SolarCity loan deal could propel rooftop market

SolarCity loan deal could propel rooftop market
In this undated photo provided by SolarCity, workers install solar panels on the roof of a home. SolarCity will begin offering loans to homeowners for rooftop solar systems, a move that analysts say could reshape the market for rooftop solar and propel its rapid adoption. (AP Photo/Courtesy SolarCity)

SolarCity will begin offering loans to homeowners for solar systems, a move that industry analysts say could reshape the market for rooftop solar and propel its rapid adoption.

Most current rooftop solar deals involve a lease or an agreement to buy power over a period of time, but the company owns the panels. SolarCity's loan will allow customers to own their systems and still pay less for electricity, a simpler and cheaper prospect.

"The value proposition is becoming clearer and less complicated for consumers," says Patrick Jobin, an analyst at Credit Suisse. "Solar is going mainstream."

Other solar companies have begun to offer loans in recent months, but SolarCity Corp. is the nation's biggest installer, and its loan has a twist that may convince reluctant customers to sign up: The customer pays the loan back based only on the electricity that the panels produce.

The growth of rooftop solar has been propelled by financing schemes that allow customers to have installed for little or no money down. The solar company installs the system, and customers either lease it or enter an agreement to pay for the power over a 20-year period. The combined price that customers pay to the solar company and the electric utility is less than what the customer paid for power without solar panels.

Those plans were rolled out in 2007 and 2008 by SunRun, SolarCity, Sungevity and others. Last year, two-thirds of all solar systems were installed under those types of plans, according to Shayle Kann, of GTM Research, an analysis and consulting firm.

But they are more confusing than a loan and some states do not allow third-party ownership of solar panels.

Lyndon Rive, SolarCity's CEO, said in an interview that many customers say they'd rather own, but then sign up for a lease because it has been the only way to get a system without high upfront costs.

"Ownership is an important factor for our customers," he says.

The company can offer the loans now because it has better access to financing, it can predict the performance of panels well, and it has decreased installation costs dramatically, Rive says.

The loans will be offered at 4.5 percent over 30 years. But customers won't pay a fixed amount every month. Instead, they will pay only for the power the panels produce. If the panels produce more in given month, customers will pay their loan off faster. But because the solar power is cheaper than power from the electric utility, it means the customer's monthly electricity cost would fall further.

If the panels produce less, the customer pays less to SolarCity, and, in theory, will not have to pay the loan off in full. But SolarCity, which is based in San Mateo, California, is confident that it can predict the output of the panels over 30 years well enough to ensure the loan will be repaid.

"It takes the production risk of the system off the customer's plate and puts it on Solar City's," Kann says.

Another important factor that could make these loans more attractive is how the federal for solar will be handled.

With a solar lease, the credit of 30 percent of the cost of the system goes to the solar company or its financiers. With a loan, it goes to the customer. Assuming the customer uses the tax credit, $9,000 for a $30,000 system, to help pay down the loan, customer power prices would fall significantly.

For example, Rive calculates that a California solar loan customer would pay the equivalent of 16 cents per kilowatt-hour in the first year, but then the equivalent of 11 to 12 cents in the second year and beyond if the tax credit is used to pay down the loan. The average electricity rate for a California residential customer this year through July was 15.9 cents per kilowatt-hour, according to the Energy Department.

Rive says he expects that by the middle of next year more than half of SolarCity customers will chose to go with a loan instead of a lease.


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Oct 08, 2014
But SolarCity, which is based in San Mateo, California, is confident that it can predict the output of the panels over 30 years well enough to ensure the loan will be repaid.


And then there's a freak hailstorm and the whole thing breaks down, and you end up never getting a return for the money after the cost of replacing the panels. That's the problem of long payback periods - there's a significant risk the whole system will break before it's produced enough to offset its own cost, and why renting instead of owning makes more sense for the customer because the company takes the risk.

For the individual owner, if they've taken a $30,000 loan that takes 30 years to pay off in savings to their electricity bill, and the system breaks down on year 2, they're $28,000 plus interest down the hole with no means to make more electricity. Pay $5000 to have it fixed, and now it's 33 years to pay back... hope it doesn't break again in a couple years.


Oct 08, 2014
Besides, with insufficient grid level storage technology available, there comes a point where too many people have solar systems.

The solar panels in one state, like California, will output power at the same time, so the price of power at midday will begin to fall with the increasing supply to the point that the cost of grid power is cheaper than using your own solar panels - so people obviously elect not to buy any more.

And that's the limit of expansion for solar power. You could build more, but it would make every solar system in the grid unprofitable and people would simply abandon them - unless you keep paying them government subsidies from now on to forever.


Oct 08, 2014
And then there's a freak hailstorm and the whole thing breaks down, and you end up never getting a return for the money after the cost of replacing the panels

The most unlikely of scenarios (and if you're really worried: get insurance).

When was tha last time your car windows got smashed by a hailstorm? (I'm guessing: never).
Yet you still buy a car.

- there's a significant risk the whole system will break before it's produced enough to offset its own cost

That's the cool thing about solar: no moving parts. Nothing to break down.

Yes things can go wrong. But to get an expected damage/benefit you have to multiply the likelyhood of something happening into it. People do lease cars - even though there is the possibility that you will smash up your car the next day. But it works for the overwhelming majority of people just fine. And if you have insurance it also works just fine for the rest.

Oct 08, 2014
there is always a risk for everything, but for most frequent things can be insured, ofc at a cost. the premium depends mainly where the rooftop is located, cause if it's in tornado valley (or how u call it), i am pretty sure Eikka is right :D.

KBK
Oct 08, 2014
The tornado hit rate is like car accidents, or less, with regard to individual risk. In the bulk analysis, 99% of the loans will be fine and have no issues, and insurance covers the repairs if it gets hit by the weather, or fire, etc. Same as your house insurance, etc.

Coming here and striking baseless fear, that would be the job of a centralized utility employee/stockholder. Leave it to them.

Oct 08, 2014
For some reason, God sends the world's most violent tornadoes to the Bible Belt, so we do not have to worry about them hitting our solar cells in California.

PV power is provided exactly when we need power the most, at the peak period. That is when we usually have to rely on the most inefficient and most costly powerplants to come online. The use of solar PV saves us significant amounts of pollution and money.

Oct 08, 2014
Hi gkam.
For some reason, God sends the world's most violent tornadoes to the Bible Belt, so we do not have to worry about them hitting our solar cells in California.

PV power is provided exactly when we need power the most, at the peak period. That is when we usually have to rely on the most inefficient and most costly powerplants to come online. The use of solar PV saves us significant amounts of pollution and money.

Yes, ironic! Moreover, new LED lighting systems use a fraction of the energy the old systems did, hence night-time demands no longer such a drain as they were. And any night-time/day-time heating can be done by natural gas instead of using electricity, thus using the energy directly instead of going through inefficient conversion to electricity for heating.

The fear mongering and naysaying is from Nuclear FISSION and Fossil Coal Political/mercenary lobby shills. But they are losing the battle against reason and self-evident solutions. Good luck to us all. :)

Oct 08, 2014
Few here know that even with everything being electrified, household energy use dropped last year in the US, due to efficiency, and will continue to do so even faster now.

Oct 09, 2014
And any night-time/day-time heating can be done by natural gas instead of using electricity


So the solution to the renewable energy problems is to continue use fossil fuels?

Few here know that even with everything being electrified, household energy use dropped last year in the US, due to efficiency, and will continue to do so even faster now.


Efficiency gains have their limits. If something is already 80% efficient, you can reduce its energy consumption by a quarter and that's it.

And, when households start to ween off of fossil fuels for heating and transportation, the electricity demand even in California will double due to the heating loads, and triple because of electric vehicles. 70% of Californian homes run their heating/cooking/hot water on gas.


Oct 09, 2014
new LED lighting systems use a fraction of the energy the old systems did


Not really. New (expensive) LED lights have just managed similiar outputs (~100 lm/W) as old fluorescent tube systems from the 90's. If you wanted to save energy, you'd be better off buying tubes instead of LEDs because they're cheaper and last the same 10+ years in use.

For the price of one Phillips L-Prize 10W LED bulb you can get two 38 W fluorescent tubes.

Oct 09, 2014
The most unlikely of scenarios (and if you're really worried: get insurance).


That's why it's called a freak incident - and why people wouldn't take the insurance.

But anyhow, the main point was that from the customer's point of view, renting the panels from the company is actually more preferrable to owning them because then they don't need to care about the risks. The company does - and you're not married to the company.

So if you decide to e.g. move out before 30 years has gone, you don't have to mind about repaying that loan.

When was tha last time your car windows got smashed by a hailstorm? (I'm guessing: never).
Yet you still buy a car.


A car doesn't become inoperable from a couple dents and a cracked windshield, and you don't need to spend the next 30 years earning the money back. If the car takes you to work tomorrow, it has made you enough money for the repairs.

Oct 09, 2014
Sorry Eikka, but we are going to replace coal with wind and PV, and geothermal, and landfill gas, and solar thermal, and whatever conversion technologies make sense in those particular places and situations.

We may never completely replace petroleum in our lifetime. And we will not use only one conversion technology (sorry, cold fusion folk). As I have said repeatedly, and what is ignored by the anti-environmentalists is the fact of evolution, not wholesale replacement. And where did you get the idea we would rely on only one type of supply? Do you not know the value of diversity in power sources?

Eikka does the best job of anyone in looking up the "facts", and reporting them, but he/she seems to be fixated on hating what we are doing. All I can say is that it makes much more sense than what we did in the past. Really.


Oct 12, 2014
Sorry Eikka, but we are going to replace coal with wind and PV, and geothermal, and landfill gas, and solar thermal, and whatever conversion technologies make sense in those particular places and situations.


Not fast enough.

anti-environmentalists


On the contrary. It's you who don't seem to appreciate the scale and urgency of the problems we're facing.

And where did you get the idea we would rely on only one type of supply? Do you not know the value of diversity in power sources?


Strawman argument.

seems to be fixated on hating what we are doing


Yes, because what you're doing essentially amounts to zilch. You're just being used by profiteering corporations to pull off a massive redistribution of wealth form your pocket into theirs, while pretending to care about the environment, much less actually doing something helpful.


Oct 12, 2014
but we are going to replace coal with wind and PV, and geothermal, and landfill gas, and solar thermal, and whatever


And you don't actually have the means to, yet, so don't call it done before it's done.


Oct 12, 2014
We already did that in California.

You can do it, too!

Thanks for the discussion.

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