4 reasons to beware the solar lease, and solar PPAs | RenewEconomy

4 reasons to beware the solar lease, and solar PPAs

On the surface, the solar lease is bright and shiny, guaranteed to make you smile and soften those pesky energy bills and emissions. But buyer beware..

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Solar Panels at Los Angeles AFBOn the surface, the solar lease is bright and shiny, guaranteed to make you smile and soften those pesky energy bills and emissions. But buyer beware, every time we have looked under the hood, all is not as it seems. Here are the 4 Big Things to look out for when they give you the sales pitch:

Cost of capital

We often see solar lease and/or PPA providers comparing their offering with purchasing solar outright. They tell you that if you keep cash in your pocket, it will get 8-10%, so why spend it on solar? It’s the right question to ask, but the wrong number to use. You might get 8-10% in the long run on the share market or property market, but these investments are up and down all the time, and getting it right isn’t easy.

Investing in solar is closer to a term deposit or bond – low risk, and steady returns. Investments like these typically pay 4%, and even less after tax. So putting your money in solar to receive tax free investment returns makes for an attractive risk-weighted investment, if you get it right. Even for larger businesses that might be paying 14-15c/kWh for daytime energy, tax free returns of 6-8% are possible with solar.

O&M savings

Of course you should lease your panels, you won’t have to pay for cleaning, maintenance, replacement of parts, monitoring or changing the colour of your panels when they go out of fashion!

On paper it makes sense (not the changing colour bit), but anyone that knows solar knows that when you buy right, it’s as close to set and forget as there is. Granted, inverters won’t last forever, but that’s why you pay a little bit more up front for the best there is, saving hassles down the track. Don’t believe me? Well ask yourself this, if O&M costs are so high, then why is your profit driven supplier telling you they will look after it for you for nothing?

Price inflation

I nearly fell off my chair when I saw a lease quote that assumed the grid price of electricity increases at 7% per annum. That’s been the trend for the last 5-8 years or so, but it’s definitely not the trend going forward. Official forecasts have it closer to 3%, and in some states there is talk of prices going backwards. Of course your lease fee increasing a meagre 3% pa for 15 years will looks good compared to the grid going up at 7%. But if grid prices flat line, it’s a very different story.

Apples and Oranges

Ok, here is one for the geeks. Everyone knows that capital has an opportunity cost right? Well, so do avoided energy savings. When you penalise a solar investment based on opportunity cost, you also have to reward your operating savings to be comparing applies with apples. Follow me?

The solar lease pitch will tell you that buying solar outright has an opportunity cost – shock horror. But what they don’t tell you is that by spending your dough every year on their lease, you are missing out on the prospect of investing your savings. That’s right, after you invest $300,000 in solar, every year when you save $50,000 off your bottom line, that’s $50,000 that can be invested in more productive pursuits than paying your energy bill. So if your opportunity cost is 8%, then your returns on that $50,000 saved every year will also be 8%. That’s something your solar lease salesman will not remind you, and it makes a huge difference to the comparison.

So, buyer beware and if in doubt, call for help.

Tosh Szatow is Director, Co-founder at Energy for the People. A certified benefit corporation.

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10 Comments
  1. Jo 6 years ago

    A good alternative to leasing or PPA is to finance a solar system with a loan. E.g. as many solar owners own a home, they have access to a home loan or can redraw from a home loan. The results can be extremely attractive as can be shown with this calculator: http://www.sun2steam.com.au/index.php/solar-pv-investment-calculator/ .

    The home owner also owns the solar system and may have a positive cash flow form day one, which means the payback time of the solar system is ZERO!.

    • Raahul Kumar 6 years ago

      I think having options is good. Between a loan, leasing and just buying upfront, there is an easy way to buy a solar panel no matter what your financial situation is.

      • Tosh Szatow 6 years ago

        That’s right Raahul, I just get nervous about people/businesses/organisations getting into PPA/Leasing without understanding how they compare to other options. Always pays to read the fine print.

        • Raahul Kumar 6 years ago

          Yeah, it’s always a good idea to compare your financial options side by side, but having more options is better.

          I still think solar panels are sufficiently cheap that it’s better to just purchase it outright rather than bothering with a mortgage, leasing or any other creative financial scheme.

          It’s not that expensive!

    • Jonathan Prendergast 6 years ago

      I’ve come to the same conclusion, that the most cost effective way to fund rooftop solar for home owners is via their home loan.

    • Tosh Szatow 6 years ago

      Absolutely agree Jo.

  2. Ma 6 years ago

    I think paying off a solar system at an equivalent rate that you would otherwise put toward energy bills is a good strategy if you can’t afford the high upfront system cost.

    Also of interest, I know of a few Councils currently offering rebates toward Commercial solar. If you have a business it’s worth making a quick inquiry to your local council, before the Abbott Government changes things 😉

    • Tosh Szatow 6 years ago

      Hi Ma, totally agree. If you can’t afford it, financed solar is a great idea. Typically a commercial loan, and certainly a residential home loan gives a better finance rate than if you go through a PPA or lease. So PPA/Leasing is ok, we just encourage people to exhaust other options first

  3. Whis-kerrs 6 years ago

    Whis-kerr’s
    One waning light that flashes as I read of the solar leases on offer, AGL’s offers for solar plus storage.. . Does the system offered tie you to grid connection for decades.!

    And ;why is this a problem ?

    3 reasons I can come up with
    1. grid charges a connection fee which in most cases has doubled, maybe even quadrupled in attempts to make solar less popular.
    2.The price the grid pays you has dropped to between 6cents to maybe 10-18 cents a unit. – when you sell your excess power back to them – usually in peak times as in midday; Then, when the night hits, no sun,another peal power you may be paying anything up to over $2. per unit.
    4. And finally, as a flood and disaster prone resident in Queensland – when the grid goes down, through floods, cyclones, fires … hundreds of thousands of homes can be without.

    Being a stand alone solar home we have at least had lights after floods,road closures, creeks rising,etc.

    Being connected to the grid can lessen your security in times of violent weather.

  4. EnergySage 6 years ago

    How you pay for your solar PV system impacts the
    returns on your investment. We help you decide which financing option is best
    for you. And just what are the options? We break it down for you here so you
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