Making Solar Affordable

You would think everyone would want to capture the free energy provided by the sun. Yet since its initial burst in the 1970s, solar energy has spread remarkably slowly, largely due to the upfront cost of solar panels. Just five years ago, installing photovoltaic (PV) panels could cost $40,000; today that same installment would cost $25,000 to $30,000 and take eight to 10 years to pay for itself, according to Tony Eason, owner of Elektron Solar. Government incentives lessen the cost significantly; nevertheless, particularly in these difficult financial times, the cost is out of reach for many people.

Enter solar leasing, a new concept pioneered for residences by SolarCity in April 2008. Customers pay as little as zero down; the company then installs and maintains solar panels on the roof in return for a monthly payment. Since the payment is typically less than the money saved, the customer comes out ahead, perhaps by $10 or $20 a month. Explains Jonathan Bass, director of communications for SolarCity: “We allow customers to install solar panels for free and then pay for the electricity they use at a discount.”

Payment Possibilities

Homeowners who want to install solar have a number of options. They might pay zero down, $1,000, full prepayment, or just about anything in between. Of course buying the solar system outright is also an option. The choice depends on the customer’s financial situation and preferences.

The payback time desired is critical. A zero-down lease means immediate, if modest, savings. Michelle Waldgeir, vice president of marketing for Astrum Solar, explains that for “homeowners who aren’t looking to pay now,” but are willing to wait for “payback in six or seven years, owning is very attractive.”

Another option is to prepay the entire lease, which generally costs less than buying. “Typically from years 20 to 30 or 25 to 30 you’ll start seeing the benefit of a purchase over a prepaid lease,” says Bass. Eason, however, thinks that buying is the better option since the homeowner will come out ahead in the long run. He believes that “the leasing companies are pushing” leasing because the profit margin is higher than an outright sale.

How Solar Leasing Works

Companies make money off of solar leases not just through the customer’s monthly payment, but because of tax benefits. The company receives ownership of these credits and will then “take these leases and repackage and resell” them on the financial market, explains Eason. Buyers of tax credits are usually those most able to take advantage of them, so it could be a situation in which everyone wins (except the tax collector)

Before deciding whether to buy or lease, homeowners should talk to a number of companies and get a full assessment of their situation. “Most reputable PV installers will go to the house,” says Eason, where they will do a complete site survey that includes measuring the roof, assessing shading and solar potential. A computer then gives a highly accurate projection of the electricity produced by the system.

Such companies will also “look at historical electricity usage and get an idea of what future usage is likely to be” and examine future plans, such as additions or an electric vehicle. They will then deliver a range of financial options for the customer. With a good assessment, “the customer has a really clear financial model of what this system will do over the next 25 years,” Eason says. “It really comes down to whether you can afford the out-of-pocket cost.”

Cost Considerations

Homeowners looking to install solar should be aware of federal, state and local incentives. The federal tax credit is currently 30% of the cost of the system. Some states, such as California, New York and New Jersey, have strong tax incentives, so both buying and leasing are a better deal there. Indeed, solar leasing is currently available only in those states with the strongest incentives, although it’s spreading rapidly

Another factor is the cost of electricity from the grid; if it’s high, than solar is a less lucrative choice. Prices vary from above 20 cents per kilowatt-hour in California and Massachusetts to only 11 cents in West Virginia. Most solar leases include an annual increase, generally a number up to 2.9% says Waldgeir. However, since the price of electricity usually increases faster, the customer is likely to come out ahead. A customer who saves $300 a year on the first year of a lease might save $600 by year 20, when a lease typically ends, says Waldgeir.

Another factor to consider is what happens when one decides to sell one’s home. Owning a solar system increases the value. “All the studies out there show that [a home] with solar will sell faster and at a higher value,” says Waldgeir. However, she also points out that some home buyers might prefer a leased system, since the panels are “insured and taken care of.”

“Leasing has really grown the market and enabled us to offer solar to a broader group of people,” she adds.