Doing homework necessary when installing solar power
Incentives meant to spur industry
Three years ago the Unitarian Universalist Church of Tucson, near 22nd Street and Swan Road, wanted to install a solar power system, but could not afford it.
“We got bids, but they were just out of our reach,” said church administrator Mary Wiese.
Luckily for Wiese and the congregation, solar power became affordable through a solar lease.
The solar industry in Tucson had exploded from merely a dozen or so companies in 2008 to 172 companies by the end of 2011. The Arizona Solar Energy Industry Association (AriSEIA), attributes that growth to the advent of solar leases.
The leases put solar energy within the reach of businesses and homeowners who couldn't afford the costly systems, but companies took advantage of consumers by cashing in on incentives just for signing contracts with clients, said Katherine Kent, owner of The Solar Store.
“They were earning $1.50 per watt just for signing contracts,” she said.
An average system in Tucson ranges from 8 to 10 kilowatts, so companies were taking in $12,000 to $15,000 for signing contracts.
The incentives were put in place to help spur the industry. The Internal Revenue Service offered $1.85 per installed watt in tax credits, TEP offered $2 per watt for the power. Businesses also could fully depreciate the equipment as a tax write-off, the first year. Companies were receiving $5.48 per installed watt in incentives, and only paying $4.50 per watt to install a system.
Ryan Hurley is the president of AriSEIA and head of renewable energy policy and research at the Rose Law Group.According to Hurley, companies only received the incentives once the power was turned on. Hurley said one company in Tucson was taking large deposits and using that money to fund other projects, but that company is no longer in business.
A typical 7 kilowatt residential system costs a homeowner $31,500 to buy and have installed. Even after generous incentives by the IRS – 30 percent of the installed system price, a $1,000 Arizona state tax credit, and 75 cents per installed watt from TEP, homeowners still pay a little more than $17,000.
According to Hurley, purchasing a system outright offers the best return on investment, but leasing can put solar power to work for homeowners who cannot afford the $17,000.
Leasing can help homeowners and businesses benefit from solar power without any out-of-pocket costs. A third-party company owns the solar equipment and the homeowner leases it at a price usually lower than their monthly electric bill. Most leases also require the installer to maintain the system.
The leasing companies can take advantage of things like depreciating the equipment, something which offers homeowners no tax break.
It allowed Wiese to cut the electric bill at the church from an annually budgeted $21,000 to $12,000.
"We will now be on a pro-rated amount of $948 per month so our estimated savings will be over $9,000," she said.
The out-of-pocket costs only will increase as incentives disappear over the next few years. Hurley said solar leasing will most likely become more popular.
“The incentives have been going down over the last three years to $0.10 per installed watt,” Hurley said. He was quick to add that declining incentives were a sign of the success of the solar industry.
It now costs between $3.50 and $4 per watt to install a solar system, according to Hurley. That’s down from $8 in 2008.
In fact, business is booming if you are in the solar power market, despite a lagging recession.
“The U.S. solar market had a monumental year in 2011,” said Shayle Kann, the managing director of GTM Research, a market analysis firm.
Installed wattage increased 109 percent over 2010, and the industry saw more growth across the country in the fourth quarter of 2011 than in 2008 and 2009 combined.
Residential installation rose 11 percent over 2010, Kann said. He attributed the growth to increased third-party ownership through leases.
System prices also fell 20 percent, a sign that the industry is becoming more competive. There are now about 5,600 solar companies in the United States, according to the Solar Energy Industry Association (SEIA).
“The solar industry creates more jobs than any other source,” said Rhone Resch, president of SEIA.
According to the 2011 National Solar Jobs Census, the solar industry grew “nearly ten times faster than the overall economy,” with 6.8 percent growth between 2010 and 2011. The industry finished 2011 with 100,237 jobs nationwide.
Congress failed to extend IRS tax credits that are set to expire in 2016.
“That’s 37,000 new jobs that won’t be created,” said Resch. A one year extension of the IRS credit would have created 100 jobs per day, according to Resch.
The Solar Jobs Census predicts 24 percent growth in 2012, resulting in 24,000 new jobs.
“These are building careers,” said Resch, “not just one-off construction projects.”
SEIA expects another strong year for the solar industry in 2012, but the future of the industry remains uncertain. Much of it may depend on the availability of solar leasing as an option.
Kann said solar leasing isn’t available in every state, but “in states where it does get introduced, it takes off by leaps and bounds.”
So, are solar leases a safe and viable alternative to plunking down $17,000 on a system? There are no easy answers. Most contracts are for 20 years and offer an option to purchase the equipment at fair market value at the end of the term, Kent said.
“I don’t think those systems are going to have much value” after the term, Kent said.
That does not mean the systems won’t continue to work. Solar modules are guaranteed to produce 80 percent power after 25 years, and inverters, which convert the solar energy into power for utility companies, also are usually guaranteed for 25 years.
Kent said consumers need to look at the third-party backing the lease.
“They’re going to want to know how deep are the pockets of the third-party,” said Kent, and if the company will be around long enough to fulfill their obligations to the leasee.
Kent also sees the issue of credit scores as a potential hurdle to leasing. Most leasing companies require leasees to have credit scores greater than 700, and people with scores that high can usually find the means to purchase a system outright, according to Kent.
In addition, leasees will want to know what their options are for getting out of the lease.
Generally, homeowners can choose a buyout option if they sell their home before the term is up, or transfer the lease to the new homeowner if they are willing to assume the terms. In some cases, homeowners can pay an additional fee to have the equipment moved to their new home and continue the lease.
Getting a lawyer to look over the lease is not a bad idea. And that is where the Unitarian Universalist Church of Tucson was lucky. Wiese said a member of the congregation worked for a lawyer who looked over their lease without charging the church.
But Wiese said Solar H2O, the company that installed the equipment, has done several installations around town for other churches and nonprofits. They “had been around and done a few of these, so we felt more comfortable.”
Installation of the system at the church was finished on April 27 with a complete conversion to solar power Wiese said.
"It will take some time before we realize how much energy we will be able to sell back. However, the company said we have an excellent site because of the south facing installation w/o trees or buildings obstructing any of the panels," she said in an email.
No matter who the installer, or whether choosing to purchase or lease, the theme was consistent among all the speakers at a recent Solar 101 seminar: Research the solar installation company, including the third party backing the lease, and the equipment the company provides. A little consumer skepticism is healthy.