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Is solar leasing good for the consumer?


The CEO of a Connecticut-based solar installation company distributed a firm warning to solar industry leaders in late August that they need to “clean up their act.”

Jeffrey Mayer, CEO of Soluxe Solar, issued a press release saying he expects the solar industry will be a “falling star” if leasing companies and some of his other competitors keep making what he says are false claims about cost savings.

He said third party solar operators claim in their marketing materials that electric utility prices are going up 5 to 7 percent a year.

“That’s just not true,” he said.

Prices, since natural gas reserves spiked in 2008 have been flat or even down in some areas, he said.

Mayer is not alone in his concern about possible false advertising of cost savings.

Seattle-based consumer rights law firm Hagens Berman announced in the spring that it was investigating SunRun in preparation for a possible class action lawsuit on the issue.

There has been no lawsuit filed, said SunRun spokeswoman Susan Wise.

And she doesn’t expect that there will be one, because SunRun and the rest of the industry is not doing anything wrong, she said.

Third party solar is the fastest growing segment of the US solar industry and accounted for more than 70 percent of new home solar installations in 2011.

 

Growing model

There’s a reason for the popularity of the solar leasing model, which SunRun calls solar service and power purchase agreements, Wise said.

“The bottom line is – more people are hearing about it,” she said. “It lets people lower their utility bill, pay a predictable electric bill. They know exactly what they’re payments are going to be going into the future and they can do it with no money upfront.”

That no or little money down is the real allure of solar leasing. And that’s what has led to the model’s rapid growth.

“The highest growth is happening in lower and middle-income zip codes,” Wise said.

That’s real market expansion, she said.

“We offer this because we feel it’s a good value proposition,” she said.

Mayer’s issue isn’t with the model.

“Leasing makes sense for nonprofits like churches and schools,” he said. “Also for retired people who have no income and it may make sense in cases where people are fully apprised of the risks.”

He said the problem is that solar leasing companies build escalators into their contracts, increasing the price of the solar electricity on the roof each year by 3 to 5 percent. And they use charts showing historical data with utility electric prices going up an average of 5 to 7 percent each year.

“They need to say that to justify the escalators in their own contracts,” Mayer said.

The problem is that utility electric prices have not been going up that dramatically in recent years.

“The three major utilities in California over the past five years have been flat to down,” he said. “PG&E is up just slightly.”

The problem for the solar industry will come if homeowners find themselves paying more for their solar contracts than they would pay to the utility company. It will hurt their real estate values, leave people disillusioned with the industry and hurt growth in the long term.

Mayer admits that the long-term trend in utility electric prices is upward and over a 20-year period it’s accurate to say prices have climbed 5 to 7 percent a year.

“But, to predict the price is going to continue to go up like that is dishonest,” he said. “It would be like a stockbroker saying a stock is a good investment because it’s gone up every year for the last 30 years. And maybe 10 years ago that would have been true, but look at what’s happened to the stock market now. Past performance is no indicator of future growth.”

Just as trends like constantly rising real estate prices and ever-growing value in the stock market have shifted in this economy, so has the cost of utility power generation, he said.

 

Good for the industry and betting on the odds

Danny Kennedy, co-founder and president of Sungevity, another solar leasing company, said the leasing model isn’t out to dupe the customer. His company and others like his have a singular motivation, he said – to make solar more accessible.

“The reality of the solar leasing phenomenon is that it’s a choice,” Kennedy said. “It gives consumers another option.”

Wise likened the rise of solar to the advent of direct TV.

“People were spending thousands of dollars on these satellite dishes,” she said. “And then they realized, they didn’t want the dish, they just wanted the service. People don’t want to own the solar panels. What they really want is the power they produce.”

Leasing companies allow homeowners the option of having solar power without having to maintain or care for the panels.

While prices might not be climbing as much right now as they have in the past, Wise said, it’s inevitable that they will go up as they have historically.

“It’s like gas,” she said. “If I’d told you we would install a gas pump in your backyard and we would sell you gas at a set price 10 years ago, you’d be saving now.”

Most utilities produce electricity with finite natural resources like coal or natural gas.

“Resources that are exhaustible tend to go up in price as they become harder to find,” she said. “Sunshine is free.”

Mayer said he understands the allure of the solar leasing model, he just wants companies to upfront about what’s happening now in their advertising and make sure customers know upfront that it’s possible they could be paying more for their power with solar than they would with the utility.

Monique Hanis, spokeswoman for the Solar Energy Industries Association said she hopes all solar companies are adhering to the organization’s code of ethics, which includes discussing risks and truth in advertising.

She advises that anyone considering solar consult with at least three operators and get a feel for different options.

But in the end, she said third party solar installers offer the same option to homeowners that car buyers have when they go to the lot and learn about leasing options. They know they won’t end up owning the car and that ownership might be a better long-term investment.

“But leasing options helps consumers with the upfront cost,” Hanis said.

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