Thursday, February 17, 2011

Financing Residential Solar Installation

Have you thought about installing solar panels on your home's roof?  The typical story here is that to do so requires a large upfront investment (perhaps $25,000 if there are no Federal and state subsidies) and then after paying this irreversible upfront investment you receive a flow of lower electricity bills as you produce your own power and you may be able to sell excess power back to the grid.

While it is true that subsidies can lower the upfront cost to you by around 50%, many households still face a serious financing constraint.   An alternative financing arrangement is for the home owner to install solar panels through a leasing agreement.  Home Depot and SolarCity have created a clear example that you can read about here.

Similar to leasing a fancy car, you pay a "rental fee" for the system (rather than buying it outright) and in return you must honor your contract. While this isn't a "free lunch" for the home owner, this is a great example of how capitalism and trade in the financing market allows households to "go green".  SolarCity is willing to lend you its system anticipating that you will pay back your loan.  This allows households who have a stream of expected earnings (but not a lot of money in the bank right now) to be able to finance this investment.

The academic research question here is; "how much does the probability of installing solar go up by for different demographic groups when they now have access to the leasing option?"  For Al Gore, this doesn't affect his probability of "going solar" but there are middle class households who will exercise this valuable option.


What are my options at the end of the SolarLease?

SolarLease is a very flexible way to go solar. When your lease ends, you have several good options to choose from:
  • You can upgrade to a new system with the latest solar technology under a new lease.
  • You can also extend your existing lease in five year increments.
  • You can ask SolarCity to remove your system for free.
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What if I move to a new home before the end of the lease?

You can pass on the solar system to the new owners in two ways. The great thing about either of these options is that solar homes typically have a higher resale value, because of the lower electricity costs.
  • You can transfer the lease to the new homeowners if they qualify with excellent credit.
  • You can also prepay the lease and include it in the asking price.
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Can I decide to buy the system later?

No, but you can renew your lease in five year increments.
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