When Louis Gray bought his two-story Sunnyvale, Calif., home in 2010, a solar power array was already in his plans. He finally took the plunge in March 2014, paying Sunrun Inc. $18,000 for 20 years of electricity.
Since then, he said, his monthly gas and electric bill has fallen from as high as $400 to the double digits, and he expects to have recouped his investment in savings by the deal’s sixth year. Our electricity budget was a monthly reminder that we were paying too much for power,” said Gray.
Solar-power system prices have nearly halved over the past seven years, leading more homeowners to consider them. A six-kilowatt system, which can power a single-family home, now costs about $27,000, or $4.43 per watt, down from $6.95 five years ago and more than $8 a watt in 2008.
As the price of solar panels continues to fall and solar power becomes available in more U.S. markets, more U.S. homeowners considering the switch may face a dilemma: Should they rent or buy?
Last year about two-thirds of solar system customers used either leases, paying little or nothing up front and committing to a fixed term of about 20 years, or power purchase agreements, in which they buy two decades of power either up front, or via a series of variable payments. Some industry experts, however, believe customers will increasingly consider solar loans, in which they borrow money to buy the systems themselves.
What’s the best deal? Since most households would likely save money — approximately 10% to 20% of their typical electric expenses, according to industry figures — in any arrangement, the choice can come down to details including a home’s location, its size, and state utility rates. A calculator prepared by the nonprofit Institute for Local Self Reliance, may help homeowners choose.
Convenience at a price
The decision to lease or buy solar panels is often determined by how much risk a homeowner can take on — or how much hassle he or she wants to go through, said John Farrell, director of Democratic Energy at the Institute for Local Self Reliance.
Leases and power purchase agreements can be simpler for the consumer, with a third-party company handling design, purchasing, mounting, maintenance and monitoring. But that comes with a price: Some 30% to 50% of the financial benefit of the solar array when compared with regular utility payments will go to the third party, according to Farrell.
While maintenance and installation are helpful, Farrell said, ownership of solar arrays is likely to become simpler as the market grows — and most arrays require little maintenance apart from an occasional cleaning.
Meanwhile, solar loans can be somewhat complex to calculate because of the need to factor in the value of federal rebates. Those rebates, however, are shrinking in 2016. Once they do, solar loans will become a very ho-hum kind of loan,” Farrell said.
SolarCity bets on leases
SolarCity Corp. SCTY, -1.41% Chief Executive Lyndon Rive believes leasing will continue to be the right choice for most consumers, in part because power is a household operating cost and purchasing it with relatively large amounts of cash may not make sense.
Is that the best investment decision you want to make in order to buy a commodity?” asked Rive, whose company offers leases, power purchase agreements and purchases both with and without loans. For most people, he said, the answer will be no.”
The majority of the people just want to reduce operating costs,” he said, so owning a system might make sense mostly to higher-income families and those looking to feel more in control of their energy costs by owning a system.
SolarCity, which pioneered leasing and power purchase agreements, is the top U.S. residential solar installer, having installed more than a third of the residential solar-power systems last year. Vivint Solar Inc. VSLR, +0.70% which was sold to SunEdison Inc. in July, is second with about 13% of the market.
Nicole Litvak, an analyst at GTM Research, said she believes 2014, during which leases and power purchase agreements accounted for 70% of the residential solar market, will mark a peak for those deals. She expects to see loans account for a larger share of the business in 2015 and thereafter, mainly because loans are more widely available.
This year, she said, is the year that loans take off,” she said.
Wall Street is behind solar firms
Market analysts, for their part, currently seem to favor solar companies.
An analysis of sentiment toward 10 of the largest solar companies, including Sunrun RUN, -0.69% SolarCity Corp., First Solar Inc. FSLR, -2.80% SunPower Corp. SPWR, -3.30% and SunEdison Inc. SUNE, +0.42% found that analysts tracked by FactSet overwhelmingly have buy ratings on the shares. Together, the companies hold 81 buy (or equivalent) ratings, nine hold ratings and no sell ratings.
Gray, meanwhile, has enjoyed the questions he gets from neighbors about his array, and says a real-estate agent has told him it has increased his home’s value. And with his deal covering maintenance, he said, I haven’t had any regrets.”
from market watch.com