Sunday, December 29, 2013

Solar 2014: Buy, Lease or PPA? Buy

As utilities are using more solar and wind--both free energy sources--to power the grid than ever before we might think electricity rates could level off, if not actually go down. But this hasn't been the case. Moderate to heavy electricity consumers here in California saw their rates rise between 20 to 40%. 

So if you haven't gone solar yet, make it a 2014 resolution. With today's cheap panel pricing, installing solar could be less stressful than your other resolution... dropping weight! 

So how cheap is cheap?

Well, in 1977 panel cost per watt was around $77; ten years ago, about $5; and today it's around .74--yes, 74 cents a watt. The typical 24-watt panel in '77 would have cost $1848. Today, the average wholesale price of a standard 250W module is about $185. Bearing this in mind, the cost for a typical 5kW (5000Wdc) solar installation in CA is as low as $18,750 or $3.75/watt turnkey. Rebates and tax credits will defray much of that cost, too.

So now the question is whether to purchase or go with a lease or power purchase agreement (PPA). If you can afford it or have access to a low-interest loan, buy it.

The lease/PPA will commit you to a 15, 20 or 25-year lease. Down payments can be 0 or an amount the lessee (homeowner) can cough up to reduce the monthly payment. The monthly lease payment (unless prepaid) can be fixed or set with a 1-3% annual escalator. All incentives are taken by the lessor who owns the system. Lease/PPAs are also transferable.

Some like the idea that any maintenance or repairs are the duty of the lessor. But be careful here. The lessee (you) in most cases is responsible for keeping panels clean for optimal production and damage other than panel and inverter problems or poor wiring, must be covered by homeowner's insurance. Finally, at lease/PPA end of term, the homeowner has the choice to renew, purchase at market value or have the system removed at the lessor's expense. Here's the hitch to consider:  If you total the payments over the lease/PPA term, the amount can be more than the original purchase price AND the lessor will have taken the incentives.

Purchasing will require up-front payment but with the low cost for installing and solar incentives this choice makes good financial sense (see for incentives in your state). The federal solar tax credit is 30% of cost after any rebate and can be taken in whole or anytime before the end of 2016. Payback (when savings equal net cost) can be in as little as 3.5 years here in CA--an ROI of 12-18%. How many other investments will give that sort of return today? And when selling, people in CA are 20% more likely to buy a house with solar (or solar-ready) than those without.

What's more is most states require a 5- to 10-year system-wide limited warranty from the installer. Better yet, manufacturer's warranties on solar panels and inverters are the best anywhere. Virtually all panels have a 25-year production warranty (at 80%) and 5-10 year warranty on materials and workmanship (quality). Standard string inverters have a 10-year limited warranty and some micro-inverter makers are giving as much as a 25-year warranty. Systems will last 30 years or more; annual degradation of panels is below 1%!

So with payback in 3-5 years, that's 25-plus years of free power from the sun. Buy, if you can, and you'll never look back. 

(If you live in the San Diego area and are interested in solar power for your home or business, contact me at Reply in 72 hours or less.)                            



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