Solar leases

 I have been having a difficult time explaining why lease agreements for solar installations are extremely expensive and maybe not such a great idea.  There seems to be a great desire to install solar, save some money, make some green power and not have to spend anything to do it.  That all makes sense, and is very easy to do these days.  However, doing so through the current lease agreements has no advantages, and is extremely expensive when compared to other readily available options.  For this reason I created a short (one page) comparison of three options.  I have included that paper here in the hopes that it will help people make better decisions, keeping more of the money for themselves instead of handing it over to a leasing company.  The example that I used to illustrate the point comes from one of my customer's installation.  It represents a typical home in the Sacramento Valley using PG&E as the utility.  All of the values shown are dependent upon the specific situation (size, location, utility rates, energy net metering arrangements, leasing rates, etc) so can't be used to evaluate any specific proposed system.  However, the overall trends and relative advantages of various funding options are likely to be similar for most situations.  This is just an example of a local system installed today intended to identify the issues that need to be investigated before making a decision to install an expensive photovoltaic solar system.

Assumptions:

- The solar system consists of 25 photovoltaic panels producing enough power to offset the entire annual electrical bill for a “medium” usage household with an average electrical bill of $148 per month. The cost of electricity is assumed to increase by 5.15% a year (the average retail increase between 1980 and 2013)

- The $16,030 cost of the system will include a 30% tax rebate.  The value of the installed system is assumed to be at least equal to the net after tax cost.  Studies have shown that the additional costs are more than recouped when the house is sold, often yielding an increased property value of over three times to cost of the solar system.   

- For a cash purchase, there are no “expenses” involved in the purchase of the solar system, it is merely moving one type of investment (e.g., a bank account) to another (a solar system).  For a loan purchase it is an investment funded entirely from reduced energy costs.     

- Solar panels have been shown to last at least 40 years with little or no degradation in performance after a small “burn-in” reduction experienced during the first two years.  There is insufficient data to speculate on how much longer they might actually perform.  They typically carry a 25 year warranty.  

- For example, my solar system cost me $32,000 after the tax rebate and incentives.  Prior to purchasing the solar system, the money was invested in income producing bonds, yielding an income of about $1,600 a year. By using that investment capital to purchase the solar system, it reduced my annual electrical bill by $2,880 (an effective income to me).  After seven years my savings are now $3,850 a year. The annual savings (or “income”) will continue to increase rapidly over time. In three more years it will be saving me $4800 a year instead of the $1600 I would have been making with my bond investment.  I have already made almost as much in savings as the entire cost of the system.  I still own the system, it still has the same value, and it continues to provide very large savings every year.  

- The lease agreement option is priced to be equal to the first year’s energy bill and remain constant plus an annual inflation rate for the 20 year duration of the lease.  The graph assumes a 3% annual inflation rate.  At the end of the lease, the leasing company owns the system.  The lease can then either be renegotiated, or the system can be removed and returned to the leasing company.  It is assumed that the lease will be renegotiated at similar terms and therefore will continue in effect.