Recently a door-to-door salesman approached us to consider a solar system. He explained we had ideal southern exposure and they were installing systems nearby. He explained in New York State, the utility has to install a “net meter” at no cost to the customer so customers receive the full benefit of their solar production. When your production exceeds usage, the excess is recorded and applied against future usage. After listening to his pitch for a free, no-obligation assessment, I was intrigued but gracefully declined. It did, however, get me thinking.
Over the past two months, several solar systems were installed in our Village, by different Providers, as the lawn signs clearly showed. I had heard of generous incentives and tax rebates and decided further review in order. Also, encouraging renewable sources of power is both a federal and New York State public policy priority that is only likely to increase.
After investigating eight providers, I determined, first, this was a complicated decision and secondly, it was unclear if a system made sense for us, and if so, which Provider was best. Considering my work background as a rate engineer for New York State regulating public utilities, I also was concerned that if I found it complex and difficult to sort out, I concluded most homeowners would likewise find this challenging too.
Following is a brief summary. Whether you want to help save the planet– or save your wallet, evaluating the pros and cons is necessary to determine whether “going solar” may make sense for you. This is not a full investigation of “going solar” but rather one homeowner’s initial conclusions that may be a helpful first step, if considering “going solar” is of interest to you.
Types of Solar Options
At least four types of arrangements were encountered including: a) Purchase Power Agreements (PPA), b) Leases; c) Pre-paid Leases and d) Purchase options.
a) Under one form of PPA examined, you enter into an agreement to purchase your energy at a fixed price per kilowatt hour (kwh) with the Provider installing, owing and maintaining the equipment on your roof, perhaps for a 20 year term. There may be a price escalator, for example, not to exceed 3% per year, to be increased at Provider discretion . Under this arrangement the Provider essentially takes the place of your current utility and you no longer pay your utility for your energy consumption. This arrangement appears to protect you from future increases in energy costs from your utility. (Variations from this arrangement may apply.)
b) & c) Under a Lease or Pre-Paid Lease agreement, again the Provider may provide all equipment, installation and maintenance and incur all costs to maintain the system for some term. These agreements can vary but you could think of it essentially as the Provider renting access to your roof where you get some of the benefits of the production. Since your usage and your production will vary by month, typically there is a carry forward of your production in every month that your production exceeds your usage, with the excess balance accumulated and carried forward for drawdown over a 12 month period. Under such an arrangement, any usage in excess of your production beyond the 12 month carry forward period would be billed at prevailing utility rates. Under the straight lease arrangement, there may be a zero down option and require no upfront payment. Under the pre-paid lease option, an upfront payment would reduce the monthly lease payment. The term of the lease is commonly twenty years.
d) Under the Purchase option, the customer pays for the installed system and takes full ownership. The customer is responsible for maintenance and repairs. While solar panels often have warranties in the range of 10 to 25 years, the responsibility for warranty enforcement and associated labor would typically lie with the customer. Because the customer owns the equipment, all benefits of production are retained and no payment per kwh occurs to anyone except if usage exceeds production, after the 12 month carry forward. Such usage is billed by the utility at prevailing utility rates. Also, under this arrangement, the customer is responsible to pay the utility for the monthly meter charge, which is subject to future rate increases. Under the purchase option, the homeowner may incur a nominal increase in homeowners insurance due to the increase in value of the house, perhaps in the $60 to $100 range. Another variation is where the Provider arranges financing over some period of years to allow low or minimal upfront costs. This could appear similar to a Lease arrangement except that in this case the consumer owns and is fully responsible for the system. (Note: under the Purchase option, an additional warranty to cover repairs, labor and maintenance may be available at additional cost.)
Size & Design of Systems
Most Providers will design a system for you at no cost and provide the various Options they offer. For small residential customers that may use about 4200 kwh per year, about 14 panels may be sufficient. The system installed by the Provider typically includes solar panels, an inverter to convert from DC to AC and a monitoring device. The utility installs the net meter at no cost to the customer. Two designs were encountered, a single string inverter usually mounted adjacent to the meter or another design utilizes small micro-inverters installed at each solar panel. Providers offer different options depending upon design preference, price, or other factors which may include the degree of shading or other factors that may bear on panel location and efficiency. Solar systems that have been installed in our Village range from 13 to 40 panels which reflect different levels of usage and include both string inverters and micro-inverters.
In order to assess pricing options, one should refer to your utility bill for actual past usage and cost levels. Different areas of the state have widely different monthly meter charges, commodity costs and delivery costs. This is why the cost implications and cost savings vary widely depending upon your current utility bills. Also, before a Provider develops options, a recent copy of your utility bill is required which shows annual kwh usage by month. This information is important to assess which option(s) may be most appropriate for you.
The above options vary widely in price. For illustration purposes, one example of a PPA provided for ~$.12 per kwh with a 3% cap on annual increases. This Option requires no out of pocket costs but may involve an obligation to purchase all production for twenty years.
While these are not necessarily comparable, another purchase option involved a purchase price of ~ $12,500 and, as long as production equals consumption, the additional cost of the utility’s prevailing meter charges of ~$17 per month. Under this arrangement once the system has been purchased, there is no cost per kwh due to either the Provider or the utility and all savings redound to the benefit of the owner for the life of the system.
Grants and Tax Credits
Further complicating the analysis, there are federal and New York State tax credits, as well as grants available from New York State Energy Research and Development Agency (NYSERDA). After customer payment to Provider of a deposit in the case of a system purchase, Provider applies to, and is paid by, NYSERDA, resulting in a dollar for dollar reduction in the cost of the customer’s system. These potential benefits while aggressively shown on the various solar proposals typically reflect the maximum possible benefit but, in fact, the tax credits depend upon the tax situation of each customer. These agreements typically state consultation with a licensed tax professional is necessary to verify to what extent, if any, these benefits apply to you.
Tax benefits may apply to all the options noted above, even though the customer may not own the system. Consultation with a tax advisor is necessary before assuming the stated benefits apply to your individual circumstances. As an illustration, under a best case scenario, assuming a Purchase Option with a $12,500 cost, the rebates and tax benefits could total ~$8,000 resulting in a net purchase cost to the customer of ~$4,500. (Note: NYSERDA grants decline over time and will eventually expire altogether absent a future expansion of the program; federal and state tax incentives are also subject to change or expiration.)
Conducting Due Diligence on Providers
The solar industry is in its infancy and no doubt some Providers will fail. Yet agreements often involve multi-year or multi-decade terms. There are various unknowns to be considered and no Option is without risk. Having said that, taking no action is not without risk either as future electric commodity and delivery costs could be subject to dramatic change as well. Nevertheless, investigating the various Providers is a necessary part of the process. One possible consideration is whether the Provider is accredited by the Better Business Bureau (BBB). Regardless of accreditation status, one can also check the BBB rating which is a function of prior customer complaints and whether they were successfully resolved. Based upon the many Providers I examined, they ranged from A+ to F rated; some were BBB accredited and some were not. This is not to say that the BBB rating is the only criteria– but considering the infancy of the industry, it is an important factor in the process of performing due diligence.
Another step is to request a copy of the contract early in the process to help determine the nature of the agreement and consumer protections. How large a deposit, if any, and under what conditions refundable? In the case of a purchase, when are payments due and are they spread out over the period leading up to system operation? These are just a few questions relevant to determining which Provider, if any, makes sense to consider when making a final decision.
If you will own the system, what warranties apply to panels and string inverter or micro-inverter? Can you obtain copies? Are they full replacement warranties or prorated based on years and of very little monetary value? Can warranties be transferred to next owner and if so, is there a transfer fee? If a PPA or Lease Option, must the contract be transferred to new owner; if so, what are requirements and fees? Could this help or impair sale of residence? Under a PPA or Lease Option, if the roof needs replacing, is there a fixed cost for system removal and reinstallation after roof replacement or is it unstated? At lease end, is purchase price of the system on your roof determined at Provider discretion or negotiable? Or is there a provision for removal and disposal of the system and who will be responsible for those costs? These are just a few issues and questions to consider in assessing the risks and opportunities of “going solar”.
It is worth noting that taking no action is not without risk. That is so as the costs of electric commodity and delivery may well continue to escalate– particularly considering that under current rate arrangements, which are subject to change, solar customers appear to be effectively escaping both commodity related and delivery costs that will need be recovered over all remaining customers that do not effectively leave the system. And it is those customers that do not make other energy arrangements that seem most likely to be financially responsible to hold the utility whole– given the shareholders legal entitlement to prudent cost recovery and a fair return on investment, regardless of changing public policies that favor renewable sources.
Pursuing solar opportunities is worthwhile. Yet, as always, “caveat emptor” applies– let the buyer beware because signing contracts, some with twenty year terms, involving thousands of dollars of costs; exposure to future rate design changes; changes in public policy; and vagaries of unregulated businesses, solar providers and equipment manufacturers carries with it definite risks, some foreseeable, yet others not. One conclusion: it is not a decision to be rushed and the siren song of “zero down” should be a warning that careful investigation is warranted. Under any scenario, due diligence is needed which, as I discovered, is a challenging, time consuming process even for those versed in energy matters. And one should consider consulting legal counsel and tax experts, as necessary, before making final decisions.
(Note: views expressed here are the author’s alone and based on his work experience coupled with a recent examination of many Providers offering solar options in Upstate New York.)
Christopher Corbett is an engineer and from 1974-2006 was employed by New York State’s Department of Public Service in the auditing and rate regulation of public utilities.