Market Watch, September 4, 2015
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.
The Ultimate Solar Calculator from ILSR
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.