MAKING SOLAR AFFORDABLE

Sun for rent; State hopes affordable leases will make panels an electricity option for more homeowners
Beth Daley, May 24, 2009 (Boston Globe)

SUMMARY
Who WOULDN’T put a solar system on their roof if it didn’t cost so much up front and they didn’t have to worry about taking care or it or wading through the bureaucratic red tape to get at the federal, state and local subsidies?

SunRun Inc. has brought just that deal to Massachusetts after it and other companies have worked out many of the kinks in California and Arizona.

Previously available to commercial buildings, SunRun now offers homeowners a Power Purchase Agreement (PPA), which is essentially a lease arrangement. Working with Massachusetts companies Alteris Renewables and groSolar, SunRun sees to the assessment, installation, paperwork and maintenance for the rooftop solar system. The homeowner pays a $1,000 fee upfront – instead of financing the usual after-subsidies $25,000+ upfront system cost – and signs a long-term agreement to buy the electricity generated by the system.

The long-term lease is similar to a cell phone or satellite TV contract. SunRun, and the other companies that are doing the same kind of project development in other states, have the financial expertise to take advantage of federal, state and local subsidies. They turn what would be an unaffordable burden to a single homeowner into a small asset in a larger investment program that includes cash-flow management and tax sheltering services.

Homeowners have heretofore been left out of financial institutions’ New Energy development planning because the returns associated with small projects were not worth the processing costs. New subsidies and the rising price of electricity – with higher prices anticipated as laws putting a price on greenhouse gas emissions (GhGs) are passed – make it possible for private companies like SunRun to offer leases.

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The basics: SunRun (or another company) assesses and approves a home’s solar potential. The homeowner pays the one-time, upfront ~$1,000 fee and signs an agreement to purchase the system’s power for 18 years at a locked-in rate guaranteed to be at or less than utilities’ rates. (As with any rooftop solar installation, the homeowner buys power required beyond the panels’ output from the utilities at their rates.)

Typical numbers for Massachusetts, from Alteris Renewables: ~62% of a home’s electricity will come from the solar system at a cost of ~ $77 per month. The balance of the home’s electricity will come from a utility at ~$46 per month. Total: ~$133. Without the solar system, the same amount of power from a utility would cost ~$151.

SunRun takes the $77 per month, handles all the details of financing and employs a company like Alteris Renewables or groSolar to install and maintain the system. Much of what a company like SunRun does is legitimate financial management and much is dependent on the fact that, as the titular owner of the system, all subsidies – in cluding tax credits and grants – belong to it. Without those subsidies, companies like SunRun would not be profitable because solar energy-generated electricity remains more expensive than electricity from fossil fuel sources and will continue to be so until there is a cost applied to GhG enmissions.

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Caveat emptor (buyer beware) 1: Neither SunRun nor any other company is going to put an installation where there is no sun. Trees or other buildings may get in the way. South-facing roofs are best. All costs depend on the availability of sun.

Caveat emptor 2: The deal is made on the assumption that power prices will go up. It is unlikely anything else would be the case but nobody can predict the future with certainty.

Caveat emptor 3: It is likely the cost of rooftop solar systems will come down and it is entirely possible neighbors will, in 5 years, have better lease deals – but they will have lost 5 years of lower power prices and be 5 years further from paying off their systems.

Caveat emptor 4: Homeowners who move can transfer their lease to the new owner, buy out the contract, or purchase the panels. But a deal must be struck.

Massachusetts state energy officials told the Boston Globe the $1,000 investment is a responsible financial decision even during the current recession.

Example: Eric Friedman of Newton, Mass., is renovating his home. Even with all the rebates and incentives available to him, he would have to finance $11,500 in upfront costs to install a rooftop solar system. Instead, he is paying SunRun $1,000 and expects to earn it back through lower electricity bills within 4 years.

From SunRunHomeSolar via YouTube.

COMMENTARY
Massachusetts Governor Deval Patrick has set a state goal of 250 megawatts of solar power by 2017. Massachusetts now has only 9.7 megawatts of installed capacity. While other states in the Southwestern deserts might be able to meet the goal with a single sprawling solar power plant, Massachusetts will need to get it from rooftops.

State subsidies, operated under the umbrella of the Commonwealth Solar program, are what make Massachusetts attractive to companies like SunRun. The program will provide $68 million in rebates over the coming 4 years and covers an average of 40% of a rooftop system’s cost. The newly enacted federal investment tax credit returns 30% of the system’s full cost. With a 70% discount, the price of solar beats the price of other generation sources in Massachusetts.

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The Massachusetts subsidy fund, however, may soon be used up. Designed to kick-start the solar energy business in the state, Commonwealth Solar has awarded 716 rebates totaling $25.5+ million to 587 homes, 113 commercial/industrial buildings and 16 public entities. State leaders believe that by the time the entire fund flows to Massachusetts-based solar businesses, the industry will have increased enough in volume to bring retail costs down.

Massachusetts will continue to use other measures as incentives to expand its solar capacity toward Governor Patrick’s 250-megawatt goal. It is looking at feed-in tariff schemes to reward system owners more effectively for the excess power they send to the grid. It is studying ways to encourage utilities to install and own rooftop solar systems. It is putting more pressure on utilities to create long-term purchase agreements for New Energy. And it is examining the right solar carve-out to add to its Renewable Electricity Standard (RES). The RES requires regulated Massachusetts utilities to obtain 15% of their power from New Energy sources by 2020. A solar carve-out would require the utilities to obtain a specific portion of that 15% from solar energy.

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QUOTES
- Eric Friedman, Newton homeowner, installing solar through SunRun: "It's great from a green perspective but also from a straight economic argument…"
- Lynn Jurich, cofounder/president, SunRun: "We did a lot of market research, and not surprisingly we learned the upfront cost [for solar panels] is too high for people…"
- Ian Bowles, Mass. secretary of energy and environmental affairs: "The goal is to get enough competition to bring down that cost…"
- Michael Durand, spokesman , Massachusetts utility Nstar: "Having a variety of options will be helpful in meeting [the 250 megawatt] goal…"
- Adam Browning executive director, Vote Solar: "Solar has a guaranteed return…You tell me where else you can get this rate of return in this economic environment."