Are Solar Leases heading for a Green Bubble? Part 1


The biggest deterrent for homeowners going solar, besides a 300 foot tree in the front yard is the upfront cost. The benefits to the buyer of solar are the tax credits, RECs , and incentives offered by the state or utility –  the resulting tremendous savings on their electrical bill,  the satisfaction that they are using sustainable energy resource, and  of course sticking it to the utility. The utilities are actually beginning to  feel the pinch and they are beginning to fight back. (see Clouds on the Horizon) The problem is that tax credits and REC payments – which are made over time, do not reduce the upfront costs, which for a  typical residential solar electric system can be over $20,000. Even when a huge portion of this $20,000 can be recouped within  12 months, many people do not have cash available to invest, or do not have the ability to finance that amount of money even on a short term basis.

The solar lease and PPA offered by companies like SolarCity, Sungevity, SunRun among others have made solar affordable by eliminating these upfront costs. Consequently, the PPA/solar lease market has quickly risen to take the majority share of all residential installations. In fact the solar lease and PPA model has exploded. In the short span of 5 years. estimates are that leases and PPAs  now represent 75% of the market. The question is: are all these leasing companies  springing up and taking over the solar market the right model? Are they good for consumers, good for the solar industry and good for the planet, or are they gimmicky financial instruments built on the back of  government subsidies, a house of cards that is driving the solar industry toward a green bubble, akin to the mortgage bubble that hit the financial markets ?

A solar lease is a type of equipment lease agreement which involves a monthly payment and a maintenance agreement. The leasing company, in exchange for the lease payments agrees to maintain the system for the length of the lease. A  PPA, or power purchase agreement is different in that homeowner is paying for the electricity generated by the system, not for the system itself. The pitch for both these programs is similar and attractive. No upfront costs. No maintenance concerns. Save money on your electric bill from day one with absolutely no out of pocket costs. The homeowner supposedly has to do nothing but sign a few documents, and if the system breaks down the leasing company has to fix it. There are performance guarantees written into all these agreements obligating the leasing company to ensure that the system produces a specified amount of electricity a month. Because of the financing company’s ability to write down dramatically the cost of these systems, they can provide consumers a means of reducing their electrical costs, allowing  them to transition to  a sustainable clean form of energy.  The consumer, the solar industry  and the planet all win.

But here is a recent post expressing the increasing sentiment around these leasing programs.

I am a homeowner and currently doing research on the cost of solar installation. I recently got a car sales-style pitched by a PPA solar company. They wanted to lease me a 6kw system with 0 down. I would have to pay all the energy I use from Tier 3 and above; which is somewhere in the mid 30 cents………….. It really doesn’t make sense to lease a system to save $20 and be stuck with a contract for 20 years. What gets me is that, he can call his manager and lower the price after my discontent. I thought I was buying renewable energy, not a car………………..There really needs to be more transparency for the consumer especially if these companies are taking government incentives.



The issue is not the financing instrument itself, but the method by which it is “sold” to the consumer. The slick packaging of the benefits of the  20 year lease  and the lack of transparency in the actual agreements  is where a large number of the issues lie. While it is great to have new financial products that make green choices accessible to more consumers, these financing packages are being sold without clear documentation of the benefits and liabilities to the leaser. The lease contracts are written to protect the financing company and are often breezed over by salesmen and signed by under informed homeowners. So what are the issues? Every company and every lease agreement is different. But here are some issues common to most leasing agreements that would be good to consider.

Escalators. Not unlike the notorious ARM mortgages sold in large numbers to unsuspecting homeowners leading up to the mortgage collapse, these Lease and PPA contract are not fixed but usually include rate escalators. These escalators have been generally set between 1.5 and 2.9% a year.  The reason for setting high escalators is to make the early year payments look extremely attractive. The net result is that the homeowner is locked into twenty years of a lease with payments or electrical rates that increase each year. Their future savings are therefore dependent on whether their local utility raises rates at an equivalent or greater rate than the increase in the payments the homeowner is obligated to make under the terms of their agreement. Electric rates nationwide have averaged an increase of 4-5% a year over the last 30 years. However, the rate of change vary dramatically. Under many solar lease agreements, there is the real possibility that a homeowner may in the future, pay more for their solar generated power than they would pay if they just stayed with their utility.  Due to aggressive sales practices, consumers are signing agreements without a clear understanding of these escalators and their impact on their future costs.  There is presently a class action suit in California against Sunrun for exaggerating utility rate increases in their PPA models to consumers.  SunRun deceptive marketing class action lawsuit

Lease Transfer

The average lease is twenty years. A lot can happen in that period of time. The biggest liability to the homeowner is the obligation to make the lease payments for 20 years whether they stay in the house or not. If a homeowner decides to sell their house after say 10 years, the lease obligation must be transferred to the new homeowner or the lease must be bought out. How transferable will a lease agreement be for 10 year old technology, especially if the savings it produces are small is an open question. That solar electric system may very well be viewed by the prospective buyer as an antiquated piece of technology and an overpriced obligation.

Many solar lease companies require notification by the homeowner 30 days before selling their house. In order to transfer the lease the new home buyer must pass the solar financing company’s credit check.  There is no definition in these lease agreements as to what the future parameters of a credit check might be. The argument is made by salesmen that if the new homeowner’s credit is good enough to buy the house, it should be good enough to take over the lease obligation, and who is going to turn down saving money on their electric bill. But there are potential consequences.  If the new homeowner is not interested in solar, or in taking over the lease and its obligations, or does not qualify due to credit issues, the original owner must by out the system. This is an expensive proposition and will certainly negate any energy savings realized through the course of the lease.

In the case of a purchase, in most cases, the cost of the system would have been paid off well before 10 years time and the homeowner would have been enjoying free electricity for several years.  With ownership and without monthly payments, there is a much better chance that the asset of solar generated free electricity will add value to the home’s resale value. With ownership, there is flexibility in factoring in the value solar power has brought to the home.

Actual Savings.

It is really not cheaper to lease solar panels than to buy them. In the end, the homeowner is giving away all the incentives available for solar to the financing company and paying full price for the solar electric system. In New York State, which probably has the best incentives in the country right now, if you were to buy an 8000 watt system. The costs and incentives would breakdown like this.

Cost $4.00/w -cost –                                                                            $32,000


New York State rebate                                                                       -$9,600

New York State Tax Credit                                                                -$5,000

Federal Tax Credit                                                                                -$9,309

Net cost                                                             $6,922

Total payments for 8000 watt system in a 20 year lease agreement. $34,035

In New York, the purchaser, after recovering the tax credits, within the first year will have a total out of pocket cost of $6,922.00. In states with SRECs programs, the homeowner would recover their money more slowly, but in either case the return on investment on a purchase is far superior to a lease. With the lease, the homeowner is giving away all the incentives and paying financing charges. The much advertised FREE solar; The FREE maintenance, FREE extended warranty FREE customer service are all being paid for many times over. Now of course, many individuals either cannot fund or finance the upfront costs, or do not pay enough tax to take advantage of the generous government tax credits. For these individuals, much like non-profit organizations, PPAs are the best solution. But there is nothing free about the much advertised FREE SOLAR.  Customers of solar PPAs and leases are paying full price for the solar electricity they receive, and in some cases they are paying even more.  There has been a two year investigation into SolarCity for the extremely inflated pricing they used to calculate their PPA pricing.




Part 2 will explore issues of aggressive sales tactics, fuzzy math in calculations of benefits, the opaque lease agreements, and potential liabilities to the homeowner.

Part 3  will look at the leasing companies themselves, their financing structures and questions raised about their own sustainability.


To be continued……


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