Solar Leases Attracting New Demographic
NREL - April 4, 2012
The sun is shining on homeowners in less affluent
neighborhoods who are discovering they can afford solar energy
after all - by leasing rather than buying the panels on their
roofs.
The new business model lets homeowners save money the very
first month, rather than breaking even a decade after an initial
investment of $5,000 to $10,000.
Analysts with the U.S. Department of Energy's (DOE) National
Renewable Energy Laboratory (NREL) found that the solar lease
business is surging in southern California. And the model is
being adopted in less affluent neighborhoods that had avoided
customer-owned systems.
The NREL study found a positive correlation between customers
outright buying solar energy systems and customers living in
neighborhoods where the average household income was $150,000 or
more.
But for third-party-leased solar panels, that positive
correlation appeared in neighborhoods where the average
household income was just $100,000 or more.
The study did not look at individual adopters, who can have
many different reasons for installing solar. Still, the study
strongly indicates an attraction for third-party leasing in
neighborhoods with less affluence than those most likely to go
for the customer-owned option.
If what's true in southern California proves true for the
nation, it means that rooftop solar power could attract an
additional 13 million Americans — and that could push solar
energy into the mainstream.
Leasing Opens Solar to New Markets
NREL's Easan Drury is the lead author of the Energy Policy
report "The Transformation of Southern California's Residential
Photovoltaics Market through Third-Party Ownership."
"What is so interesting about the southern California data is
that the strong decrease in PV prices — from lower retail costs
and stronger federal incentives — didn't pick up a new
demographic," Drury said. "But a new business model — leasing —
did pick up a new customer demographic."
Repackaging the value of photovoltaics (PV) as a simple
savings on the monthly electric bill is an attractive
alternative to the pitch that it will pay for itself in a
decade, he said. "If someone comes up to you and says you can
make money next month and forever, that totally changes how
people see the value of solar."
Immediate Savings is a Lure
The differences in upfront costs are stark between buying and
leasing. Heather and Kit Lammers put $3,000 down for a
5.64-kilowatt system that is providing 62% of the electricity
for their two-story home in Erie, Colorado. If they had bought
the system outright, they would have had to pay more than $9,000
with incentives, or as much as $20,000 without incentives.
The Lammers had been averaging $107 per month for
electricity. Now, they're paying $64 per month to lease the
solar panels, plus $41 per month to utility Xcel Energy, which
represents the 38% of their electricity use that won't be offset
by solar energy.
That gives them only $2 per month in savings the first year.
But the real benefits come over the next two decades, when that
$64 lease payment stays constant while, presumably, the price of
fossil-fuel-powered electricity rises with inflation. When their
two-year-old graduates from college, the Lammers will still be
paying the equivalent of 12 cents per kilowatt-hour through
their solar lease arrangement.
Estimated total savings for the Lammers, after recouping
their original $3,000 down payment, is more than $9,000,
according to their solar provider, Solar City.
NREL Employees Bring Their Work Home
At NREL, where scientists and researchers are on the cutting
edge of renewable energy and energy efficiency, an unofficial
motto is "walk the talk."
Heather Lammers is one of several NREL employees who are
embracing the solar lease model, in which the company keeps the
state and federal incentives, but the customer enjoys the lower
total electricity cost.
"Solar on our home was something we've wanted but thought
we'd never be able to afford because of the upfront costs — even
with the incentives," Lammers said. "When we first heard about
solar leasing, we jumped at the opportunity. It has made
something we thought to be unreachable a reality."
NREL analyst Michael Mendelsohn signed on with Solar City and
selected the company's "$0 Down Plan" with no upfront cost. He
pays just $22 per month to lease a 3-kilowatt system, which
covers most of his electric bill and already gives him a net
savings each month. Mendelsohn is something of an energy miser:
he never runs air conditioning, has installed efficient lights,
has all ENERGY STAR® appliances, and hangs the laundry to dry.
On the other hand, "I have a giant TV and kids who never turn
off the lights," he said. "It's a great feeling to get free
electricity on a sunny day."
NREL market analyst Lori Bird bought her system outright two
years ago before third-party leasing was much of an option.
Namasté Solar installed a 5-kilowatt system on her family's
two-story house in Boulder. "It covers most of our electricity
use," she said. "We refinanced our house and rolled it into the
new mortgage. We save more from the PV system than we pay extra
in mortgage."
Sun Can Power Electric Cars
My wife and I put $5,000 down for a system that will provide
120% of our current electric needs. The panels, designed by
SunPower and provided by Independent Power Systems, fit on our
steeply pitched detached garage, facing south.
Our monthly lease payment is $13.
There is room for two more panels on the garage, but 120% of
current electricity usage is the limit set by most utilities,
including ours. We will get a small check back from our utility
once a year because we'll send more power onto the grid than we
use.
Our long-term plan is to buy an electric vehicle that has a
range of about 80 miles and can be recharged in the garage each
night. Once that extra draw of electricity starts to appear on
our electric bill, we'll be eligible to install a couple more
panels. With the help of light-emitting diode (LED) light bulbs,
we hope to get all our household electricity needs and about
two-thirds of the electric car's fuel needs via the sun.
Solar Prices Dropping Sharply
The steep drop in the prices of solar panels also has played
a significant role in the growth of the solar market. Solar
cells are being made for fewer dollars, and the costs of putting
together the rest of the system and installing it are dropping,
too.
The average installed cost in 2008 was about $9 per watt.
That dropped to about $7 per watt by early 2011 — and now there
are indications that the latest residential installs are costing
less than $6 per watt.
In 2008, there was a shortage of polysilicon, a main
ingredient in many solar cells — so demand outpaced supply,
driving up costs. Since then, silicon prices have dropped.
Among Drury's other findings:
Third-party leasing usually eliminates the need for
home-equity-style financing and thus the need for significant
equity in the home. Without the hurdle of financing, more people
can adopt solar, Drury said. "Not just the people who buy
Priuses or who are the first to buy the latest electronics." The
benefits provided by third-party ownership — lower upfront
costs, secured financing, less complexity and risk, immediate
savings on the monthly electric bill — can entice a broader base
of customers to adopt PV, he said.
Along with the lower income threshold, Drury found a surge in
solar leasing in neighborhoods with younger families.
In the Los Angeles and Orange County markets, customer-owned
PV was five times more prevalent than third-party-owned PV in
2009. In 2010, the ratio had dropped to 2:1. And for the first
quarter of 2011, the ratio was almost even.
Prices Vary, So Shop Around
Drury notes that lease terms vary significantly between
different companies, so it is best to shop around.
What makes most sense to you? A low down payment with higher
monthly lease payments? A down payment just high enough to start
saving month to month?
Find out whether the lease terms will stay the same for 20
years or, say, rise 3% a year to counter inflation.
Prices have dropped so much in the past three years that some
traditional price comparison websites might be out of date.
Homeowners contemplating leasing solar panels should read
what they can and then make sure they compare prices offered by
several solar lease companies, Drury said. "You do see a wide
range of prices, so you want to be sure you're getting a good
deal.
"Definitely do as broad a search as you can to see what the
different offerings are," Drury added. "And make sure you
understand the terms of your lease."
Learn more about energy analysis at NREL:
http://www.nrel.gov/analysis/
— Bill Scanlon