SolarCity: Better Than Nothing

Solar panel installationI’m torn about this distributed solar electricity sales craze. The New York Times recently ran an article about how Wall Street is going nuts over Elon Musk’s solar company SolarCity. Companies like SolarCity turn the normal residential solar market on their head. Instead of selling you a solar installation and equipment, they borrow your roof, put their own install on it and sell you the electricity it generates. Other companies using this model include SunPower, SunEdison, Sunrun, Vivint, and Sungevity. Residential solar is growing. Why my unease?

My concerns stem mostly from the wasted potential, and the temptation for abuse. On the positive side, these companies do create more solar roofs, every single one of which is good for the environment. Every little bit helps. And with their consumption of panels, they drive volume and stimulate the powerful price-drop economics that come from increased scale. Also a good thing. And in many cases, they do save customers some money, which is a good thing.

But as I point out when discussing the economics of my solar project, these companies are kind of a rip-off. You get only a tiny fraction of the savings your system generates – the rest goes to the company.

For example, a typical customer might save $75-$125/mo. For zero up front cost, I suppose that seems OK. But in comparison to a properly-sized and owner-operated installation, it is a pittance. For example, with my system, I save 100% of my electric bill, which is a value of about $225 per month.  Plus, about 9 months out of the year I generate a bit more power than I use, so I also get a credit against my electric bill account for the extra electricity I generate. This can run anywhere from $10-$50/mo. Plus, for the first ten years, I get an SREC from my state (MA) worth anywhere from $285-$550 at auction.  I don’t earn exactly one SREC per month, but close – about 11 per year. If we conservatively add, say, $225 (electricity savings)+$20 (electricity surplus)+$285 (SREC) we are talking about  $530/mo in savings. Give SolarCity a generous $125, and we are talking about a difference of at least $405 a month in lost savings going to the company instead of the consumer. And that does not even count the federal and state tax benefits available to homeowners (including incentives on equipment purchases and roof repairs, depreciation on the system).

Of course the hitch is that, to get those additional savings, you have the capital (or home equity or other credit line) to pay for your system upfront. If you cannot fund the installation, you cannot set yourself up in a way to reap those benefits. If SolarCity has to eat that upfront cost, guess what: you are going to give them the benefits of the bulk of the savings.

And some people don’t understand that. This is obviously a somewhat complex subject. And people bring differing levels of knowledge when approaching it. Add in a high-pressure sales force and a “valuable monthly savings with no money down” pitch, and there are some people who are going to get burned. For example, these companies may not use top quality equipment and may not size or design the system properly (for a discussion of equipment economics and the difference between maximizing watts per dollar vs watts per square foot, see Equipment Economics here). Where marginal home sites are chosen or systems are designed badly, customers end up with little to no savings, and yet their roof is leased out for 20 years with no recourse. And at the end of 20 years, that equipment still has half its useful life left. So homeowners are told they either have to pay an excessive residual to keep it, or a fee to have it removed. Whether it goes into a landfill, or gets sold a second time is anyone’s guess. Further, having the encumbrance of a lease attached to the title of your house can greatly complicate your ability to sell it or get a home equity line or second mortgage. Often times you will need to have the contract terminated and the lien removed before you can do the deal. The solar companies know they have you in a bind at that point and can extract significant fees and penalties. Needless to say, these end of life issues are not dwelled upon up front. And people get taken in. Sometimes these are people who really need the savings and cannot afford to be ripped off.

Still, it is undeniable that others do benefit. SolarCity is approaching 100,000 customers. They cannot all be ripped off. Which means that, while the SolarCitys of this world are really not really providing a good deal, they are providing a service with at least some marginal value. And some people are getting a small benefit they wouldn’t otherwise get. So I guess we are back to our starting point: these guys aren’t great, but they are a little better than nothing at all.

Comments, questions or reactions to this post? Leave a note below and I will respond to your questions.
If you enjoyed this post, you might enjoy: The Solar Project – Table of Contents, Recommended Links [Ed. 0023 / Environment]365 SunrisesCookin’ Without Gas, Recommended Links [Ed. 0016 / Environment]The Secret to Solar.

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Comments

  1. I would postulate that any lease(PPA) from Solar City or others is WORSE than doing nothing. You gloss over a few points that should be highlighted.
    First, Many PPA’s(power purchase agreements) include annual “escalators” of up to 3% which raise the rates significantly over a 20 year period. This is not discussed in the sales pitch, they simply say “oh it’s only 2.9%, not much at all” at the end of 20 years your ppa rate per kwh is doubled.

    second. you cannot break a solar lease, if you want to sell your house you are SCREWED. solar lease salespeople will tell you that potential buyers will LOVE signing the remainder of your lease. really? prove it! Then ask a realtor if a solar lease is easy to explain to a customer, and if they’re EAGER to sign a lease tying THEM to solar city for up to TWENTY years! Want to sell your house, you have to satisfy the lease (pay for all the power in advance) or buy the array at inflated retail cost with NO incentives. Want to sell a house with a leased array on the roof? you are thoroughly screwed.

    lastly…”$0 dollars down!” is a LIE pure and simple. On the day you sign your contract you sign over more than $10k in incentives to your solar lease company. That’s YOUR money that you are HANDING to them. The day they put your array up, they are getting back almost half the cost(actually, more than half the cost because they inflate the prices of their arrays by 25%). If you’re in an SREC state you could be signing over as much as $50k in incentives, for which the company gives you the opportunity to save $5k over 20 years. SUCH a deal. This is the beauty of a PPA, Solar City doesn’t NEED the electricity the panels generate, they make far more on the incentives…yet just to be greedy about it, they CHARGE you for the privilege of handing them $50k, and they send you a BILL for the power your incentives pay to produce! it’s absolutely INSANE!

    • I mean, just to flesh out this one point…. the buy out.
      Solar city offers to put an array on your house….they tell you it’s an array that retails for $30k. well in reality, this equipment could be purchased for $20k before incentives(and about $10k after incentives). They book it at $30k and write off $10k of that on day one, and then they install the equipment that only costs them $7 k to buy in bulk(because they buy the cheapest shit out there), they pay an installer $3k to put it up, and they’ve broken even on day ONE.
      Now you want to sell your home, so you call solar city and they say “oh, ok….well, all you have to do is get the new owner to sign the lease I’m sending you(they need to have a 700+ credit score)” if the buyer balks (every buyer will!) YOU have to pay off the remainder of the lease.
      Ok, no problem, (let’s say) 15 years at $1500 a year in power, well that’s only TWENTY TWO THOUSAND DOLLARS! oops, you forgot the “escalator”! it’s actually $28000! holy sh*t! That cannot be right!
      Well that’s nuts, I can’t do that…why don’t I just buy the array! A solar array of my size costs $20k, right? nope! remember, they booked it at $30k and you’ve used up 20% of it’s life, so you still OWE $24k on an array that you still won’t own, remember, because when the lease is up it belongs to THEM, not YOU, so you’re paying higher than retail cost for an array THEY have the right to come and remove! you are HOSED!!
      I was in this industry for a time. I presented solar information to realtors by the hundreds, and universally they bemoaned the very notion of having to explain a solar lease…and universally every realtor I spoke to said that a solar lease had been or would likely be a deal breaker.
      I was consulted by several solar city and sungevity customers(I never sold a lease) for help getting OUT of a lease…in EACH case customers could NOT get out of their leases without satisfying the lease to the tune of tens of thousands of dollars. In EACH case the customer said (paraphrasing) “I wish I had never signed a PPA agreement” and “I was deceived when I signed my PPA agreement”.

  2. I’m not going to get into all your numbers because quite honestly I just don’t know. The one thing I do know is that Solar City installers are Solar City employees, not contracted to install the systems. Since you’ve got that major point incorrect I’d have to questions the rest of your assumptions.

    And in the grand scheme of things if someone is intent on doing something for the environment and they can do that without spending money isn’t that a good thing?

  3. Another point…

    the 2.9% increase per year you state for a non-fixed rate is not the same for all proposals. Also, do you think the local utilities are going to NOT increase their rates? I’d be willing to bet that a fixed increase of 2.9%/year would leave you better off after 20 years than if you stay with a local utility. Projections for energy costs increase at more than 2.9% year over year and when you consider that the starting point for Solar City cost per kWh is cheaper to begin with the cost of not switching to solar increases quicker.

    example…

    Utility is at 9.6/kWh with an estimated year over year increase of 4.8%
    Solar is at 8.5/kWh with a fixed year over year increase of 2.9%

    In that case no matter what your cost is for solar at the end it’s cheaper than the local utility. Granted, the assumption is 4.8% increase each year for your utility and it could be less. It could also be more.

    And, again, you will have cost certainty while doing something for the environment.

    • MikeyLV says:

      NV Energy has actually lowered their rates aince 2008 almost as much as rhey raised it. My annualized increase was 0.9 percent.
      SC increase “will be 2.9 percent per year”. That’s a big difference. And Dept of Energy says US average increase 2015-2016 will be less than 2.9%.
      BUT, talking with SC customers in CA, they have not had a rate increase for 2 years and juat got a 2% (for utility company parity). While that technically breaches the “will increase” clause, less than 2.9% increases are no guarantee (since rhe contact says they will increase 2.9% annually). So who really knows the year to year cost?

  4. I was interested in your article…

    and I suspect you may be interested in a white paper on The True Cost of ‘”Free” Rooftop Solar.

    In my view it is a negative NPV proposition for most property owners.
    http://bit.ly/1OHws1u

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