You’ve probably seen them on your neighbors’ roofs, or at least lawn signs pointing to where they are—large, shiny rectangular panels that capture the sun’s energy to reduce electric bills and power a household. Solar energy, not long ago the province of a few affluent progressives, will power more than 600,000 homes by the end of this year, reports industry association Solar Energy Industries (SEIA). More than two-thirds of the nearly 400 megawatts of solar installed on home rooftops in California since 2011 are leased from and owned by a third party, but is this the wisest financial decision?
When you’re purchasing a car or a house, buying can be more advantageous than leasing, but in both cases you’ll need a down payment and credit approval. Leasing solar panels requires neither. If this makes it your best option, you’ll still save money over the life of the lease compared to what you’d pay the power company.
If you’d rather have the benefits of owning, but can’t afford to purchase a solar power system outright, a low-interest-rate solar loan can still mean little or no out-of-pocket cost. For example, Admirals bank currently offers interest rates starting at 5.99 percent to qualified borrowers, on loans of up to $45,000 for terms from five to 12 years. And in many cases the interest in deductible.
The Institute for Local Self-reliance has put together a calculator that can help your decision-making process, but we asked Jim Jenal, founder of Pasadena-based Run on Sun solar energy installation company, and West Hills realtor Ellen Dixon of Berkshire Hathaway to help us sort through common questions from homeowners.
Isn’t renting easier than buying? I’m not good with paperwork.
It is indeed a complex system of rebates and tax credits for owners, but Jenal assures us that a reputable solar installation company will handle most of those tedious details for you, and guide you in applying for rebates and supplying backup information for your tax return.
How much upkeep is involved? I like the idea of having covered maintenance with a lease.
Part of the lease pitch is that companies agree to cover the maintenance on your solar system, but “the only maintenance needed is usually rinsing off the panels with a hose and maybe soapy water a few times in the summer,” says Jenal. If you buy, anything beyond that is already covered by product and installer warranties. For example, the warranty on LG (“Life’s Good”) panels covers defects for 10 years and performance for 25. Since LG is a well-established company, you can be reasonably confident they’ll be around to make good on their warranty 20 years down the road if necessary.
Are my savings guaranteed either way?
Jenal sees this as the number one reason to buy, noting the fine print on the website of one of the largest solar leasing companies:
“Savings on your total electricity costs is not guaranteed. Financing terms vary by location and are not available in all areas… A 3 kW system starts at $25-$100 per month with an annual increase of 0-2.9 percent each year for 20–30 years, on approved credit.”
Just how bad a deal is that? He explains: “Let’s take a typical 3 kW solar project. That is really small, so the cash price from a local installer is probably around $4/watt, which works out to $12,000 up front. However, if you own you receive the rebate (if any) and the tax credit. In PWP territory (city of Pasadena), that rebate works out to roughly $2,200, but in SCE territory (Southern California Edison), the rebate is zero. So to take the worst-case example for ownership, we will assume no rebate. In that case, the tax credit is worth 30 percent of $12,000, or $3,600, leaving the ultimate cost to own at $8,400. The cost of ownership—$8,400—is constant over the next 20 years.
“Now what happens in a lease for that same system? No rebate or tax credit goes to you; the leasing company pockets those. What about your payments? The leaser suggests $25–$100 per month, so let’s pick a middle-ground rate of $60/month in year one, with an annual increase of 1.45 percent. The annual payments in year one amount to $720 (12 x $60) and by year 20 have increased to $947. So by year eleven the owner (not you) has come out ahead. By the time the lease ends in year 20, you will have paid $16,567 in lease payments—nearly twice what the system purchaser paid—and still will not own the system on your roof.
Can panels damage my roof?
Dixon is concerned that some buyers would prefer not to have the panels, citing the perceived potential for roof damage, or other concerns. As with anything, there’s always a risk with poor work. The best protection is to hire people who know what they’re doing—in this case they should be NABCEP certified—and ask for references.
Jenal explains the actual process: On shingle roofs, the solar panels are attached to a racking system of rails, not touching the roof or shingles at all. The racking is bolted directly to the rafters of the roof structure, all the way through the decking. Flashing is installed around the points where it is bolted and the shingles are filled in around the flashing so it looks as if the racking sits directly on the roof or shingles, but it doesn’t. “When that is done properly,” he assures us, “the solar array is no more likely to leak than is the vent pipe above your bathroom.”
Tile roofs work a bit differently and there are several options. The safest and most effective, says Jenal, is to remove the tiles where the solar array goes, install the racking as on a shingle roof, then put composite shingles under the array but fill in around the edges with tiles so it again appears to be a seamless tile roof. Inevitably some tiles are broken during the process, but that would happen with any work done on a tile roof.
How will owning affect my home’s value? 
Realtors are divided as to whether owned panels add to your home’s resale value, and appraisers could go either way, so if you’re planning to move in the next couple of years it might not make sense for you. However, a recent New York Times poll found that 83 percent of Americans now believe global warming will be a serious problem in the future. This means Southern California can look forward to higher temps and more need for air conditioning, which we all know drives up the energy bill. On that point alone, a certain number of buyers are going to see solar panels as a plus. A recent nationwide study showed homebuyers are consistently willing to pay a premium for a rooftop system. If you don’t own the panels, however, they can’t be appraised as part of your home’s value.
On the other hand, there’s not much disagreement regarding the wisdom of purchasing a system rather than leasing. There may be no up-front costs, but with a lease you are responsible for the life of the lease. If you sell your home, the buyer has no obligation to assume the lease, warns Dixon, and in a best-case scenario has to qualify to take over the loan. SolarCity, one of the largest leasers, claims to have arranged successful transfers for 95 percent of customers who requested it, but there have been situations where the house seller ultimately had to buy out the lease or reduce the home price in order to complete the house sale.
The bottom line on a lease is that you are responsible. If you’re moving to a new location where you can use the same panels, it could work out well, but otherwise you will have an additional step in your home-sale process. For more information you may want to consult Sandra K. Adomatis’ book, Residential Green Valuation Tools.
Maybe I should wait. Aren’t prices going down?
There will undoubtedly be improvements in solar technology, says Jenal, but probably not enough to outweigh the cost of waiting. Prices have fallen significantly and are now half of what they were in 2008, and 100 times lower than they were in 1978. They may go down further, but it’s possible that with increased demand, prices could even start to increase as materials costs increase. Jenal showed us where there has already been a slight increase since 2013.
In addition, Dixon points out that the electric company may weary of compensating customers for their output. “They are, after all, in the business of making money and have the ongoing cost of the utility grid to maintain. This costs the solar-panel owners nothing, even though they are compensated for their generated overage.”
Glendale resident Scott Peer found this out firsthand when he applied for a permit on his carefully designed array. The city denied his application, allegedly on zoning/aesthetic grounds, but when Peer took his complaint to Sacramento, California Deputy Atty. Gen. Deborah Slon notified Glendale that in blocking the project, the city was breaking the law. Under the California Solar Rights Act, cities are allowed to deny solar projects only for health or safety concerns. On further questioning, the power company acknowledged not wanting to lose the revenue of his payments. Indeed, a forecast study by U.C. Davis estimates an increase in anywhere from 1.9- to 6.3 percent by year 2020.
Rebates for installing solar, once as high as $4.00/watt, have largely gone away (Pasadena is a happy exception). A 30 percent federal Solar Investment Tax Credit has made a solar installation more economically attractive, but unless the deadline is extended, it will end for residential projects on December 31, 2016.
Can putting solar on my one little house really make a difference for the environment?
Angelenos are switching to hybrid cars, non-grass lawns and solar power to save money, but more importantly, because we have to if we want to keep our city livable. Recent reports show that drought and heat are dramatically increasing, and if you’re concerned about climate change, you know we need to act quickly to prevent overshooting the global goal of a maximum 2-degree rise over pre-industrial temperatures. The typical residential solar system, about 5 kW, cuts about 6.7 tons of carbon emissions each year (using EPA’s CO2 emissions calculations). It definitely makes a difference.
