I Can't See How Leasing Doesn't Beat Purchasing, Can You?

[jcg]

We also have a TOU rate plan in CA that PG&E offers which is the E6 rate plan. I'm trying to decide if it will work for us as we have 2 home offices, so me and my wife are in the house quite a bit during peak hours. You can only change plans once per year, so I guess worst case we could try it out and then change back to the E1 rate plan if it wasn't working out.

jcg

If that is the only rate plan available, then your calculation looks about right to me. We have a tiered rate in Arizona too but also a Time of Use rate plan which, after I did a calculation, wound up saving me even more money. Essentially, I bank on-peak kWh for the first five months of the year and never look back even during the height of the desert summer heat. I wind up paying little or no on-peak rates for the entire year.

[Ian S]

We also have a TOU rate plan in CA that PG&E offers which is the E6 rate plan. I'm trying to decide if it will work for us as we have 2 home offices, so me and my wife are in the house quite a bit during peak hours. You can only change plans once per year, so I guess worst case we could try it out and then change back to the E1 rate plan if it wasn't working out.

jcg

We also have a home office so we have to keep the A/C on during the peak hours as well. It's important to know how the rate plan deals with your on-peak and off-peak production and also the actual rates involved. My utility, APS, tracks both separately then at the end of the year, if there are credits remaining they pay off at what I assume is somewhat of a wholesale rate but whatever, off-peak production can't be used to offset on-peak and vice-versa. A friend here in the Phoenix area allowed me access to her Sunpower account and I was able to see what her similar but smaller system produced daily and hourly for an entire year. Our peak hours are noon to 7 PM weekdays and electric production in her system was pretty evenly divided between on- and off-peak. We have gas heat so during the winter and spring, we don't use a great deal of electricity during the peak hours so we bank a lot during the initial part of the year that then gets used up over the summer. Based on my calculations, we shouldn't have to pay for any on-peak power, just off-peak. Also we wind up with on-peak credits at the end of the year - but no off-peak credits. This behavior has been confirmed by the installer who shared one of his colleague's TOU electric bills with me: the colleague had a large bank of on-peak credits at the end of June. The installer actually thinks that this means the tiered rate plan that he has is preferable to the TOU because all electric production goes to offsetting all usage with no credits to be paid off at a low rate at the end of the year. The problem is that the tiered plan's lowest rate is far higher than the TOU plan's off-peak rate. And since the value of the on-peak credits at the end of the year is not much less than the off-peak rate, those credits essentially end up offsetting off-peak usage too. The net result is that the solar PV pretty much fully offsets the same usage in both cases but, for the remaining power purchased from the grid, with TOU, you pay around $.06/kWh while with the tiered plan you pay at least around $.11/kWh.

[vinniethePVtech]

So let's start over,

Hi Vinnie. Nice to meet you.

I was wondering, since you repeatedly said leases are never worth anyone's consideration-- always buy. If I definitely want Sunpower equipment and willing to pay the extra for the brand since I have limited roof space & like their panels, what do you think of these two options:

Sunpower 6.8kw DC system in Central CA.

Choice 1: $38,000 up-front and I OWN the system on Day1.
I wait for $12k in tax breaks & rebates = $26k NET : $3.82/DC watt

Choice 2: $19,400 up-front and $600 at Year 6 Early Buy out with pre-paid lease: $2.94/DC Watt.
I OWN the system after 6 years.
No tax rebates or incentives, but I don't have to wait for them either.

I own all the power generated under the lease and participate in net-metering. I make no monthly payments. As of the 7th year, I would own the system no matter which choice I select. There was NO markup based on choosing the lease -- that lease was offered separately 2 months later as an alternate financing method if I chose to. Both systems have 10yr warranty and all the options are the same.

What's your opinion?

Math seems right for choice 1. Plus you get met and das monitoring. Seems like authorized dealers are slashing 10% off pv pricing already. That same system under lease 6 months ago would of sold for $41000~$42000
I bet if you stall a few more months there will be another reduction.
I would go with choice 1 stay away from any interest obligations.

My friend and I were discussing leasing yesterday and refered him to this forum. Right now his bills are roughly $650 a month on average and he is paying into the .30 tier. He does hydroponic cultivation with a 4000w system hat runs 12 hours a day. From his stance he would rather do month to month on the lease, but because the hydroponic cultivation is through his business he is writing off the lease payments. Makes sense from that standpoint.

[KRenn]

Math seems right for choice 1. Plus you get met and das monitoring. Seems like authorized dealers are slashing 10% off pv pricing already. That same system under lease 6 months ago would of sold for $41000~$42000
I bet if you stall a few more months there will be another reduction.
I would go with choice 1 stay away from any interest obligations.

My friend and I were discussing leasing yesterday and refered him to this forum. Right now his bills are roughly $650 a month on average and he is paying into the .30 tier. He does hydroponic cultivation with a 4000w system hat runs 12 hours a day. From his stance he would rather do month to month on the lease, but because the hydroponic cultivation is through his business he is writing off the lease payments. Makes sense from that standpoint.

To be honest I think supply and demand have basically reached even ground at this point in time. A few major manufacturers have even upped their prices over the past couple of weeks. I really don't see any more major decreases through the rest of the year, especially since you'll see a lot of folks in the commercial market moving to take advantage of the soon-to-be-expired 1603 Grant.

[OCJeff]

Hello all,
As I read these figures, I can pay $5500 now to have an insured and guaranteed system for 20 years with an option to buy at the end of the lease. Or I can pay $10,000 extra dollars up front to own that system. Suppose that system is worth $15,000 FMV at after 20 years (which sounds reasonable to me, given inflation ought to have roughly tripled dollar values by then). My choice, if I lease, is this:

1) Buy that system with $10,000 of 2011 dollars
or
2) Buy that system with $15,000 of 2031 dollars
or
3) Buy or lease a 2031 system with an unknown quantity of 2031 dollars

If I were to put those $10,000 in an investment increasing in value at the same rate as the inflation I calculated, those $10,000 ought to be worth $30,000 in 2031. So I could buy the system and still have $15,000 left over! Or have $30,000 to buy a presumably better/smaller/more efficient and NEW 2031 system.

IMHO your math is a little off. You are assuming two things: 1) Cost of the PV system is not going to increase (at least at the cost of inflation) and 2) The FED/State/Utility incentives will still be around in 20 years.

I have a SolarCity Lease, and I do see and understand the upsides and downsides of the lease. For me, as my first step into the PV world I think I made the right decision. After having it for 20 years (if I'm still haven't moved in 20 years) then I think I'll understand the production, maintenance, upkeep and benefits to a much greater degree. If I knew for a fact I would be in my house for 50 years I would have likely bought for the 33% added cost (for my system).

As for the "Production Guarantees", I do agree the numbers are low balled so that you are unlikely to get a credit, but this does two things to the consumer. 1) If the system goes out, it gives them motivation to come and repair it so your production isn't too impacted for the 12 month period and 2) peace of mind that it will produce XX kwh over a year and offset your utility consumption by that amount over the same 12 month period (this helps the leaser feel comfortable, versus having no idea and no guarantee what it will produce/offset.)

My "plan" is to move to TOU rate schedule, and build up credits over the course of the 12 month net metering cycle to the point where I don't pay the utility anything more than the service fees ($2/mo) and use much more power than I used to in the past.

Be aware, if you plan to refinance, you'll likely have to get their property lien released (giving them rights to the solar system if you foreclose), I just went through that this week (another thing to consider with a lease).

-OCJeff

[Franz]

OCJeff,

Good points. The hardest part about the decision of prepaid lease vs purchase is forecasting 2031.

As for not assuming the cost of PV systems will increase, actually I was--sort of. To be clearer, I was figuring whether buying the leased system now would be better than buying it in 2031. I assumed that the system, after 20 years of depreciation, would be worth $5000 in today's dollars. I think that is a very generous valuation. Many folks think lessors will just be giving them away or selling them for the price they'd get for a third party recycling or re-purposing them. I then tripled that $5000 to $15,000 to follow the same inflation rate I used to estimate what my $10,000 difference between leasing and purchasing would grow to if I invested it now. That led to my estimation that I could buy the system for $16,300 in 2011 dollars in 2011 ($10,000 more than leasing) or buy it for $5600 in 2011 dollars in 2011 (the pre-paid lease) plus $5000 2011 dollars in 2031 (worth $15,000 at that time). I hope that's clear now.

As for the rebates and credits, yes, I guess they might have to be there for a PV system equivalent to my 2011 system to be purchasable for $30,000 in 2031. But, as this is a cutting edge technological item, we should not just assume that to be true any more than we should assume the government help will be there in twenty years. In fact, following Moore's law, we might even hope PV will be cheaper in 2031 (for equivalent kWh production), if not in actual dollars, at least in inflated dollars.

I feel ignorant, but what's TOU? Sounds like tiered something where, perhaps, we get higher prices for energy we generate during peak demand periods. Am I close? I like the sound of that, but I don't think LADWP works that way, now, though we don't know the future.

Cheers,

Franz

[Ian S]

OCJeff,

Good points. The hardest part about the decision of prepaid lease vs purchase is forecasting 2031.

As for not assuming the cost of PV systems will increase, actually I was--sort of. To be clearer, I was figuring whether buying the leased system now would be better than buying it in 2031. I assumed that the system, after 20 years of depreciation, would be worth $5000 in today's dollars. I think that is a very generous valuation. Many folks think lessors will just be giving them away or selling them for the price they'd get for a third party recycling or re-purposing them. I then tripled that $5000 to $15,000 to follow the same inflation rate I used to estimate what my $10,000 difference between leasing and purchasing would grow to if I invested it now. That led to my estimation that I could buy the system for $16,300 in 2011 dollars in 2011 ($10,000 more than leasing) or buy it for $5600 in 2011 dollars in 2011 (the pre-paid lease) plus $5000 2011 dollars in 2031 (worth $15,000 at that time). I hope that's clear now.

As for the rebates and credits, yes, I guess they might have to be there for a PV system equivalent to my 2011 system to be purchasable for $30,000 in 2031. But, as this is a cutting edge technological item, we should not just assume that to be true any more than we should assume the government help will be there in twenty years. In fact, following Moore's law, we might even hope PV will be cheaper in 2031 (for equivalent kWh production), if not in actual dollars, at least in inflated dollars.

I feel ignorant, but what's TOU? Sounds like tiered something where, perhaps, we get higher prices for energy we generate during peak demand periods. Am I close? I like the sound of that, but I don't think LADWP works that way, now, though we don't know the future.

Cheers,

Franz

I think in 20 years the odds are that cost of solar will be considerably less than today. In 1976, solar modules cost $65/watt. Now we're at a buck or two. If efficiency improves then fewer panels will be required for a given amount of power produced. This will reduce all the ancillary costs - frames, mounts, labor - for solar installs. Inverter costs are also bound to drop. That seems to be the way of electronics. I'm not going to worry about what my leased installation's FMV will be 20 years in the future. I really don't think it will be worth the lessor's while to pay the labor costs to remove it. There may even be a market glut of used 20 y.o. systems to make it even worse. And it's very possible that I or the next owner of my home will want a brand new system installed and between removal of the old and installation of the new, make need repairs or replacement of the roof.

TOU refers to time of use rate plans where you pay far higher rate during peak periods e.g. from noon to 7PM weekdays. Fortunately, this is also a time of day when solar panels are producing at their peak so the energy from solar can have a disproportionate effect on the resulting electric bill.

[cebury]

TOU refers to time of use rate plans where you pay far higher rate during peak periods e.g. from noon to 7PM weekdays. Fortunately, this is also a time of day when solar panels are producing at their peak so the energy from solar can have a disproportionate effect on the resulting electric bill.

I haven't looked a TOU for southern utils, but w/PG&E it's assumed you go solar you got TOU residential b/c it saves so much money. However, threads pondering growing residential solar installs predict they will eventually modify TOU's to extended hours past sunlight availability. Of course, throwing off the synchronicity between panel production and peak rates, making them less cost effective.

[Ian S]

I haven't looked a TOU for southern utils, but w/PG&E it's assumed you go solar you got TOU residential b/c it saves so much money. However, threads pondering growing residential solar installs predict they will eventually modify TOU's to extended hours past sunlight availability. Of course, throwing off the synchronicity between panel production and peak rates, making them less cost effective.

All the more reason to make hay while the sun shines... so to speak. If there get to be so many solar installations that the peak period no longer is peak then all customers should benefit. After all, IIRC, the whole reason for high peak rates is that the utilities have to chase after - and pay more for - limited supplies during those times. If there is no longer a peak, then the rates for everyone should be lower.

[KRenn]

OCJeff,

Good points. The hardest part about the decision of prepaid lease vs purchase is forecasting 2031.

As for not assuming the cost of PV systems will increase, actually I was--sort of. To be clearer, I was figuring whether buying the leased system now would be better than buying it in 2031. I assumed that the system, after 20 years of depreciation, would be worth $5000 in today's dollars. I think that is a very generous valuation. Many folks think lessors will just be giving them away or selling them for the price they'd get for a third party recycling or re-purposing them. I then tripled that $5000 to $15,000 to follow the same inflation rate I used to estimate what my $10,000 difference between leasing and purchasing would grow to if I invested it now. That led to my estimation that I could buy the system for $16,300 in 2011 dollars in 2011 ($10,000 more than leasing) or buy it for $5600 in 2011 dollars in 2011 (the pre-paid lease) plus $5000 2011 dollars in 2031 (worth $15,000 at that time). I hope that's clear now.

As for the rebates and credits, yes, I guess they might have to be there for a PV system equivalent to my 2011 system to be purchasable for $30,000 in 2031. But, as this is a cutting edge technological item, we should not just assume that to be true any more than we should assume the government help will be there in twenty years. In fact, following Moore's law, we might even hope PV will be cheaper in 2031 (for equivalent kWh production), if not in actual dollars, at least in inflated dollars.

I feel ignorant, but what's TOU? Sounds like tiered something where, perhaps, we get higher prices for energy we generate during peak demand periods. Am I close? I like the sound of that, but I don't think LADWP works that way, now, though we don't know the future.

Cheers,

Franz

Do a prepaid lease with an early buy-out so you don't have to wait until 2031 to find out. Some leases allow you to do a buy-out after only 6 years. Eitherway, if you get a system based on your current use, you are going to be saving money long-term regardless of what changes in technology may occur.

[russ]

All the more reason to make hay while the sun shines... so to speak. If there get to be so many solar installations that the peak period no longer is peak then all customers should benefit. After all, IIRC, the whole reason for high peak rates is that the utilities have to chase after - and pay more for - limited supplies during those times. If there is no longer a peak, then the rates for everyone should be lower.

Please consider the amounts of power you are talking about - it ain't gonna happen in the next 20 years!

[Franz]

Do a prepaid lease with an early buy-out so you don't have to wait until 2031 to find out. Some leases allow you to do a buy-out after only 6 years. Eitherway, if you get a system based on your current use, you are going to be saving money long-term regardless of what changes in technology may occur.

I'll pursue this with Sungevity and SolarCity to see if either offers it. Still, if the buyout is not worth it after 20 years, I don't see why it's worth it after six, either. I was already thinking along Ian's lines: that my 20 year old system is going to be worth considerably less than $15,000 in 2031 (allowing for inflation). His reasoning further convinces me. Will it be worth less than the cost of removing it? Perhaps. But even so, if I were the lessor, I'd still demand a payment from the lessee. Someone earlier suggested this might end up a a cat-and-mouse game, with the lessor saying the FMV is $5000, knowing it really isn't and only lowering the price if the lessee demands they remove the system. I know there's supposed to be some neutral party setting the FMV, but I'm not counting on that working in the lessee's favor. What ever does? (Other than, in 2011, all the tax credits and depreciation allowances that reduce PV leasing costs to less than energy bill savings.)

As for TOU, now that I know what it is, I want it, but LADWP doesn't have it. Still, if they do begin it, I'll have the choice to adopt it whether I lease or buy. That's a big plus for a pure lease rather than a PPA agreement.

Cheers,

Franz
(who's still waiting for his local installer's bid)

[KRenn]

I'll pursue this with Sungevity and SolarCity to see if either offers it. Still, if the buyout is not worth it after 20 years, I don't see why it's worth it after six, either. I was already thinking along Ian's lines: that my 20 year old system is going to be worth considerably less than $15,000 in 2031 (allowing for inflation). His reasoning further convinces me. Will it be worth less than the cost of removing it? Perhaps. But even so, if I were the lessor, I'd still demand a payment from the lessee. Someone earlier suggested this might end up a a cat-and-mouse game, with the lessor saying the FMV is $5000, knowing it really isn't and only lowering the price if the lessee demands they remove the system. I know there's supposed to be some neutral party setting the FMV, but I'm not counting on that working in the lessee's favor. What ever does? (Other than, in 2011, all the tax credits and depreciation allowances that reduce PV leasing costs to less than energy bill savings.)

As for TOU, now that I know what it is, I want it, but LADWP doesn't have it. Still, if they do begin it, I'll have the choice to adopt it whether I lease or buy. That's a big plus for a pure lease rather than a PPA agreement.

Cheers,

Franz
(who's still waiting for his local installer's bid)

Neither Sungevity nor SolarCity offer early buyouts but SunPower and SunEdison do, although the latter 2 rely strictly on their local partner installers and dealers.

[Franz]

Neither Sungevity nor SolarCity offer early buyouts but SunPower and SunEdison do, although the latter 2 rely strictly on their local partner installers and dealers.

Thanks, KRenn. Okay then, I really need to pursue that weird online quote I got from SunPower for a system decently priced to purchase and way out of line to lease.

Franz

[KRenn]

Thanks, KRenn. Okay then, I really need to pursue that weird online quote I got from SunPower for a system decently priced to purchase and way out of line to lease.

Franz

SunPower has a function on their site where you can lookup local dealers via zipcode search. Prices can vary wildly between various dealers so ask to get some quotes via email from a couple of different ones. I'm sure SunEdison has the same sort of dealer lookup feature as well.