BEWARE OF THE ZERO DOWN SOLAR LEASE
FIND OUT WHY AND WHAT QUESTIONS TO ASK ABOUT SOLAR FINANCING TO MAKE SURE YOU’RE GETTING A FAIR DEAL.
by: Martin Learn -President, Home Energy Systems, Inc.
Full page advertisements and canvassers knocking on your door telling you that you can have a rooftop solar system with zero down payment may sound too good to be true. In many cases it is; while solar leases may be a good option for some, the zero down solar lease can be quite predatory to the uninformed concerned consumer. The things t some zero down lease-pushing sales reps don’t tell you may be more important than the things they do say. Make sure you read the fine print and get a full statement of the financial implications of any solar lease you may be considering.
I recently did an analysis of the finances for a family buying a house in Fallbrook, California. The house was one year into a zero-down payment lease produced by a major solar company and the buyer wanted to know the financial effect of the lease have on him if he moved forward with the purchase.
Reading through the lease, I found that there 3 separate payments outlined. There was a buy-in payment, a monthly payment that escalated for 20 years, and a buy-out payment. The lease payment would escalate even if utility electric power, for some reason, dropped. Not all leases are written this way, but the total cost for leasing this 5 kW system amounted to $72,000. The seller of the house was flabbergasted because this total obligation had never been explained to him and, he had never added it up himself.
The bad feeling was made worse when I told him that Home Energy Systems could install an identical system for about $30,000, paid in full, that included a heftier warranty and lifetime system monitoring. At that point in time the buy-out payment, in the event that the home was sold, was about $31,000. Fortunately the buyer and seller came to an agreement and decided to split the buy-out payment evenly to convey the house unencumbered. A solar lease can sometimes be a serious headache when selling a property. My company (HES Solar) sells very few leases because, we feel we are not giving the best deal to the customers. After utilizing the 30% solar tax credit offered by the government, the cost of purchasing a 5kW solar system would be $21,000. When you compare this number to the $72,000 cost of the solar lease, there is little debate to which is the better deal, especially considering the biggest motivation for converting to solar energy is cost savings in the first place.
This illustrates that not all sales people will disclose material facts that might endanger the sale they are working on, or that might not be in the best interest of the buyer. You might assume that a sales person needs to disclose all material facts concerning a sale or a lease but, unlike mortgage loans, a GFE (good faith estimate) is not required for solar leases. It is hard to prove what was specifically spoken, and even harder to establish what was not spoken. The best way to protect yourself from this kind of scenario is to educate yourself because, to a degree, the responsibility falls on the consumer to ask the right questions.
QUESTIONS TO ASK WHEN CONSIDERING A SOLAR LEASE
- What company is doing the installation? If they cannot name the installer beware.
- How long have they been in business? Many installers have come and gone in the last several years.
- Do they have any reviews and/or anyone that will recommend their services (it’s always a good idea to google the company to see what others like you have experienced.)
- Who honors the installation warranty?
- What brand of panels is being installed?
- In what country were the panels manufactured? (Not all Solar Panels are created equal. Home Energy Systems only uses the most efficient and top rated panels. )
- What are the terms of the panel manufacturer’s warranty? They vary, on things like who pays for installation labor or shipping.
- On the lease, they may not call it a down payment, but is there any buy-in payment or otherundisclosed charges? Get a sheet showing total lifetime payments. If they won’t do this, BEWARE.
- Monthly payments on the system will increase over the years. What is the factor by which they escalate?
- What will your bills look like without an escalator clause? (Contractors have the option whether or not to include an escalator, Home Energy Systems never does.)
- If the price of utility electric power actually declines what happens to your payment?
- Why does the buy-out payment reach a minimum in about year 6 or 8, and then rise again to double the minimum by year 20, or more? Read the chart and understand this. It’s all about making more money on depreciated equipment.
- If things go as planned, what is the total of payments to be made on the system lease?
- Can the company provide a clear document on the full cost of the lease over the full contract? (If not or they try not to, STOP).
- What happens at the end of the lease period?
- If you wish to take possession of the equipment at “fair market value” how is that determined? I believe this should be given in writing or at least the methodology.
- At the end of a lease term you want to have the 20 year old panels removed from your roof will they leave the roof in its original condition?
- At the end of the lease terms you may renew the lease. If you do, every penny you pay will be profit for the leasing company for the length of the renewal. Would lease payments reflect the fully depreciated value of the panels or the 20 year old price when new?
While this article may seem a tinge negative towards the solar industry, it is not intended to be, after all my passion and livelihood is solar. And in fact, solar leases offer the lowest initial payment of all the financing options. But, again beware, as this low entry payment changes with escalating payments and lease options has the least flexibility and no tax credit to minimize payments. If your not sure about some solar lease terms get a second opinion.
We’d be happy to look over your lease and explain what you’re signing up for. As someone who offers multiple financing options to clients, it’s my expert opinion that loans are a better solution than leases in acquiring solar energy for your home. Loans for a solar home improvement, such as Same as Cash and Hero programs, typically have payments lower than the utility bill they will be displacing. Loans for a solar home improvement, such as Same as Cash and Hero programs, typically have payments lower than the utility bill they will be displacing. Cash purchases, when possible, are the lowest lifetime cost of all options. Learn more about loan options on our full article on Solar Loans available in 2015.