Stating Buy-Outs on Pre-Paid Leases

[KRenn]

I too have been looking at this system and I was glad to stumble across this thread. It does seem to be 'to good to be true' but given the rationales in this thread it seems to make sense. I'm sure Sunpower's costs are far below what they are selling their panels for and they are making up in depreciation and credits. They seem like a good company (unless you look at the rightwing blogs...) and they seem to have a good chunk of the market and if this lease catches on, they will do quite well.

On the question to exercise the buy out or not in 6 years, my installer was telling me that it's not actually in the interest of the lessor to do the buy out as Sunpower will continue to monitor and maintain the system for the life of the lease. if the inverter goes belly up in 15 years, they would have to replace it. in that respect it kind of feels like insurance with a pretty minimal premium. Also he mentioned that at the end of the term, most likely they would just give the system away as it would not be cost effective to remove them from people's houses.

I'm pretty close to jumping in. anyone want to play devil's advocate and tell me why this is a bad idea?

A. It really isn't in your best interest unless you plan to sell the house within 12 years....if so, that additional $1000-2000 might earn you $10,000 or more in higher appraisal value.

B. The idea that they would just "give the system away" is obtuse. Nobody can know that for sure and any installer that claims that automatically loses credibility points in my eyes.




The SunPower lease is legit, I would recommend getting quotes from various SunPower dealers as the pricing between them CAN and WILL vary considerably at times. Additionally there's differences in panels, some are using 230 watt modules, some are using 320 watt modules and now some even have the new 20% efficiency 327 watt modules that they're offering.

[vordo]

I too have been looking at this system and I was glad to stumble across this thread. It does seem to be 'to good to be true' but given the rationales in this thread it seems to make sense. I'm sure Sunpower's costs are far below what they are selling their panels for and they are making up in depreciation and credits. They seem like a good company (unless you look at the rightwing blogs...) and they seem to have a good chunk of the market and if this lease catches on, they will do quite well.

On the question to exercise the buy out or not in 6 years, my installer was telling me that it's not actually in the interest of the lessor to do the buy out as Sunpower will continue to monitor and maintain the system for the life of the lease. if the inverter goes belly up in 15 years, they would have to replace it. in that respect it kind of feels like insurance with a pretty minimal premium. Also he mentioned that at the end of the term, most likely they would just give the system away as it would not be cost effective to remove them from people's houses.

I'm pretty close to jumping in. anyone want to play devil's advocate and tell me why this is a bad idea?

[Ian S]

True, and I'm going with the 6yr myself. My comments were directed at 20yr leases where folks were hoping to get to equipment for free at the end (trying to forecast that today).

I haven't decided on buyout yet but I have six years to think about it. Interestingly, the Remaining Value Amount (RVA) table in my lease increases significantly and continuously after year 6 from $850 (early buyout option price) to $5,830 at year 20. That table is what is used for a buyout valuation if you sell your house and the new owner doesn't want to continue with the lease. Is that final RVA the amount the the lessor expects the FMV to be at that point I wonder? Or is that just that they want a mechanism to recoup their maintenance costs such as inverter replacement in the later years?

Meanwhile, although my foam roof looks sound, the top coat (a recoat from 7 years ago) is cracking in a number of places. It had a warranty of ten years but I think to invoke it the roof would actually have to be leaking which it's not. Will probably just have to bite the bullet and do another recoat before the panels go on.

[cebury]

Well, if I stick with the lease and don't take advantage of the buyout after year 6, then I'll have the benefit of seeing what is happening to older leases as they end. It will become clear pretty quickly what happens and I or the subsequent owner of my house ought to have time to make an informed decision.

True, and I'm going with the 6yr myself. My comments were directed at 20yr leases where folks were hoping to get to equipment for free at the end (trying to forecast that today).

[Ian S]

Your method of future valuation is what a lot of other (lay) folks think as well.

I think the opposing side believes despite how little booked value to the lessor, and despite FMV to Americans, there may be a market for bulk removal of these systems to show *some* profit to *some remover* assuming they can be sold or donated to 3rd world locations *somewhere* -- esp if the remover uses quick-dirty methods for minimal compliance with a leak warranty (since even the SP contract explicitly states the roof won't be returned to original condition whatsoever).

Too much speculation for me to consider as part of my equations. It would have to be in the "bonus" line: if I get it... BONUS! If not, I didn't expect it anyway.

Well, if I stick with the lease and don't take advantage of the buyout after year 6, then I'll have the benefit of seeing what is happening to older leases as they end. It will become clear pretty quickly what happens and I or the subsequent owner of my house ought to have time to make an informed decision.

[Ian S]

The reason that SunPower is offering a generous buyout at six years is because they are capturing the Dept. of Treasury 1603 grant as payment for the lease, not receiving income from a tax equity fund as others do. The guidelines of the 1603 call for monitoring/reporting for a minimum of 5 years from the date of commissioning, or else there are some tax consequences (payback of 1603 proceeds) to the Lessor from the Treasury if the equipment is no longer operating. At six years, they are trying to unload the equipment.

In regard to a stated buyout versus FMV....the Treasury REQUIRES a stated FMV on residential leases that are run through the 1603 program, so they can determine if the lease is a operating (true) or capital structure. That is why programs that have the $1 buyout are "illegal". Trust me, they catch it and nitpick every cost on your CBA. Even some of the aforementioned "money players" tried the $1 buyout and were denied 1603 payments. This is why you have the "abandonment clause". Nobody is going to go get 20 year old solar panels. They just aren't.

The Treasury is smart. The big boys ruined it by trying to inflate their costs to $7-8 per watt on residential leases. Now the Treasury is only accepting 1603 CBA's in the sub $5.50 range, where it should be. The Treasury has even released a statement stating that if they determine that 1603 payments were inflated and the payment was issued, they will REVISE the Cost Basis Analysis to their liking and tAX the entity on the difference.

The bottom line is that with a pre-paid lease, the profit is made with the DOWN PAYMENT + UTILITY REBATE + 1603 GRANT. If that all adds up to about $4.20 per watt, then most installers/lessors are happy with that. With install costs approaching (or under with Chinese modules) $2 per watt these days, that is not too bad.

Good luck.

It doesn't add up for me. Take my 6.9 kW system. Multiply by $4.20 to get $29K. My utility rebate is $6.9K, downpayment of $6.8K and 1603 payment of $8.7K all add up to only $22.4K. There's a state tax credit here of $1K but there's still a big gap. They must also get to depreciate the whole thing.

[cebury]

The reason that SunPower is offering a generous buyout at six years is because they are capturing the Dept. of Treasury 1603 grant as payment for the lease, not receiving income from a tax equity fund as others do. The guidelines of the 1603 call for monitoring/reporting for a minimum of 5 years from the date of commissioning, or else there are some tax consequences (payback of 1603 proceeds) to the Lessor from the Treasury if the equipment is no longer operating. At six years, they are trying to unload the equipment.

In regard to a stated buyout versus FMV....the Treasury REQUIRES a stated FMV on residential leases that are run through the 1603 program, so they can determine if the lease is a operating (true) or capital structure. That is why programs that have the $1 buyout are "illegal". Trust me, they catch it and nitpick every cost on your CBA. Even some of the aforementioned "money players" tried the $1 buyout and were denied 1603 payments. This is why you have the "abandonment clause". Nobody is going to go get 20 year old solar panels. They just aren't.

The Treasury is smart. The big boys ruined it by trying to inflate their costs to $7-8 per watt on residential leases. Now the Treasury is only accepting 1603 CBA's in the sub $5.50 range, where it should be. The Treasury has even released a statement stating that if they determine that 1603 payments were inflated and the payment was issued, they will REVISE the Cost Basis Analysis to their liking and tAX the entity on the difference.

The bottom line is that with a pre-paid lease, the profit is made with the DOWN PAYMENT + UTILITY REBATE + 1603 GRANT. If that all adds up to about $4.20 per watt, then most installers/lessors are happy with that. With install costs approaching (or under with Chinese modules) $2 per watt these days, that is not too bad.

Good luck.

Thanks for sharing.

For anyone passing by this thread, I believe the 1603 is basically equivalent to our lay nomenclature of "They get your Tax Credit". The 1603 portion of the Recovery Act is a grant in-lieu of the tax credit option, for Solar at 30% -- same as the credit. Of course, I only spent 1 minute skimming through a dozen pages or so. It does appear to expire as of this year (project must be started before 12/31).


>>>> Now the Treasury is only accepting 1603 CBA's in the sub $5.50 range, where it should be.

Interesting though, the treasury's guideline for Cost Basic Eval(as of today) stated it was $7/Watt for <10kw residential systems installed in 1Q11, lower for larger systems and/or commercial. Is that 5.50 range the standard now being used for this category?

[cebury]

I absolutely agree. I do believe there will be value in the modules. I'm just not sure if I see SC, SunRun, Sungevity and the rest going out to recapture them when the money has already been made. I look at what some certain lease companies are installing on rooftops right now and I just don't see 20 year value in the product or the installation methods.

Your method of future valuation is what a lot of other (lay) folks think as well.

I think the opposing side believes despite how little booked value to the lessor, and despite FMV to Americans, there may be a market for bulk removal of these systems to show *some* profit to *some remover* assuming they can be sold or donated to 3rd world locations *somewhere* -- esp if the remover uses quick-dirty methods for minimal compliance with a leak warranty (since even the SP contract explicitly states the roof won't be returned to original condition whatsoever).

Too much speculation for me to consider as part of my equations. It would have to be in the "bonus" line: if I get it... BONUS! If not, I didn't expect it anyway.

[3PennyPower]

The used solar panels will have no value - that is not correct. How much is an open question and depends on the cost of new panels at that time.

I absolutely agree. I do believe there will be value in the modules. I'm just not sure if I see SC, SunRun, Sungevity and the rest going out to recapture them when the money has already been made. I look at what some certain lease companies are installing on rooftops right now and I just don't see 20 year value in the product or the installation methods.

[russ]

The Treasury is smart. The big boys ruined it by trying to inflate their costs to $7-8 per watt on residential leases. Now the Treasury is only accepting 1603 CBA's in the sub $5.50 range, where it should be. The Treasury has even released a statement stating that if they determine that 1603 payments were inflated and the payment was issued, they will REVISE the Cost Basis Analysis to their liking and tAX the entity on the difference.

Hope they burn the offenders and badly!

The used solar panels will have no value - that is not correct. How much is an open question and depends on the cost of new panels at that time.

[3PennyPower]

Why the 6 years?

The reason that SunPower is offering a generous buyout at six years is because they are capturing the Dept. of Treasury 1603 grant as payment for the lease, not receiving income from a tax equity fund as others do. The guidelines of the 1603 call for monitoring/reporting for a minimum of 5 years from the date of commissioning, or else there are some tax consequences (payback of 1603 proceeds) to the Lessor from the Treasury if the equipment is no longer operating. At six years, they are trying to unload the equipment.

In regard to a stated buyout versus FMV....the Treasury REQUIRES a stated FMV on residential leases that are run through the 1603 program, so they can determine if the lease is a operating (true) or capital structure. That is why programs that have the $1 buyout are "illegal". Trust me, they catch it and nitpick every cost on your CBA. Even some of the aforementioned "money players" tried the $1 buyout and were denied 1603 payments. This is why you have the "abandonment clause". Nobody is going to go get 20 year old solar panels. They just aren't.

The Treasury is smart. The big boys ruined it by trying to inflate their costs to $7-8 per watt on residential leases. Now the Treasury is only accepting 1603 CBA's in the sub $5.50 range, where it should be. The Treasury has even released a statement stating that if they determine that 1603 payments were inflated and the payment was issued, they will REVISE the Cost Basis Analysis to their liking and tAX the entity on the difference.

The bottom line is that with a pre-paid lease, the profit is made with the DOWN PAYMENT + UTILITY REBATE + 1603 GRANT. If that all adds up to about $4.20 per watt, then most installers/lessors are happy with that. With install costs approaching (or under with Chinese modules) $2 per watt these days, that is not too bad.

Good luck.

[cebury]

I think the actual Sunpower panel warranty (Section 3.b) takes care of this: The buy-out would transfer the title to you so the warranty would continue.

OK. Glad transferability is addressed in the panel warranty. I'm also concerned with the labor. Here in CA there must be 10yr FULL warranties provided on the system and especially if they are advertising compliance for the state utility rebate. It must be the installer who picks up the labor side of that warranty, not the manufacturer? I can't believe I've never asked an installer that question.

Item #8 Purchase Options, of my 20pg Sunpower lease is the only line anywhere in the doc that refers to transferring warranty:
Last line:

"If possible, the Lessor will assign to you any product and/or workmanship warranties still in effect for the system".

[Ian S]

The only thing I'm looking for in the lease is that the 10yr full warranty (that is required for California CSI rebate participation) is still in effect AFTER the Buyout period, i.e years 6-10 are still fully warranted. I've been told by the installers "you get the 10years regardless of financing" but I haven't finished scouring the lease yet. It would be very unlikely they wouldn't honor it, since they'd be losing out on the rebate and making folks unhappy vs. buy.

I think the actual Sunpower panel warranty (Section 3.b) takes care of this:

Warranty claims may only be made by, or on the behalf of, the original end customer or a person to
whom title has been transferred for the PV Modules.

The buy-out would transfer the title to you so the warranty would continue.

[Ian S]

Glad your back Ian! The last we heard you were done considering solar altogether, glad you reconsidered.

Well, when I did a detailed analysis of my likely savings using a time advantage rate plan (I'm currently on a time/demand that is best for me w/o solar), I was blown away by the savings. Basically, I eliminate purchase of the high cost on-peak power and only have to purchase off peak power. APS keeps track of your on-peak and off-peak production separately and applies each credit separately. At the end of the year, you are paid for any excess in either category at pretty much a wholesale rate. But the latter is actually pretty close to the off-peak electric cost so any annual excess on peak credits in effect go towards reducing the cost of your off peak consumption too. We're talking $1600-1800 annual savings based on last year's costs. And APS has just filed for another rate increase in 2012.

[cebury]

!!!!
The SunPower lease is definitely intriguing because you can do a prepaid lease, and then at Year 7 be at the same junction point as someone who paid substantially more to buy it, in terms of ownership. From what I've seen, the pricing in some areas can be less than $1 a watt for the prepaid, then throw in another $700-1500 at the end of 6 years and the system is 100% yours? Absolutely nuts in terms of the value that it presents, especially utilizing panels that are among the priciest out on the market.

THANK YOU. It's nice to have some confirmation the lease is as good as it sounds.

I was so glad when I got my lease quote they didn't swap out the panels with older (junk). Same exact panels as the purchase, just for 20% lower overall from purchase price (including buyout). I don't have to worry about them going out of business in the next 5 years (not as much as I would with SolarCity or other pure-lease places) and what that might entail vs. a 20yr lease.

So far, Sunpower installers have been the most honest and straightforward folks in my area. Supposedly there is some value to being "sunpower chosen installer" as they don't let just anyone do it. But that's another topic altogether.

The only thing I'm looking for in the lease is that the 10yr full warranty (that is required for California CSI rebate participation) is still in effect AFTER the Buyout period, i.e years 6-10 are still fully warranted. I've been told by the installers "you get the 10years regardless of financing" but I haven't finished scouring the lease yet. It would be very unlikely they wouldn't honor it, since they'd be losing out on the rebate and making folks unhappy vs. buy.

I just can't find anything major wrong with this lease (yet). Sunpower + CA rules remove nearly all the issues/concerns with other leases and in other states. And the 20% reduction makes them in-line or lower than Chinese panels. In one of my quotes, it drops from Post-Rebate: $4.00/DCWatt to $3.20 DCWatt (20.8k/6.5dc).
I am aware however, if I could find another equivalent lease for non-sunpower, it should be 20% lower than that. I haven't found it yet, but there is one more isntaller in town who is doing 20yr with 10yr buyouts. But if that's carried by them, as a smaller company w/outside financing, I won't be interested. It's probably not even worth my time at this point.