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Are solar leasing companies causing more problems than they solve?

Avatar for Ben Zientara
Updated 03/24/2015

The Citizens’ Alliance for Responsible Energy (CARE), an organization “devoted to educating the public about the need to guarantee our access to the affordable energy that drives our nation forward,” has just released a white paper called “Solar Power in the U.S.: Lessons Learned and Guidance for Policymakers.” We’ll do our best to judge the paper on its merits and forget the fact that CARE is run by longtime professionals in the oil & gas industry who regularly write about how the “environmental elite” are colluding with the EPA to ruin all of our lives.

The paper is positioned as a way for CARE to “provide a useful starting point for discussions among policy makers about how to chart a path toward a solar future that is fair and sustainable for everyone, including the solar industry.” Now, that’s a laudable goal, so we decided to take a look at some of the lessons CARE wants to teach. After all, we pride ourselves on being a source for unbiased solar policy information, and we like to get all the information out in front of our readers so they can make an informed decision about solar power.

We can still be considered unbiased even with these sunglasses, right?

The authors of the CARE paper begin by asserting that, because of the rapid expansion of the solar market, “homeowners have been exposed to unscrupulous installers and sales teams, warranty troubles, insurance issues, maintenance complications, and property transference issues.” In a section entitled “Federal Loan Program Controversies,” they make the assertion that “SolarCity is often pointed to as the next Solyndra,” backing up that claim with a 2013 quote from Barron’s about the company’s losses, though there are much more recent indications that market analysts think the company is doing very well.

Later in the same section, the authors point to a 2013 study by Molly Podolefsky that showed “many third-party solar companies, in particular SolarCity, SunRun and Sungevity, exploit the benefits of the federal Solar Investment Tax Credit by over-reporting prices.” That made our jaws hit the floor. The federal Solar Investment Tax Credit is a direct tax credit of 30% of system costs, and it’s a big reason that solar is so affordable. If third-party companies were artificially inflating installed prices for only the leased systems they install but not the purchased, it would mean they are taking a larger piece of the pie than they’re entitled to, and defrauding the nation’s taxpayers to do it.

We wanted to dig deeper into this claim, to see whether it had merit. Luckily, California provides a really great tool to track solar installations in the state: the California Solar Statistics website. The site features a number of ways to slice and dice data related to every solar installation in the state for which the installer or homeowner applied for incentives through the California Solar Initiative. Here’s a look at a graph that shows the difference between installed costs for residential systems less than 10-kW in size for the period from Q1 2007 through Q3 2014:

In the graph above, the yellow line represents the average cost for systems that are owned by the customer, and the blue line represents the average cost for systems owned by third parties (leases or PPAs). There’s a little bump from early 2008 through early 2009 where third-party installations had higher costs, but it evens out pretty quickly, with many quarters where third-party costs were below customer-owned costs.

One of the variables this chart won’t let you sort by is individual installer name, but they will let you download the raw data and further sort and filter it. We did some digging into the data represented here and organized it to show only installations from SolarCity. We looked at 21,688 solar installations between 2007 and 2013; 1,769 customer-owned and 19,919 owned by SolarCity. Here’s what we got:

Pretty big difference from the first graph, huh? Though, as in the graph above, the numbers evened out years ago, and now the costs are nearly identical. But it really does look like SolarCity had a habit of claiming higher costs for installations they own compared to those they don’t. Even controlling for panel manufacturer, the costs were still high. Here are those numbers:

So, the data shows a clear increase in installed costs for SolarCity-owned systems between 2008 and 2012, but what it doesn’t tell us is why the increase occurred. There could be many reasons: the sales process could have been more involved for a leased system during those years; there are credit checks and administrative costs for leases that don’t apply to customer-owned systems; and lifetime performance-monitoring software is also figured in to a leased system.

Here’s an interesting note: the overall numbers, from 2007 through Q3 of 2014, show that on average, a SolarCity-owned system costs less per watt than one they installed for a customer owner. The final rows of the tables in the above image show an average cost of $7.23/W for the 1,769 customer-owned systems, and an average of just $6.18/W for the 19,919 SolarCity-owned systems. That’s because SolarCity has been involved in so many more third-party systems in the past few years, when prices have been lower.

The fact is, we just don’t know why the systems cost more, nor do we know why SolarCity’s 21,688 installations (about one-sixth of all California solar in the past 8 years) appear to not follow the industry trends represented by the first chart above. And none of the above “maybes” explain why all systems were priced similarly before 2008 and after 2012. We might find out, however, when the U.S. Treasury Department completes its investigation of SolarCity and other third-party providers.

Whatever the reasons for SolarCity’s past inflation of installed costs for third-party systems, it seems they are no longer a concern. The tail-ends of both graphs above show installed costs for third party-owned installations close to or below the costs for those owned by customers, so taxpayers and prospective customers of third-party installers can rest easier.

It is always a good idea to look critically at the past to guide future decision-making, but unless you look at the facts without an agenda and try to tell a complete story, you might miss some important information. We’d hate to think it was CARE’s intention to paint SolarCity in a negative light in order to further its own agenda, so we’ll just say “maybe they missed a few things.”

Last modified: March 24, 2015

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