Back in 2014, I wrote a couple of blog articles about solar energy issues surfacing at that time as a result of the increased appeal of certain financial options. Today, the growth in popularity of these systems, for heating and cooling as well as to generate electricity, continues at a rapid pace. Industry sources estimate that these systems now generate enough electricity in the U.S. to supply more than 4.6 million homes. During the first six months of 2015, more than 135,000 systems were put in place in the U.S.; almost 784,000 homes and businesses have now “gone solar,” and a new system is being installed every two minutes.
Three key forces have been identified in accounting for the massive growth in popularity of this new “utility”: (1) The reduced cost of this technology; (2) federal and state tax credits; and (3) the availability of “solar leasing” options with low up-front costs.
Reduced cost of solar energy systems
Over the last several years, the cost of solar energy systems in the United States has fallen to where it is comparable to the average price of a new car. Industry pundits predict that the expense of purchasing these systems will fall worldwide by another 40% by the end of 2017 due to economies of scale, and U.S. markets will see reductions of up to one-third for costs of installation. And across the U.S., a friendlier regulatory environment has encouraged property owners to become more willing to spend their hard-earned cash on solar energy systems; in Arizona, for example, new laws have been adopted to limit the authority of homeowners’ associations to impose restrictions on the installation of solar power systems within their development projects.
For a number of years now, the federal government has offered a tax credit of 30% of the upfront cost of installing new solar energy systems. In addition, several states have offered incentives that apply to both ongoing operation costs as well as upfront installation costs; California is one such state. The availability of these benefits has reduced the risks associated with investment in solar energy systems, and has contributed to the rapid growth of the adoption of solar energy technology. Unfortunately, the federal tax credit, if not extended, will expire in December 2016. It remains uncertain what impact this change will have on the market for solar energy systems.
Zero-down solar leases and power purchase agreements
The third “growth factor” for the popularity of solar energy systems has been the rapid adoption of “solar lease” or power purchase agreement (“PPA”) programs, where, rather than purchasing a solar energy system outright, owners of residential or commercial real estate instead lease those systems from solar energy companies for “zero money down.” Under these arrangements, the solar energy company owns, installs and maintains the system (and receives all tax credits for its installation), and agrees to sell power to the property owner at a low fixed rate over the term of the contract. In 2014, industry analysts estimated that 68% of residential solar systems installations in the U.S. were carried out under solar energy lease programs.
Be on the lookout for these issues in considering a solar energy lease
While solar energy leases may seem to be a convenient way to get access to cheap solar power, they can introduce complications into the mix. Here are a few things to watch out for:
- If you sell your home during the term of the lease, the buyer will generally have to meet the solar energy company’s credit qualifications in order to assume the lease. You should carefully review your lease to determine what conditions may be imposed in the event of a sale of the property. It may well be less cost and trouble to buy out the remaining term of the solar lease prior to sale rather than deal with the restrictions such leases could impose on your sale.
- In some solar energy leases, the solar energy company and the property owner split the revenues from the sale of power. You should consider renegotiating the terms of this split prior to a sale of the property.
- Some solar energy companies file UCC-1 financing statements to secure their interests in the solar energy system. Banks and other creditors generally consider UCC-1s to be a lien against your property, and may require that they be removed before refinancing, taking out a home equity line of credit, or selling the property.
The bottom line is that a solar energy system can save you money if it is installed and financed in a manner consistent with your financial situation, but can create headaches if not properly thought out. Before entering into any arrangements to purchase or lease a solar energy system, you should obtain independent legal and technical advice to help protect your interests.
Lawrence R. Jensen says
I went solar with a lump sum lease about 2 years ago. Meaning I paid 20 years of rent up front. I get all of the energy, the installer got the tax credit. The total cost for a 17 panel system generating 90+% of my annual electricity usage was $11,000 (as opposed to $23K I would have paid in installments over 20 years). My total electricity costs are less than $300 per year on a 4 bedroom house. The installer, a large company, gave me a 25 year full maintenance warranty. I don’t have to do anything, basically. Their warranty pays me for the electricity that is not generated when the system is down! This is a large company with a long track record. It pencils out to pay for itself in less than 8 years from date of installation. I have an option to purchase the system at the end of the 20 years for its then current fair market value in place (probably near zero by then). So, in short, the lump sum lease is worth considering, too.
Daniel G. says
Thanks for sharing your experiences with a lump-sum solar electric lease, Lawrence. It serves as an excellent illustration of how different arrangements can be used to fit individual circumstances, and demonstrates the importance of performing an economic analysis before embarking on a purchase or a lease to make sure the numbers make sense for you.
Daniel G. says
UPDATE: The 30% federal solar tax credit, which was scheduled to “sunset” at the end of 2016, has been extended. Under the Consolidated Appropriations Act, which was signed into law in December 2015, the expiration date for the federal tax credit for solar electric and solar heating and cooling systems has now been extended to December 31, 2021. In addition to extending the federal tax credit, however, the new law also reduces the percentage of the credit over time. More details about the extension can be found at the U.S. Department of Energy’s website—.