Solar: Do Not Lease!

Solar PV on a Palm Sorings rooftop
Solar PV on a Palm Springs rooftop

To continue my delayed series on rooftop solar investment: pay attention to the horror stories coming to light on how rooftop solar *leases* can damage your home’s value or end up as a nightmare of higher costs and roof damage.

A few years ago, the general tone of advice articles gave equal weight to leasing vs. buying. The lure of “no-cost solar” attracted hundreds of thousands of cash-poor customers who wanted to cut their power bills without laying out cash. The salespeople at solar companies pushed leasing schemes which promised immediate savings but had contracts escalating lease payments regardless of power costs, and promises of guarantees and maintenance that it turns out were not going to be kept.

As a result, the public image of solar leases has soured and people trying to sell houses burdened by solar lease contracts are discovering it’s difficult or impossible to sell without buying out the lease first, a very costly proposition.

Bloomberg’s 2/14/2109 article, “What Happened When I Bought a House With Solar Panels:Third-party ownership and decades-long contracts can create real headaches,” by Esmé Deprez, recounts how one house couldn’t be sold until the lease was bought out and the panels removed:

Two days after walking through Jug’s ham shack, we made an offer. A week later, just before we entered escrow, we learned the solar array hadn’t belonged to Jug. It was, in the language of the industry, a third-party-owner, or TPO, system, belonging to Sunrun Inc., the largest provider of residential solar in the U.S. I started looking into the TPO model. It’s used less often than it once was, but it’s been important in making residential solar, once out of reach for most people, much more widespread. The reason is simple: Homeowners usually pay nothing upfront. A company like Sunrun puts solar panels on your roof, connects them to your home, and claims a tax benefit for owning the system. Going forward, you pay Sunrun to provide the bulk of your electricity needs instead of your utility….

I got ahold of a copy of Jug’s contract, and quickly saw how Sunrun could afford to extend such an offer. It lasted 20 years. The payments escalated annually by 2.9 percent—they’d be 72 percent higher by 2036. The tax credit was worth at least $5,000….

I asked Sunrun if it would take back the system to put it on someone else’s house. It wouldn’t. The only way to get out from under the obligation, as far as we could tell, was to prepay the balance on the remaining 18-plus years’ worth of payments and buy the hardware outright. The price: $27,300….

On consumer review sites and in local news reports, rueful customers warn others to stay away from TPO solar offered by Sunrun and other companies. State attorneys general and politicians have fielded complaints from people who say they were sold expensive systems they can’t afford after signing contracts they didn’t understand; or are paying more now on their electricity bills, not less as promised; or are having trouble selling their homes because potential buyers are turned off, just as I was….

As I write this I’m pregnant. The life Alex and I pictured the first time we walked through Jug’s house, now our house, is taking shape. And let me tell you about our electricity bill. Had we assumed Jug’s lease, we’d be paying $79 a month to Sunrun (the second escalator would have kicked in) plus at least $10 to SoCal Edison to stay on the grid, minus $7.50 for net metering. We’ve been in the house 10 months, and our average SoCal Edison bill is $30. Compared with becoming Sunrun customers, we’re saving $50 a month. We’re going to give some of that to help protect the environment.

The lease model has several forms, with acronyms like TPO (Third Party Owner) and PPA (Power Purchase Agreement) thrown around. The gist of all of them is that your solar panels are purchased on behalf of investors who fund the purchase and installation (and sales commission) and immediately take the government tax credits for themselves, while the homeowner is stuck with a bill for the lease that escalates with time and a continuing obligation to pay the utility for any extra power used over what is generated by the panels. This model works reasonably well where utilities have net metering rules allowing the grid to be used in effect as a long-term battery for solar power, but many utilities have lobbied their regulators to remove this arrangement since the increasing use of solar makes managing other power sources harder and can raise prices for all customers as low-cost baseline generation is forced offline in periods of high solar generation.

As the story recounts, solar became a high-pressure-sales con job, with Solar City (now Tesla), Sunrun, and other large rooftop solar providers finding profits in installations that were not in the interest of homeowners, in this case on a shady roof and costing the homeowner more than he paid for power previously. And the thousands of horror stories about broken systems that weren’t repaired as promised, roof leaks caused by installers and never repaired by unresponsive solar companies, and refusals to temporarily remove panels for roof repairs make assuming a leased system as part of a home purchase an extremely unwise decision.

If solar makes sense for you, go with a local company with references. In the Coachella Valley, we have two large and reliable solar providers, Renova and Hot Purple Energy, plus several smaller companies that have good reputations. If you can’t afford to pay cash, look into financing with a separate loan or home equity loan.


Rooftop Solar: Trendy Boondoggle or The Future of Power?
Solar: Cost-Effectiveness by Regions, Climate and Latitude
Solar: Approaches for Modest Living
PS: Rooftop Solar Mythology
Elon Musk, Tesla, and the Solar Roof Tile Fraud
Elon Musk, Tesla, and the Solar Roof Tile Fraud: Update

Solar: Approaches for Modest Living

Granola Shotgun has an excellent post on his approach to solar. Because his building is in a somewhat less favorable zone for generation and in a much less intensive use zone (AC is rarely needed, so electric bills are modest) he discovers a large standard photovoltaic system will not be worth the cost or (just as importantly) the complications.

I asked my tenants to look at their electric bills. $47 per month was the average with the highest month being $65. Service fees, taxes, and other administrative costs made up a significant chunk of those bills so $25 was owned even before any power was used….

If I assume an electricity bill of $60 a month a standard grid-tied solar package will cost $9,000 up front after government subsidies. There’s a thirteen year pay back period. And after twenty years there will be $6,000 in savings. Financially, it makes no sense to spent $9,000 to save $6,000. There are lease and loan programs for solar equipment that don’t require any money up front, but I don’t like debt or complex transactions with binding long term contracts and legal fine print…. The problem with my property is that it simply doesn’t use enough power for solar to work given the established industry parameters.

He checks into a system that would use battery backup and allow independent use (many people don’t realize standard solar tie-ins are useless in the event of power failure; a lot of effort in splitting circuits and expensive batteries is required.) It would be great if you could throw a big switch and go gridless, but for most people that day is far away. Mr. Shotgun discovers completely independent small systems which use a few panels to charge batteries and run small electronics are cheap and readily available, and don’t require the expensive overhead of government inspections and teams of workers as in standard solar installs. By keeping his needs and expectations minimal, he can get to some disaster-proof independence.

Read the whole thing. This blog focuses mostly on how to make the larger home more efficient, but minimalism and living small are valid solutions as well.

Solar: Cost-Effectiveness by Regions, Climate and Latitude

Whether rooftop solar is a sensible investment depends on:

• Details of grid power tariffs in your locale — in progressive jurisdictions, you may be paying very high rates as part of a conservation/soak-the-rich scheme to charge much more for higher use, and subsidize lifeline use (very small houses, no AC, few appliances.)

• Site characteristics, including local shading by nearby trees or buildings, the practical tilt your roof allows. Few roofs are optimally aligned with the correct E-W roofline and angle so an optimal array of panels can collect maximum solar energy. Closely-spaced panels on flatter roofs will shade each other unless tilt is decreased and spacing between panels increased.

• Weather: clouds and fog, dust and rain cut down insolation (amount of solar energy hitting the surface), and dust or snow on the surface of solar panels either must be cleaned off or lower production accepted.

Online calculators that take solar angles and local climate records into account can give you a rough idea of how much power a rooftop solar installation will produce. One of the best is the National Renewable Energy Lab’s PVWatts Calculator. First look up the approximate latitude of your site, then look up the optimal tilt of panels for that latitude here. If your roof is ideally aligned and angled, you can use the optimum fixed tilt for your location, or substitute an angle required by your roof or siting issues. I’ll go through using the calculator for the site we used near Palm Springs, which has almost ideal solar conditions, then repeat for the same house in Seattle, which has fewer cloud-free hours and lower solar intensity even under clear conditions since at higher latitudes the sun is lower in the sky and solar radiation has to travel through more atmosphere to reach the panels. Not to spoil the surprise, but the combination of lower grid rates and much less power production from panels due to much less sun will demonstrate that rooftop solar is not cost-effective in Seattle now, and won’t be until grid rates rise and panel prices fall substantially from here.

The Palm Springs Case

First, enter the site address so the calculator can pick up the nearest climate and solar data:

PVWatts Screen 1: Palm Springs, CA
PVWatts Screen 1: Palm Springs, CA

Then you enter some details of the planned installation — in this case, 66 panels generating 360W each for about 24KW total power, “Premium” type (we used the current industry-leading Sunpower X-Series panels.) “Azimuth” is set to 180° for exact south-facing alignment, “Tilt” at 15° as installed, and “Average Cost of Electricity” (from the grid) at 20c/KWh — as we’ll see later, utilities in progressive areas have complex tariff schedules that make this number hard to calculate, and even more complex ToU (Time of Use) and moment-by-moment charging schemes are on the way. Since we’re simplifying this just to get an idea if solar comes close to being cost-effective, I’ve selected 20c as an average cost for high users in Palm Springs — actual peak rates are much higher.

For our own project, a flat roof with limited area meant keeping the tilt angle of the panels less than the optimal 28° — higher angles would have rows of panels shading the next row, so a lower angle (15°) was chosen.

PVWatts Screen 2: Palm Springs, CA
PVWatts Screen 2: Palm Springs, CA

The outcome is shown below: about 40,000 KWh/Year generated, saving about $8,000 a year in grid power bills. Since this installation cost about $65,000 after subtracting the Federal tax credit, it is expected to return about 12% of its cost yearly and pay for itself in about 8 years — neglecting some minor cleaning and maintenance costs and assuming little degradation in production as the panels age, which is close to correct for these premium panels, which are guaranteed for 25 years. This is one of the highest-return investments you can make, under these almost-ideal conditions. Note less costly thin-film panels cost less but also degrade faster.

PVWatts Screen 3: Palm Springs, CA
PVWatts Screen 3: Palm Springs, CA

The Seattle Case

Now we set the calculator up for a similar installation in Seattle:

PVWatts Screen 1: Seattle, WA
PVWatts Screen 1: Seattle, WA

Now to give the Seattle case the optimal tilt angle of 39° is entered — this works well if the Seattle house has a south-facing roof at a 39° angle to start. Few real Seattle houses will be so ideal for rooftop solar., and most will have local obstacles like trees and nearby obstacles like hills and other roofs cutting down on insolation. But we’re supposing the best imaginable house:

PVWatts Screen 2: Seattle, WA
PVWatts Screen 2: Seattle, WA

Results: only 27,000 KWh/year generated, and because local power averages out to 12c/KWh (on the low end of costs in the US), grid power costs saved is only $3,200/year. Ignoring other costs, the rate of return on investment is 4.9%, and payback period 20 years — but the maintenance costs and cost of money invested, with loans for 20-year periods in the 4% range, means the panels will be nearing the end of their guarantee and producing less than we assumed. The investment is marginal at best, close to break-even even after the 30% tax credit.

PVWatts Screen 3: Seattle, WA
PVWatts Screen 3: Seattle, WA

Large areas of the US have unsuitable weather, lower grid costs, or a limited supply of houses with appropriately aligned roofs for solar installation. So when you see solar installs in those areas, it’s a result of government spending foolishly on trophy installations that make no sense, or the desire by a few consumers to sport a trendy symbol. If you look around at your neighborhood and see few or no solar panels on roofs, that means you are likely to be disappointed in the return on your investment in solar. Designing in future solar during homebuilding, on the other hand, can make sense in much larger areas of the country — having the right roof and house orientation may well be a wise choice for when panels are even cheaper and electric rates have risen further in your area.

The widespread hype for solar, including the large number of scams and fly-by-night, high-pressure solar sales companies active recently, has victimized some consumers. “Aspirational” solar purchased by wealthy homeowners because they want to signal their enlightened attitudes is just another conspicuous consumption good, like Teslas. Rooftop solar is another complicated system to maintain and is a bad investment unless it returns its costs quickly.

Solar PV on a Palm Sorings rooftop
Solar PV on a Palm Springs rooftop

Rooftop Solar: Trendy Boondoggle or The Future of Power?

Solar PV on a Palm Sorings rooftop
Solar PV on a Palm Sorings rooftop

This begins a series of posts on solar power, mostly about solar photovoltaic (PV) installations on residential rooftops. I’ll explain why it pays to install solar PV in some areas of the US and not others, with factors to consider including local utility tariffs, government and utility subsidies, resale value, and maintenance costs, as well as the total amount of solar radiation available in a locale considering clouds and latitude. As we will see, it’s a very complex subject and the cost-effectiveness of solar can depend on the whims of state utility regulators as much as technology and cost of panels. Most of the online information about solar is promotional material from advocates, installers, or manufacturers. These sources tend to oversell and underexplain the costs and benefits, which are so locality-dependent as to make general advice almost useless.

We just did a large solar install on our test mansion in Palm Springs, wiping out almost all electric bills but shelling out almost $100,000 ($70,000 after the 30% Federal tax rebate.) California’s Public Utilities Commission (PUC) has been applying textbook Progressive policy ideals to regulation of electric utilities for decades, resulting in very high rates (topping out over 30c/kwh) for inland users that need much more AC than the mass of voters who control state government, who live on or near the cooler coasts. The cost calculus that results almost compels rooftop solar for large inland houses, which otherwise would pay some of the highest electric rates in the mainland US. Our calculated payback period is around 8 years, while in many parts of the country with more reasonable rates (12c/kwh) solar payback periods are more like 30 years, or never if maintenance and total lifecycle costs are fully accounted for.

So we’re in the position of committing to solar for large Palm Springs homes while warning most others to avoid it unless they are wedded to the status symbol of having solar panels on their roof. In the longer run, utility-scale solar PV farms in the desert are likely more practical and cost-effective than rooftop, but as rooftop solar has grown to become a significant percentage of generation in California, electric utilities are correctly warning that grid stability and economics require more stable sources or a greater commitment to storage to hold intermittently-generated power for later use — and that is still a very expensive prospect.

Other forms of solar power, like passive solar for home heating, solar pool heaters, and solar hot water pre-heating, have completely different cost calculations and alternate fuels (notably cheap natural gas), so we won’t address them here.

[next: Solar Potential by regions — Climate vs Utility Rates]

Further topics to be addressed:

Net Metering (NM) vs Time of Use (ToU)
Types of Solar Panels – AC/DC, microinverters, amorphous vs crystal silicon, Perovskites…
Elon Musk’s Solar Roofs: Hyped?
Local Storage and Going Off the Grid: Practical?
Electric Cars as Local Storage