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The Real Price of Free Solar

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For a technology known for its tranquility and quietness, the noise surrounding PV as solar leasing becomes the driving force for sales is getting uncomfortably shrill — the pitch of sales pitches is rising.

In the age of YouTube, solar is on its way to becoming short, peppy infomercials. The danger is that with the resounding promises in such “sound bites,” sunny solar could instead end up biting itself where the sun don’t shine. If these schemes for selling solar stumble — or worse yet, backfire — the squeaky clean image of PV, for years the technology’s most important selling point, could be irreparably damaged.

For many on the sales side of the equation, reeling from the ebb and flow of solar markets, solar leasing has turned into the model of choice for turning PV-generated watts into profits. Not only is this a growing trend in the U.S., but increasingly in markets around the globe. As for customers, solar leasing seems to embrace the promise of energy that is almost literally “on the house” at no cost as homeowners get PV systems on their roofs for free.

The reality, of course, is that despite the rhetoric, there is nothing free about it except the sun.

The intriguing theory of solar leases is that by taking the traditional financial load that would normally be needed at the start for buying a system flat out and shifting it to the end, solar then becomes affordable to the masses, not just the deep-pocketed rich. And the trick for the seller, whether going door to door or calling on the phone, is to create a world where perpetual motion is real — and hide the fact that the overall financial burden on the customer is actually heavier, while all the subsidies flow to the company making the deal.

No Leash for Solar Leases

The Solar Energy Industries Association (SEIA), the Washington, D.C.-headquartered U.S. industry organization, declined to answer questions or provide an update on installs and the resulting megawatts of capacity via solar leasing for this article. But according to a SEIA position paper, third-party financing was the basis for more than 90 percent of the residential solar market in the east coast state of New Jersey in spring 2013. At the start of 2014, SEIA reported that the model was a factor in more than half of the installs in New York State and, without detailing which very exact stat was for which state, adding that 69 percent to 81 percent of systems in California, Arizona and Colorado were attributable to the scheme.

One thing is clear: there is a big push in the U.S. — whether third-party related or for outright sales — to get deals done before the main driver, the federal Investment Tax Credit (ITC) with its huge 30 percent tax break, drops to 10 percent for commercial installations and zero for residential systems in 2016. SEIA has been pushing for it to be maintained, but given that the U.S. presidential election year is looming, the prognosis is not good.

For now, the biggest thing going when it comes to third-party financing — whether residential or commercial — is SolarCity, the California-based company that started in 2006 and now operates in 14 states where there are subsidies to help make its business profitable. The company claims it installs every third solar system in the U.S. According the public company’s first quarter results, SolarCity installed 153 MW in the first quarter, up from 82 MW in the same quarter last year, for a cumulative of 1.23 GW.

Installer with a Rock Star

SolarCity’s main claim to fame is its board chairman Elon Musk — head of the reusable rocket company SpaceX, the Tesla electric vehicle start up and the force behind a planned storage battery factory in Nevada. For some, Musk, whose cousin is SolarCity CEO Lyndon Rive, is the closest thing solar has to a rock star. His position with SolarCity has undoubtedly lent an air of credibility to the company.

Jonathan Bass, vice president of communications, praises the company’s sales models as offering transparency with power performance guarantees that let customers know exactly what they are getting and how much they are paying. As with most other companies offering third-party financing models, usually in 20-year contracts, SolarCity’s options include flat kWh rates in power purchase agreements (PPA) paid by the homeowner for all power produced, as well as leases, either pre-paid in full, in part or — the big deal sealer — at $0 down, often referred to as free solar.

But it is not free. There are contracted escalation charges that rise annually. At SolarCity, the increase is currently at 2.9 percent. What many customers don’t realize is by the end of the 20 years, having signed over all rights to any subsidies to the leasing company, they will pay more than the cost of buying the same size system outright. Bass agrees that the cost of the system could add up to more than buying a system up front. But his argument is that it doesn’t take the rising value of the dollars over the length of contract into account. “So yes,” he says, “the total payments over 20 years would add up to more than that lump sum you paid at the beginning. But in terms of today’s dollar they could be similar. What customers really value is near-term savings. And if they didn’t have that option, they wouldn’t go solar.”

Troubles Ahead?

Apparently the U.S. Department of Treasury doesn’t see it that way. In July 2012, the Treasury’s Inspector General subpoenaed documents from several solar leasing companies. In SolarCity’s case, it requested information dating back to 2007 that dealt with “possible misrepresentations concerning the fair market value” of the solar power systems submitted for grants, likely a reference to the ITC payments. Judging by the timing listed in a Securities and Exchange Commission filing in Sept. 2014, the Treasury should be concluding its review no later than this month. If an ensuing civil action were successful, SolarCity could be required to pay damages and penalties. No dollar figures were given.

SolarCity, which is in the process of building a 1 GW capacity module factory in Buffalo, New York (Bass says SolarCity will use all of the production for its own installations), is far from alone in doing business via third-party financing. Other major players include NRG Home Solar, Sungevity, SunRun, and even the major solar manufacturer SunPower. There are easily hundreds more that have latched onto the business plan.

“Screening” Solar Leases

Videos — whether TV commercials, YouTube contributions or website extras — are often made to promote the advantages of these models. SolarCity has started a series of TV commercials featuring the falcon-esque Egyptian solar diety Ra, vacuuming while hungrily eyeing fish in a tank or trimming bushes into pyramid shapes, promoted on its Facebook page as “the deity obsessed with bringing you honest-to-sun-god savings.”

Another video, linked to hundreds of websites for a defunct company called Save on Solar, can be found by googling “solar leases with $0 down.” It shows a cartoon stick character called Joe praising solar leasing via scribbled calculations — but beware: the video may have malware which could infect unprotected computers.

Among the many other videos, there are a series of “films” from another California-based company called Solar Home Inc., but this time the theme is trashing solar leasing. Apart from its website with in-your-face graphics and statements (Solar Home promises to undercut offers from solar lease-based companies, saying “We will blow that quote right out of the water”), it owns various domains, all with “solarleaseisagoodidea” in the URL.

This is a kind of reverse psychology to lure customers expecting details on leasing. Instead they get snazzy, professional-looking videos with exactly the opposite message (one shows astronauts installing panels on space satellites with a bannered headline: “Some have even called [an expensive solar lease or PPA] a betrayal of the American public”).

Researcher’s Search

It’s not hard to see why third-party financing with its emphasis on “free” has garnered a clientele. “Even rich people like no money down,” says Paula Mints, chief research analyst at SPV Market Research. She notes that solar lease offerings, intended to seize the public’s imagination “should not be mistaken for anything other than the means to sell a product or service.”

A product, she adds, which ends up being more expensive than a system bought outright at a low interest due to the escalation charges levied to reflect rises in electric bills over time. “Even though the sun is free,” she adds. “The sun does not get more expensive.”

Mints also warns that there could unpleasant surprises down the road for homeowners who are trying to sell houses with solar-leased systems. The lease, she says, does not transfer unless the buyer agrees.  “We need to have business models that are economically fair to everybody, to provide value and to help get ‘good’ solar out there in a reasonable way,” Mints says. “[The solar lease] model is flawed.”

Solar Noise

And any flaw in the solar leasing model leaves the industry vulnerable to attack from PV naysayers. While only based on anecdotal comments, some customers have complained of bait-and-switch tactics, such as promises from the installing companies that they provide free maintenance and repair of components.

If the responses are true and customers end up feeling “scammed,” the solar lease model could come back to haunt the industry in a big way. On the other hand, solar is a business that depends on profits to survive. But survival is one thing, and playing loose with the facts is quite another.

For now, the noise around solar is tolerable. But if the industry does not police itself better and make sure the search for profit is balanced with satisfied customers, it may find itself with a lot of new enemies. Promoting “free solar” could be the same as giving free ammunition for the big, loud guns of the ever-dangerous foes of PV.

Article by William Hirshmann, International Correspondent, from renewable energy.com

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