Leasing may be a business model that enables more people to afford solar energy systems.
Customers pay fewer up-front costs for leased solar energy systems than for ones purchased outright.
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.
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."
This photo shows a woman standing next to her husband, who is holding their two-year-old. Enlarge image
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 percent 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 percent 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.
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."
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.
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:
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.
This photo is a close-up of a smart phone tuned to an application that can read and monitor a home's internal temperature from anywhere an Internet connection can be made. In the forefront the smart phone is held by hand and reads 63.5. In the background the thermostat on the wall also reads 63.5 degrees. Enlarge image
Solar panels, solar-powered attic exhaust fan, LED lighting, smart hot-water heater, biofuels fireplace … there's nothing in Kevin Donovan's townhouse that hasn't been analyzed, replaced, or upgraded to give him a better return on his energy dollar.
Donovan, while packing for a recent charity trip to Nepal, said his determination to reach net zero energy is equally about saving money and saving the planet. He's not going to save carbon dioxide just for its own sake — the changes have to make financial sense, too.
Take, for example, the new hot water heater with the smart heat pump recently installed in his two-car garage in Arvada, Colorado. The new heater draws hot air from the garage to make heating his water more efficient.
"It cost me $900 at Lowe's," Donovan said. "I got a $450 rebate from Xcel [his utility] and a $300 federal rebate. I sold the old hot water heater for $100. So, the whole thing cost me fifty bucks." Moreover, it is powered by 100% renewable energy.
Donovan looked at the projected future costs of coal-generated electricity and decided it was time to make some changes. "I started off buying 100% wind credits. So from the first month I was in the townhouse, it has been powered by renewable energy."
Donovan then decided to invest in solar electricity. Right before his trip to Nepal, installers from Lighthouse Solar placed panels on his roof that will turn enough photons into electrons to generate 110% of his average monthly electric bill.
Most of that solar energy will power his own appliances and lights, but some of it will be loaded back into the grid, making it available for others. In turn, when the sun isn't shining, he'll use wind-powered electricity from the grid. Each month he'll come out a little bit ahead. However, instead of receiving a yearly check from his utility company, Donovan has elected to let the credits roll over into the next year, as they do not expire.
When Donovan bought his townhouse, he made sure it was fee simple, meaning he owned the roof and could thus legally install solar panels. This is supported by a recent Colorado law that prevents homeowner associations from saying "no" to owners who want to add renewable energy to their properties.
Donovan's mother started one of the first recycling centers in Texas in the 1970s, so he has been engaging in sustainable practices before it meant what it does today. "The idea of being sustainable before it was a catch-phrase has always been there for me," Donovan said.
"It goes with my job," said Donovan, who runs a super-efficient computer data center at the NREL.
On a tour of his home, Donovan points left, right, up, and down:
"Right here, that's five 20-watt dimmable LEDs at $30 a piece," he said. "Some of the bulbs are just $10 when they're on sale.
"Three 3.5-watt LEDs give you the equivalent of about a 50-watt bulb," he said. "Here's a $30 fixture with $30 of bulbs in it."
The light-emitting diode (LED) bulbs can last up to 20 years, so over their lifetime they pay for themselves in the cost of the bulbs alone, compared to the cheaper, but less durable incandescent bulbs they replaced. The energy savings will be significant because unlike traditional bulbs, the LEDs don't waste most of their energy as heat.
Donovan's kitchen is equipped with ENERGY STAR appliances — even the ceiling fans are ENERGY STAR. The floor tiles include recycled aggregate, and the wood floors are sustainable Brazilian walnut or bamboo.
Recently, he replaced his gas fireplace with one that burns biofuels. And on his smart phone, he has an app that adjusts the house's thermostat — so he can do it anywhere in the world with an Internet connection.
At night, the thermostat is set to 60 degrees Fahrenheit (°F), and when he's at work, it stays there. When Donovan is home, the indoor temperature rises to about 68°F.
"I have it time-based for each day of the week, and I can also lock both the thermostat and the hot water heater into vacation mode," he said.
Donovan's Nepal trip lasted 17 days, so he set the hot water heater to 50°F for 16 days, with a return to 120°F on the final day. "It was great to come back from traveling and jump in a hot shower."
Donovan also has a programmable whole-house fan with high-tech actuated louvers that draw cool air from outside during summer evenings and mornings.
"You start thinking of all these little things that take 12 watts off here, 20 watts off there," he said. "I dropped the watts by half just by changing some habits."
Indeed, Donovan has cut his base energy load in half, from 500 watts to 250 watts. The 250 watts he does use fuel his power supplies, alarm clocks, appliance LEDs, wall chargers, and other devices that require a constant supply of energy.
Learn more about Kevin Donovan's energy efficiency moves.
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