Solar Bubble: Are the Risks of Leasing Understood by the Consumer?

The biggest deterrent for retail consumers to install solar panels on their rooftops is the upfront cost, which may vary depending on the country and state incentives. The cost of repair is on the owner of the panels (most panels are insured for 20 years or more and since they have no moving parts are pretty stable). The inverter that coverts the current to a usable form needs to be replaced every twelve to fifteen years and this portion of the system costs thousands of dollars.

The benefits to a buyer of the solar panel are all of the tax credits, RECs, the guaranteed payment for the solar energy from the utility company, and peak load offset that significantly reduces the consumer’s utility bill.

The solar lease model put into effect by companies such as Sungevity in the US and the Green Home Company in the UK are making solar installations affordable by eliminating the upfront costs and reducing people’s energy bills. This is making solar adoption on a mass scale faster. In the words of Sungevity, “The Sungevity Solar Lease is a game changer: In one day this month we sold more solar power than our previous biggest month – people are voting with their mouses to get a lower electricity bill and do something for the planet.”

By eliminating the upfront cost in the contract and including repair and insurance, this eliminates the hassle of choosing the right system. Solar leases are revolutionizing the solar market and converting many more people to solar adopters. Is this model risk free and right for every consumer?

It is not cheaper to lease solar panels then to buy them. There is plenty of housing transfer and rating risk to worry about. Moreover, the consumer forfeits the tax incentives. Are the the leasing companies that are springing up creating the right model or are we heading for a mortgage like bubble that hit the financial markets last year but now in the green space?

Let us consider an example. The lease payments increase on a yearly basis from 2-5%. A 4kW system may cost $7,500 (after tax credits). If leased, this eliminates the tax credit and can cost more than $13,000 (20 year loan, $45 per month, 2% annual increase, numbers referenced from The Green Home Company rate). To lease then is almost double the cost of buying the panel upfront and at the end of the term the panels are not owned by you.

If a resident wants to vacate the home and transfer it to another person, she can run into credit risk in terms of transferring the lease of the solar panels. Many of the lease companies also mention that should the lessee want to break the lease, the removal of the solar panels will be at the lessee’s expense. Since one of the biggest cost components of solar is the installation, this will further increase the lessee’s cost.

It is great to see new financial products that make green choices accessible to every consumer. However, more clear warnings and risk outlines need to be documented and standards put in place to protect the consumer and give the consumer the tools to make the right choice.

Article by Elena Potylitsine, a strategy, risk and finance consultant. Elena closely follows the Renewable Energy Sector and helps promising start-ups reach the growth stage.