change dramatically but production costs will go down significantly. With this in mind, the $3k inverter replacement cost that has to be factored in a purchase scenario could be a lot less than this in 10 years.

[russ]

Green bloggers troll the university web sites where they are doing very advanced work and come up with something like 'MIT uses virus to increase the efficiency of thin film'.

The writer doesn't know (or probably doesn't care either) that from that stage in the lab to commercial is easily 20 years and maybe 99% of research at that stage is discarded due to any one of a million different problems.

Russ

[nate]

Rich is talking about anything a person might make on the SRECs to get the best ROI.

When I say the lease companies cherry pick I am pointing out that if your annual bill is 1800$ they would be providing the bottom 342$ of that. It does not make much difference in good old western Oregon (the state where I grew up but on the east side of the mountains) due to the lousy sun or maybe a better way to say that is the excessive rain.

I wouldn't plan on the leasing company not bothering to come pick the system up when the lease is over. Worst case - they could easily sell it to a company specializing in that activity for a couple hundred bucks - easy way out for them and one final profit.

The closer you can get the system cost to 5$ per DC watt the quicker breakeven comes - Not considering any income from SRECs

at 4$ per DC watt the payback period for a 3500 DC watt system would be 2.6 years
at 5$ per watt that would be 6.9 years
at 6$ per watt that would be 10.2 years

Russ

I haven't lived in Maryland for more than ten years, and I don't know what the rules and credits are there where Rich is at. Supposedly Portland Metro average rainfall is similar to Baltimore, but it sure seems like a lot more rain here except for in the summers.

Digging around I've found Oregon / PGE does have a "Feed in Tariff" program, which I'm guessing this is similar to what you guys are referring to as SREC. Form the "REC" part I was thinking this was referring to the Oregon Residential Energy Credit ($6000), which I can take advantage of leasing or purchasing. However, if you take the Oregon Residential Credit you cannot do the Feed in Tariff, and neither could Solar City. Same thing goes for the $5250 Energy Trust Rebate. If you purchase a system you can't take this rebate if you do the Feed in Tariff. The lease quote I have from Solar City has them taking the Energy Trust Rebate (to lower my price) so they can't do the Feed In Tariff. Basically if you do the Feed in Tariff you're looking at paying at additional $11,250 up front and hoping to generate enough off the payments to make this $11,250 (plus the interest) come back.

No contractors have recommended this as the best option for me yet. I think I'll specifically ask the one that has my lowest purchase option quote (@5.5/) and seek also seek out an additional quote.

[Mike90250]

Green bloggers troll the university web sites where they are doing very advanced work and come up with something like 'MIT uses virus to increase the efficiency of thin film'....

Wow, they went from 6% to 9% (or whatever) Thats a 30% increase !! Sell stock - pump & dump !!