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The Investment Tax Credit (ITC) is assignable, and enables the financing of solar panels through solar lease
and solar PPA (Power Purchase Agreement), with the distinction being that the PPA bills per kWh, and has an
implied performance guarantee: no kWh, you don't pay, although the lease has a similar performance
guarantee. Below, we work out the economic and financial decisions involved, both in theory and with
practical examples, addressed to the home owner making the decision.
Our fundamental premise is that the consumer/home owner should only have one simple objective: to
maximize the value of their home with energy retrrofits. Building new homes to net-zero or near-zero
standards is well understood, and does not add a lot to construction costs if it is planned right. Retrofitting
existing homes is financial magic, because it moves energy from liabilities to assets. The third party
rooftop solar model turns this asset into a liability again, and therein lies the problem.
Another way of looking at this is that it is analytically misleading to look at lowering your electrical bill
as the objective. The property owner first needs to understand what power is used for, and to see if
there are any other, cheaper solutions. For example, A/C may not necessarily have to be electrical. The
number of thermal solutions is growing. Or, it could be taken over by heat pumps requiring 20-50% of the
amount of power, and/or more insulation and window treatments could further reduce the demand. In general
if a home owner operates without a long-term energy plan, they are likely to fall for easy sales pitches like for
'free' solar panels.
The Solar Energy Industry Association has now published its own Solar Business Code (SBC), here.
2141 Starling Avenue, Apt. 404, Bronx, NY 10462
P 718-409 0293 E rogierfvv@dabxdemandsidesolutions.com
C:\Users\RogierFvV\Documents\Green Energy\DaBx DSS Inc\Business Analysis\TheTrueCostofFreeRooftopSolar_V0.950.odt
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No risk, no hassle, free everything, you only pay the bill every month
What could go wrong, and what should you look out for? The 'savings' may change over time, since the
annual escalation in these contracts has been as high as 2.9%.
Note: The new Solar Business Code expressly prohibits member organizations from claiming Free solar
panels. It is deceptive on the face of it.
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Passive thermal solutions, besides insulation, these days includes internal and external coatings that
provide insulation and vapor barrier. Some of the external coatings could add up to R-12 to your
exterior walls, and some of these coatings are not like paint, but will last 20 years. These options
directly reduce your heating/cooling bill, and typically pay for themselves quickly. Then there are
window treatments and/or windows with heat gain/heat shed properties, and the best of these reduce
your BTU loss from windows summer and winter, and directly lower your bills. Some of these
options are valuable regardless of how you use energy. It may be oil for heat in winter, but electricity
for A/C in summer.
More substantial solutions include solar thermal, see for example www.zonbak.com, and generally
here. Generally, www.energy.gov is a great site for general information about different technology
options you may have.
Heat pump water heaters heat water with 60% less electricity compared to normal water heaters, see
here, and, as noted on the same site, geothermal systems can possibly provide all your heating,
cooling and hot water, they use electricity but they give you 400% more back than they use, because
they use free heat from the earth's crust. Finally there are air-source heat pumps that are about 250%
efficient, and good in moderate weather, and you'd only use your boiler on the coldest days.
In short, solutions and options galore. Your job is to decide which one makes more sense. Hot water can be as
much as 15-25% of your heating budget and in some cases it is worse than that. In short, just replacing a hot
water heater with a heat-pump model (if you have the right conditions), might take a 12% bite out of your
energy budget. Such a water heater is a $2,500 decision (plus or minus), giving you a 12% reduction, not
an $25,000 decision (SPV), which gave you a 3-9% reduction (maybe). And that water heater pays for
itself in savings in a few short years.
The most important thing is to understand the engineering inter-dependencies, and how they impact your
options. For example, if you commit to SPV now, because your A/C is electric, you are locking yourself out
of the option to switch to Solar Thermal, which may be a lot cheaper in the long run, or you may be undersizing your panels if later you should go to geothermal HVAC & DHW, so you should take a good look at
both the mechanical and economic life-cycles of all your energy equipment, and every assumption should be
questioned. Heating is not limited to oil, gas, or electric. It can be thermal and largely free. The same applies
to cooling and hot water. Removing all fossil fuel combustion from the property eliminates a lot of indoor airpollution, allowing you to have a tighter home.
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bills over 30 years (assuming that the discount rate is the same as the inflation rate, and energy prices are
increasing at the rate of inflation), so, if you can retrofit for less than that, you're ahead. Assume for the
moment that you can finance it all, you can retrofit a fairly large property to net-zero standards for a lot less
less than $360K. And net-zero means no energy bills!!! The question is what solutions give you the maximum
Net Present Value for your property. To figure that out, you need to think through the alternatives, based on
reliable quotes.
Hint: solar thermal, heat-pumps, and various passive solutions will add far more value than solar panels,
which today are 15-20% efficient, and newer panels coming on the market increasingly, are in the low 20%
range. To the extent that there is another project that would create more value for you, if you choose solar PV
anyway, you are incurring the opportunity cost of the projects you are locking yourself out of doing. By
locking yourself out of a project, we mean that you are no longer able to do those projects either physically,
because the solar panels prevent you from doing the alternative, e.g. solar thermal, or financially, because you
can't spend the same money twice. An example would be that heat pump water heater, it might be a great idea,
or it might not, if you really should have done solar thermal or geothermal.
Home equity
Typically this is one of the best ways, because interest is deductible and these are permanent modifications of
the home.
Energy Mortgages
There are programs with FHA, VA, Freddie Mac, and Fannie Mae backing, but generally these deal with
small improvements, not major capital retrofits. These options are getting better, however.
PACE Financing
PACE financing may be a good option, if available. With PACE your payments are collected with your
property taxes, and the whole retrofit is transferred with the property if you sell.
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Solar loans
These are a good option, and you can even get 100% financing with zero down payment. Not all solar loan
options are created equal the SolarCity MyPower program is a lot more expensive because it tries to stretch
the payments over 30 years, and they reportedly offer some of the highest installed costs, see here:
http://cleantechnica.com/2015/09/06/solarcitys-mypower-home-solar-prices-far-above-average-pick-my-solarfinds/
Solar lease/PPA
This is easily the most expensive option. NREL (National Renewable Energy Labs) concluded that consumers
are paying 19-47% more with these finance solutions compared to traditional forms of financing. In other
words, this is usually the most expensive solution, though the sales people are well trained to focus you on
the fact that you are supposed to save money on your electrical bills, and then people forget that you could
save a lot more if you did your homework.
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that you are using green or solar energy, see FTC 16 CFR Part 260.15. Therefore there is a truth-inadvertising issue if these companies sell you on 'going green.' Arguably, you are helping society go a bit
greener. Again, this abuse is being addressed in the new SBC, but there are all sorts of subtle and notssubtle
ways that the industry continues to imply that you are going green, or going solar, when the truth is that
you are renting out your roof to them, and they sell the solar energy credits to someone else, who can claim
themthey are going solar, not you who has the panels on your home.
Expensive finance
As noted above, the NREL study establishes in general terms that leasing and PPAs are a more expensive
option, so you should look into your financing options for your retrofits.
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solar systems. In that same order, the Superior Court held that a separate Arizona statute, which
provides that such systems are deemed to have no value for the purpose of calculating property
tax, violated certain provisions of the Arizona state constitution. SolarCity and Sunrun have
asked the Superior Court to award them costs and attorney's fees as the prevailing parties in the
litigation. The Superior Court has not yet formally entered judgment or acted on the motion for
costs and fees. The Company will continue to vigorously pursue its claims.
In other words, even SolarCity itself is defending the position that leased panels are not an asset of the
property. Likewise, the early adopters who bolted 30, 40, and 50 solar panels to a leaky house, will be the butt
of jokes when it comes time to sell, if someone on the same street can get by with 10 panels, because their
house is very energy efficient. Those jobs are good sales for the solar companies, but will be disastrous for
the owners. It is like advertising that your house is inefficient, or you must be growing pot in your basement.
Just about the only good reason to have a lot of panels would be if you had a heat pump and eliminated most
of your oil bill.
Rationally, when you buy a house, you know that you are also buying 30 years of energy bills. At the same
time you need to assess what if? After all, you might have to sell before 30 years, so how much value does
your retrofit add to your property? For this, we are starting to see ratings, such as the HERS rating and the
GRESB rating, and/or you should speak to real estate pros. The number one thing is to document your results,
and keep track of your home's performance. As awareness of energy increases, buyers will be more
responsive. Professional investors learned in the 2008 melt-down that net-zero buildings were one of the best
assets to own. They kept their value.
Because today you are cooking with gas, you don't always have to cook with gas
Today you heat with oil, you don't always have to heat with oil, it could be with other fuels or with
thermal solutions, active and passive. Passive homes can be heated with a hairdryer.
There is only a small subset of energy demand in a home that has to be electrical, and those are
certain appliances.
You want to approach your energy based on sources and uses, and understand exactly what can or
cannot change. When boilers, A/Cs, water heaters and refrigerators or freezers break, you must repair
or replace, and that may be an opportunity to switch, but you are better off looking at the economic
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end of life as well, for that is determined by the availability of more cost-effective alternatives.
Conclusion
Based on the above, rooftop solar is likely a decision with a negative NPV for most buyers, especially if it is
done with a lease or PPA. The small savings do not compensate for the risks and cost that are likely later.
Overpaying for the financing, incurring a discount on your property when you sell, and the opportunity cost
of other projects you are locking yourself out of, make this a bad decision for most home owners, and you
want to examine every alternative before you commit to rooftop solar in any form. The only thing that matters
to you should be the greatest possible value add to your property from energy retrofits.
For society as a whole, it is also clear that utility scale solar is the only sensible way to implement solar, as
per a recent article in Forbes, by James Conca, here.
Terms
DHW
GRESB
HERS
PPA
SBC
SPV
ST
References
SBC, the Solar Business Code by SEIA: http://www.seia.org/policy/consumer-protection/seia-solar-businesscode