How to Go Solar

Solar done right is a win-win for the homeowner and the environment. But there are a few important things you need to consider before you sign a contract. Let’s look at them step-by-step.

To Lease Or Not to Lease?

You have two fundamentally different financing options if you want to go solar: You could lease the solar energy system or you could own it. In the last few years, third-party ownership like zero-down leases or Power Purchase Agreements (PPA) have been very popular in the U.S., making up about 67% of the market in 2014. Experts predict, however, that in the future more homeowners will actually purchase their solar panels again with attractive solar loan offers becoming ever more popular. If you look at it from a pure financial perspective, it is safe to say, that owning the solar panels will almost always leave more money in your pocket in the long run than entering into a lease or PPA contract. But there are still scenarios when it might make sense to lease instead of buying.

Leasing could be a good option for you if…

  • …you don’t owe enough taxes to take full advantage of the available federal tax credits.

The federal government allows you to write off 30% of your investment, some of that maybe be carried forward to the next five tax years. You can find more information on their website.

You may also want to consult with your CPA about the issue before you decide whether to lease or to buy. If you lease or sign a PPA, the company that installs your system claims the credit for itself.

  • …you don’t want to deal with maintenance issues.

While solar panels require very little maintenance, you should expect to replace the inverter at least once in the 20 year life span of a system. If you lease, the leasing company has to deal with warrantees and replacements. Recently, solar loan companies started to address the issue as well by offering operations and maintenance services (O&M) bundled with their loan offers.

  • …you want to save money right away.

This common argument is made by the leasing companies because, after the solar energy system is up and running, the sum of your new (lower) utility bill and your lease payments will be lower than what you paid before. If you buy a system outright, it would take several years before your savings would exceed the money you paid up front. A solar loan with a zero-down option, however, would also allow you to save money from day one.

 

What to look out for before you lease or sign a PPA

First, understand the difference between a lease agreement and a PPA. Leasing a solar energy system basically means allowing the leasing company to set up the panels on your roof, have them feed electricity into your home and take advantage of the new, lower utility bill. For that, you pay rent, the monthly leasing fee. Depending on how much your panels produce and how the price for the power you still receive from the grid develops, your savings might vary. Every kilowatt-hour the panels produce is worth as much as the kilowatt-hour you don’t have to get from your utility would have cost you.

A PPA means that you are purchasing the electricity from the panels on your roof in advance for a fixed price. Typical PPAs in Northern California charge between twelve and 16 cents per kilowatt-hour. PPAs often (and leases sometimes) come with an escalator, which is the amount the price per kilowatt-hour will go up year by year. Typical escalators are around 3%. The contract will require you to purchase all the electricity the panels produce – so make sure, the system is not oversized and produces more than you consume in the course of a year.

Sizing a system correctly can actually be tricky because your consumption might significantly change over the next 20 years (the typical duration of a lease or a PPA). When will the kids be out of the house? Will you buy an electric vehicle? Are you going to reduce you consumption by upgrading to appliances that are more efficient?

Solar lease companies have to provide a detailed financial plan with their bids. Comparing apples to apples is still not easy. One of the biggest factors that determines how much you will save over 20 years is the assumed rate by which the electricity costs from your utility will go up. Historically in California, the rate was around 3%. But some solar installers assume an electricity rate escalator of 4% or more, making their offer look better. Services like www.solarpowerreport.com offer online tools that make it easy to compare bids.

Before you sign a lease agreement or PPA you should also have a look at the legal fine print. Watch out for production guarantees, how the companies handle warranty claims, how the installation might affect the warranty for your roof, and what the procedure is if you decide to sell your house before the 20-year contract is up. Especially the latter issue has already caused some headache for homeowners because it slowed down the selling process or forced them to buy out their lease contract.

 

A Word About Solar Loans

As mentioned before, solar loans are becoming more and more attractive. Green Tech Media even predicts that owned systems will be dominating the market again. There are three types of companies that offer solar loans: traditional banks, solar installers, and special solar loan providers. The loan conditions vary widely, typical offers range from twelve to 30 year fixed loans, both secured and un-secured. Some offers are bundled with O&M services often requiring the installation of panels or inverters from a certain manufacturer.

The lead-generation service EnergySage has a good overview that you can access without having to give up your contact information.

Another option for California residents is the Property Assessed Clean Energy (PACE) financing program that allows homeowners to pay for renewable energy products like solar through their property tax. More information is on their website.

Incentives: Tax credit, net-metering -- oh my

Besides the federal tax credit of 30% that will end December 31, 2016 unless it is renewed, there are a number of other incentives a homeowner who wants to go solar might be eligible for. Local utilities, municipalities, and cities in California all have their own programs. A good source to read up about your options is the Database of State Incentives for Renewables & Efficiency (DSIRE).

An important prerequisite to make solar work financially is the utilities in California allowing for net-metering. It enables consumers to run their electricity meter backwards. So at times when you consume more power than the solar panels can produce, typically when you start your day and when you come home at night, you’ll receive power from the grid just like before. But when the sun is up and the panels produce more than you can use, the inverter feeds the clean power back into the grid, you electric meter runs backwards. If the solar energy system is sized correctly, you utility bill should be close to zero over the course of a year, meaning you received just as much as you fed back. Some consumers only install enough solar to shave the most expensive tiers of power from their bill, rather than targeting a zero bill. 

Generating annual excess solar is economically not advisable since the utilities only credit you the wholesale price for these excess kilowatt-hours, which is way lower than what it would likely cost you.  

 

Questions to Ask a Potential Solar Contractor

How to find an installer

Finding a trustworthy and experienced installer is for many homeowners one of the biggest obstacles on their way to go solar. The recent spike in demand has led to companies entering the market that are more focused on the quick buck and on a long-term customer relationship. To distinguish the good apples from the few bad ones can be difficult.

One option is to go with the big, well-established installers. There is no reason to discount the local guys, however. They might in fact be able to give you a more customized quote and won’t try to push a product on you because it’s the most lucrative for their shareholders. In the end it’s up to the homeowners to do their proper due diligence. You can find a database of installers on the Go Solar California website. 

Here are a few resources and questions that might help you with the process.

Questions you should ask your installer

How many years of experience does your company have with solar installation?

Request a list of past customers whose installations resembled the one you are considering and who can provide references. One strategy is to ask for two customer contacts from the vendors’ latest completed jobs.

Is your company licensed?

You can confirm licensing by contacting the California Contractors State Licensing Board: www.cslb.ca.gov

For you to obtain certain rebates, your contractor may have to demonstrate special knowledge about solar installations through one or more of the following:

Possession of a solar contractor specialty license issued by a local building jurisdiction, and/or ensure your installer has worked with the building department in your city or jurisdiction.

Certification in PV systems by a program such as the North American Board of Certified Energy Practitioners (NABCEP), preferably certification as a NABCEP PV Installation Professional. 

Remember to be sure that your contractor’s license and certifications are sufficient for solar incentive requirements. These requirements are expected to shift over time.

Does your bid include the cost of all required permits or inspections?

The bid should include having the system installed and running, as well as the cost of hardware, permits, sales tax, and engineering reports (if needed). Be clear about whether you will be paying the full price, and receiving rebates later -- or paying the after-incentive price, with your installer receiving the rebate directly. As always with big purchases, you should get at least three bids from three different installers. To make sure that all the bids you receive are based on the same information and requirements, be sure that each bid specifies system type and size, energy output, maintenance requirements, and cost.

What kind of warranty and maintenance agreement do you offer?

A system warranty is crucial in comparing bids. Make sure your contractor agreement is explicit about what issues the contractor will handle, and what service to expect should something go wrong.

The modules are usually warranted for 20+ years, and the inverter generally for five or ten years plus extended coverage for some specific failures.

In choosing a solar installer, competing project bids will typically vary less than five percent. Price is not as important a factor as trust. You want to have confidence that this person or this company will stand behind their installation for at least five, and hopefully for the next twenty years.

Does your company offer a variety of products?

You want access to the best components for your particular site. Some contractors may only offer one brand of inverter or module—which is fine, if that’s the best type of equipment for your application.

What kind of maintenance will I need to provide and at what intervals?

Reduce worry and help avoid system failure and costly replacement of parts in the years ahead by requesting or creating a simple maintenance sheet and checklist, laminating it, and keeping it in a prominent location near your inverter.

Does your company have any pending or active judgments or liens against it?

The California Contractors State Licensing Board can tell you about any complaints against state licensed contractors. The Better Business Bureau is another good source for such information.

Other resources:

Find out about the incentives you will be able to claim here: http://www.dsireusa.org/

The Clean Energy State Alliance published a comprehensive and easy to understand homeowners guide to financing (February 2015): http://energy.gov/eere/solarpoweringamerica/homeowner-s-guide-solar-financing

The annual National Solar Tour is a great way to meet installers and investigate their products directly. This event happens every year on the first weekend in October: www.ases.org/solar-tour