All Forum Posts by: Mark Nemeth

Another thing to remember is leasing solar is no different then leasing a car, house, tv or whatever.  It's like credit card debt and could potentially mess up your debt to income ratio, credit, potential purchasing power, refi's, credit line etc.. for future RE investments (depending upon how your corporate struture is set up).  Regardless it's another facet of solar leasing to consider.

More leasing vs. purchase info:

MYTH: We will install your system for free.

FACT: Is making 20 years of payments free? If you bought a car for zero down $120 a month for 20 years was your car free?

MYTH: Leasing a solar system makes a great investment.
FACT: This is true. It is a great investment for the leasing company. The reality is you will pay 20+ years for a system you don't own. At the end of the lease you can buy it for the greater of fair market value or 20% of the original value. What do you think value means? Leasing companies don't use cost method as basis because they never sold the system. They use valuation method. Valuation can be 1.5 to 2 times greater than cost. That means your buyout can be 30% to 40%. Read your contract closely. Many popular leases offered by big box stores and others require the system is removed, packaged, and shipped at your expense, if you choose not to buyout or extend the lease. So you will pay for 20 years, own nothing, and pay more at the end. Is that a good investment?

MYTH: No money down.
FACT: A typical solar system has a 30% federal tax credit worth $8,000-$15,000. When you sign that lease the company receives your tax credit and you PAY the tax.

MYTH: It's easier to sell your home with a lease.
FACT: This would be true if you owned your solar system, but it's the furthest thing from the truth when your home buyers discover that they have to take over your remaining lease payments (if assignable and qualified).

The solar industry also boasts that solar panels make residences more appealing to potential buyers and boost a house's value. The U.S. Department of Energy's Lawrence Berkeley National Laboratory released a study in 2011 that found homes with solar systems sell for a premium over homes without solar systems. There's no arguing the value of solar power but there may be many potential sellers that are not clear of the possible ramifications. Furthermore, it's also a good option to purchase the system outright therefore eliminating any potential chance for lost equity. A purchased solar system can only add to the upside potential of your home sale. 

MYTH: You will save up to $150 a month instantly.
FACT: Ask them how long instantly lasts. Typically the first year rate is much lower than the next 19 years. Watch for deceiving sales tactics. Remember the major leasing companies have billions behind them. They are seasoned sales veterans.

MYTH: A solar lease makes solar more affordable.
FACT: Actually a solar lease is one of the most expensive ways to have solar installed on your roof. Want proof? Simply add up your payments on that zero down solar lease or PPA (if your contract contains a payment escalator clause, add those amounts in too). Next add in the 30% federal tax credit that you'll be giving away to the leasing company. You'll find that you'll be paying up to triple the cost for a solar system when compared to purchasing a system.

MYTH: With a solar lease, there are no concerns about ongoing repair and maintenance cost.
FACT: What maintenance and what repairs? This is just a scare tactic. There is typically no maintenance involved in the ownership of a modern, properly installed solar system.  When you purchase your solar system instead of leasing,  you and have the ability to monitor your solar system's performance over the Internet, on any smartphone, tablet, or computer, right down to the individual solar panel. If available from your PPA/leasing company it will cost you. Equipment should also be warranted from the manufacturer and you should receive a minimum performance contract included.

MYTH: You will have the option to upgrade down the road.
FACT: Leasing companies must own the system for at least 5 years or suffer federal tax credit recapture. The same tax credit you gave to them day one. After that I'm sure they would be happy, at your expense, to upgrade their new tax credit. Ask for the terms of the upgrade before you sign for 20 years.

MYTH: It's very expensive to purchase a solar system. It makes more sense to lease.
FACT: If this is true why are the major leasing companies experiencing 50% to 80% annual growth?  The reality is leasing companies are leasing your roof from you. They pay no zoning use fees, have access rights to your property, and will charge you to remove and replace their system when it's time for a new roof. All for just $20-$40 a month rent. And don't forget you will have a buyout and may pay for removal and shipping.

Financing option questions:

-How do solar program participants justify the cost of installing a solar system?

Program participants rely on a combination of electricity savings, selling SRECs, depreciation, and federal tax credits.

-What is "Net Metering"?
Electric Distribution Companies and third party electric suppliers are required to credit customers at retail rate for each excess kilowatt-hour produced and back fed to the grid for later use. Should excess generation accrue at the end of an annual period, the customer is compensated for any remaining credits at the wholesale power rate by the Electric Distribution Company or their third party electric supplier.

-What is a Solar Renewable Energy Certificate (SREC)?
SREC stands for "Solar Renewable Energy Certificate" and is a type of clean energy credit in the form of a tradeable certificate useful for demonstrating compliance in state RPS markets. For example, with New Jersey's rules an SREC is issued once a solar system has generated 1,000 kWh (roughly $150 in electricity). The SREC represents all the clean energy benefits of electricity generated from a solar electric system. SRECs can be sold or traded separately from the power, thus providing solar system owners a source of revenue to help offset the cost of installation.

-What are Federal Tax Credits?
Solar electric systems qualify for a 30% federal tax credit for tax paying entities. 30% of the system cost is paid back through federal tax credits to the system owner. These credits may be used in place of cash payments to the federal government for tax purposes.

-What is Accelerated Depreciation?
Commercial customers enjoy the benefit of depreciating 85% of the gross system cost over a 5 year period called MACRS (Modified Accelerated Cost Recovery System). Special bonus depreciation in the amount of 50% is additionally deductible in the first year for all projects completed in 2013. The depreciation schedule is as follows: Year 1-60%, Year 2-16%, Year 3-9.6%, Year 4-5.76%, Year 5-5.76%, Year 6-2.88%.

-Who buys SRECs?
Solar system owners can choose to sell their SRECs to a broker, aggregator, or Load Serving Entity (LSE), ie the electric suppliers and providers, who must buy SRECs to meet their RPS obligations.

-Will I still be connected to the electric grid?
Yes. Systems must be connected to the electric grid to be eligible for SRECs. Look at the grid as a giant battery. During the day if your system is producing more than you are consuming, your electric meter will spin backwards, earning a credit from the electric company. At times when your system is producing less than your consumption, your meter will spin forward.

-Will my system work if the electric grid is down?
No, Solar is not a backup system. To ensure safety for utility workers, your solar system will shut down during utility interruptions and automatically turn back on when electricity is restored.

-What maintenance is required?
Your solar energy system has no moving parts, so it requires very little maintenance. Most systems, however, require remote monitoring and occasional inspections.

Read the fine print before you decide to lease solar panels.  Same applies if you decide to try to purchase a property with leased solar in place.  Make sure that the leases are assignable in case you decide to sell your property.  If they are, what process will a new buyer have to go through to qualify to take over the lease?  I've seen occasions where the lease had to be bought out when the property transfers which ended up killing some deals. No money down solar is very similar to no money down real estate.   Yes it's possible however there's more to it then most realize.  The solar company leasing the panels almost always benefits the most, otherwise they wouldn't be offering that deal.  In most cases you can finance and get the same sort of monthly payments plus you get the SREC benefits, incentives etc...  

Example:

LEASING COMPANY

• $50,000 Typical 10 KW System Cost
• $15,000 Federal Tax Credit
• $34,000 SRECs (Solar Renewable Energy Credits)
• $49,000 TOTAL INCENTIVES
• $36,728 Additional Electric Payments to Lessor
• $ ?Buyout or Cancellation Fee

YOU OWN

• $50,000 Typical 10 KW System Cost
• $15,000 Federal Tax Credit
• $35,000 SRECs (Solar Renewable Energy Credits)
• $ 1,000 Deposit
• $50,000 TOTAL INCENTIVES
• $ 0 Additional Electric Payments to Lessor
• $ 0 Buyout or Cancellation Fee

I enjoyed: The Millionaire Real Estate Investor by Gary Keller