The sun is shining on homeowners in less affluent neighborhoods who are discovering they can afford solar energy after all — by leasing rather than buying the panels on their roofs.
The new business model lets homeowners save money the very first month, rather than breaking even a decade after an initial investment of $5,000 to $10,000.
Analysts with the U.S. Department of Energy’s (DOE) National Renewable Energy Laboratory (NREL) found that the solar lease business is surging in southern California. And the model is being adopted in less affluent neighborhoods that had avoided customer-owned systems.
The NREL study found a positive correlation between customers outright buying solar energy systems and customers living in neighborhoods where the average household income was $150,000 or more.
But for third-party-leased solar panels, that positive correlation appeared in neighborhoods where the average household income was just $100,000 or more.
The study did not look at individual adopters, who can have many different reasons for installing solar. Still, the study strongly indicates an attraction for third-party leasing in neighborhoods with less affluence than those most likely to go for the customer-owned option.
If what’s true in southern California proves true for the nation, it means that rooftop solar power could attract an additional 13 million Americans — and that could push solar energy into the mainstream.
Leasing Opens Solar to New Markets
NREL’s Easan Drury is the lead author of the Energy Policy report “The Transformation of Southern California’s Residential Photovoltaics Market through Third-Party Ownership.”
“What is so interesting about the southern California data is that the strong decrease in PV prices — from lower retail costs and stronger federal incentives — didn’t pick up a new demographic,” Drury said. “But a new business model — leasing — did pick up a new customer demographic.”
Repackaging the value of photovoltaics (PV) as a simple savings on the monthly electric bill is an attractive alternative to the pitch that it will pay for itself in a decade, he said. “If someone comes up to you and says you can make money next month and forever, that totally changes how people see the value of solar.”
Immediate Savings is a Lure
The differences in upfront costs are stark between buying and leasing. Heather and Kit Lammers put $3,000 down for a 5.64-kilowatt system that is providing 62% of the electricity for their two-story home in Erie, Colorado. If they had bought the system outright, they would have had to pay more than $9,000 with incentives, or as much as $20,000 without incentives.
The Lammers had been averaging $107 per month for electricity. Now, they’re paying $64 per month to lease the solar panels, plus $41 per month to utility Xcel Energy, which represents the 38% of their electricity use that won’t be offset by solar energy.
That gives them only $2 per month in savings the first year. But the real benefits come over the next two decades, when that $64 lease payment stays constant while, presumably, the price of fossil-fuel-powered electricity rises with inflation. When their two-year-old graduates from college, the Lammers will still be paying the equivalent of 12 cents per kilowatt-hour through their solar lease arrangement.
Estimated total savings for the Lammers, after recouping their original $3,000 down payment, is more than $9,000, according to their solar provider, Solar City.
NREL Employees Bring Their Work Home
At NREL, where scientists and researchers are on the cutting edge of renewable energy and energy efficiency, an unofficial motto is “walk the talk.”
Heather Lammers is one of several NREL employees who are embracing the solar lease model, in which the company keeps the state and federal incentives, but the customer enjoys the lower total electricity cost.
“Solar on our home was something we’ve wanted but thought we’d never be able to afford because of the upfront costs — even with the incentives,” Lammers said. “When we first heard about solar leasing, we jumped at the opportunity. It has made something we thought to be unreachable a reality.”
NREL analyst Michael Mendelsohn signed on with Solar City and selected the company’s “$0 Down Plan” with no upfront cost. He pays just $22 per month to lease a 3-kilowatt system, which covers most of his electric bill and already gives him a net savings each month. Mendelsohn is something of an energy miser: he never runs air conditioning, has installed efficient lights, has all ENERGY STAR® appliances, and hangs the laundry to dry.
On the other hand, “I have a giant TV and kids who never turn off the lights,” he said. “It’s a great feeling to get free electricity on a sunny day.”
NREL market analyst Lori Bird bought her system outright two years ago before third-party leasing was much of an option. Namasté Solar installed a 5-kilowatt system on her family’s two-story house in Boulder. “It covers most of our electricity use,” she said. “We refinanced our house and rolled it into the new mortgage. We save more from the PV system than we pay extra in mortgage.”