The vast majority of new solar power customers in California are going solar in a way that costs them more money in the long run.
About 70 percent of new solar customers in California are getting panels with leases or power purchase agreements, which has them paying for the energy their panels produce rather than regular monthly sums, according to a National Renewable Energy Laboratory analysis released earlier this year.
There are two big reasons for that. One is obvious. Cost-wise, going solar isn’t much different from any big purchase – people who buy solar panels come away with a better deal over the long haul, but leasing is attractive to people with less to spend up front and who don’t want to make the commitment.
“Consumers are looking for simple and that’s why I think leases have been very popular,” said Vikram Aggarwal, CEO of startup EnergySage, an online solar cost-comparison marketplace.
But money and convenience isn’t the sole driver of the solar leasing phenomenon – there’s also a powerful marketing push behind it.
The nation’s biggest solar companies such as SolarCity, SunEdison and the Costco-affiliated Sunrun, are aggressively pushing that option. Their ads are alluring, usually doubling down on the message that it’s possible to put panels on your roof with as little as $0 upfront and to reap immediate energy savings.
There’s a big catch, though: Solar experts agree purchasing the panels usually pays off more over the long haul, especially with a federal tax credit that shaves up to 30 percent of the cost off both cash purchases and loans (that perk’s days might be numbered, though).
Buyers immediately see energy bill savings, and once they recoup their upfront costs, those lower bills mean more money in the bank.
Twenty or 30 years in, customers who lease or enter into a power purchase agreement with a solar company may still be paying – and end up spending far more than those who opted to buy.
The Renewable Energy Laboratory, the federal government’s energy think tank, concluded in a study earlier this year customers who get bank loans pay as much as 29 percent less per kilowatt hour of energy than those who go with a 20-year power purchase agreement, which bills customers based on the power their leased solar systems produce each month.
Here’s a look at how those models compared with leases in cost per kilowatt hour of electricity, which energy wonks refer to as the levelized cost of energy.
Bottom line: “Leases and (power purchase agreements) are more expensive on average,” said David Feldman, a senior energy lab analyst who co-wrote the study.
Buying lets solar customers reap all the financial benefits from their panels, while lease arrangements come with more costs.
“Once the loan is paid off, you now have years and years of free electricity available to you,” Aggarwal said.
That’s why Glenn and Lucene Graeber decided to buy their 26-panel system from Baker Electric Solar in December 2013.
The Escondido couple saved up for their roughly $27,000 investment for years, thinking they’d boost the value of the house and be saddled with fewer bills –for their system itself and their electricity.
“We try to keep less bills, not have bills at our age,” Glenn Graeber said.
The Graebers’ purchase meant they could take advantage of the solar investment tax credit, which reduced their tax bill and thus their cost of going solar by about $8,000.
Before the Graebers went solar, their energy bills averaged $225 to $240 a month. Now, the Graebers say their panels are offsetting their electricity costs. They actually received $245 from San Diego Gas & Electric last year because their panels produced more energy than they used.
The Graebers expect to recoup the total cost of their system within seven years.
John and Karen Simokat, also of Escondido, had a similar mindset as they looked into retrofitting their new home with solar and other energy efficiency upgrades last fall.
But the Simokats decided a solar loan from San Diego Metropolitan Credit Union would be more feasible.
They signed on for a 20-year loan with a 7 percent interest rate for the $39,895 solar investment.
Within months, the couple benefited from a $11,400 federal tax credit, completely offset their SDG&E bills and used their panels to power their electric vehicle.
They now pay $312 a month for their panels and hope to pay off their loan five years early to begin reaping all the profits associated with their panels 15 years in.
“We’re not losing any money and we basically built equity in the house because we own it,” Simokat said.
The bonus, Simokat said, is that their investment is helping the environment too. “It’s better for our family but it’s better for everyone else too.”
Customers who choose leases or power purchase agreements opt into a pay-as-you-go model instead.
Steve Silverman of University Heights said this arrangement allowed solar to pencil out for him and his wife.
“I didn’t have the $18,000 to $20,000 to put down for the solar,” Silverman said.
What he did have was SDG&E bills that regularly hit $200 a month, and sometimes double that.
So Silverman stopped to talk to a Sunrun rep at Costco early last year. The company later pitched Silverman a 20-year lease for solar panels that would handle up to 90 percent of his energy needs. He could either pay $0 to start or put money down.
Silverman opted to pay Sunrun $3,000 upfront and ended up with $100 a month payment. Workers installed his panels last October. He hasn’t had to clean or care for them. Sunrun will handle that if anything comes up over the next two decades.
But Silverman’s not yet certain what his true energy savings will be since solar customers are only billed by SDG&E once a year.
An analysis by EnergySage does offer a window into what lessees experience. The company projected a typical lease or PPA customer could see $100 in monthly energy bill savings and a net savings of $20 when you factor in both the electric bill and their lease payment. This assumption is based on an $80 monthly lease payment.
The same analysis found lease customers in states without state-specific solar incentives like California would save just $3,250 over 20 years with a lease arrangement versus $12,000 to $20,500 buying the system.
Feldman, whose study also concluded a lower cost with purchases and loans, emphasized that specific details of lease arrangements matter.
Some leases include annual price increases that can affect savings. Customers with bigger pre-solar energy bills may also save more per month.
Then there’s the language explaining what happens if something changes. For example, leases can present challenges when customers move or try to sell their homes.
“It’s really about the fine print,” Feldman said.
Want to Learn More?
• EnergySage and CleanTechnica, which offers a San Diego example, have some helpful cost breakdowns for folks mulling whether to lease, buy or take out a loan.
• The Center for Sustainable Energy, a San Diego-based nonprofit pushing solar growth, has a calculator that helps you figure out how much you might save on energy bills if you go solar, a key factor to consider in any financing arrangement.
This is part of our quest on whether solar will pay off for San Diego. Check out our previous post, San Diego Explained: The Solar Game Is Changing, here.