Okay, so solar energy is a good thing and one way to help save the planet. Got it. Let’s get practical. What is a solar lease? How is it different from buying panels? What kinds of companies are offering solar leases? Is it a good idea? How do companies profit from the arrangement?
This post will attempt to answer many of these questions with my own personal experience and research. Many of the separate events that spurred on this research will be detailed in a more narrative format in the blog posts to come. But I thought I’d collect some of the major points (and disclaimers) together into a summary post about solar leases and how I came to choose the company I did.
First thing’s first, (spoiler alert) the company I chose is Verengo Solar*. I am in no way affiliated with Verengo. In fact, in a future post I’ll be talking about my neighbor, Ray—an independent rep with Viridian Energy (a green energy supplier)—and his family’s solar panels, which came from SolarCity (which offers a solar lease that directly competes with Verengo).
Also, full disclosure: it is my personal opinion that a solar lease is a good idea for the average consumer who can’t afford the upfront costs of buying their own solar panels. No matter how much research I’ve done, that is an inherent bias of all the posts that will follow, and you should do your own research to decide what’s best for you—especially into any specific companies that you’re considering going into contract with. The goal of this blog is to help with some of that initial research and to show that getting solar panels is a thing that real people do that isn’t as difficult as it might seem.
You’ll also notice that many of the words on this page (and all my other blog posts) are underlined. That’s because they’re hyperlinked! I love links. They’ve made the internet into a collaborative space where people can quickly cite their sources to all kinds of research and media without spending a bunch of time worrying about citation conventions like APA or MLA. Sometimes when I turn a word into a link it’s a quick YouTube video. Sometimes it’s a long research paper from a scientific journal on climate change. Sometimes I’ll link to another post of mine where I explained a topic in more depth. It is always purposeful and will provide more context on a subject for those who are interested (sometimes, for instance, I may make claims as if they are “just true”; in these cases I’ve chosen not to spend time on this blog discussing the matter and have instead linked to scientific sources that give evidence and analysis for the claims). This is all pretty common practice in contemporary journalism and blogging, but I figured I’d point it out so that no one (who’s interested) misses out on the palimpsest of external content that’s running beneath the surface of these posts.
Solar Panels and Solar Leases
The sun is basically a giant nuclear fusion reactor, constantly fusing hydrogen atoms together to become helium. Huge amounts of energy are released from this process, primarily in the form of electromagnetic radiation. You can see some of this radiation as visible light giving color to everything around you, and you can feel the infrared radiation as heat when you’re walking around on a sunny day.
The basic idea behind solar panels is to capture and utilize some of that radiation constantly shining down from the sun. Solar panels are made up of photovoltaic cells, which are little devices that convert the sun’s electromagnetic energy into electricity. Harnessing solar energy is an ancient practice, and photovoltaic technology has been getting steadily more efficient and more affordable since the 1950’s.
A solar lease essentially means that I let a company (who owns the solar panels outright) use my roof as a place to stash solar panels for 20 years. In exchange, I pay a monthly rate and get all the energy that the panels produce.
Of course, the complexity goes on from there. The main selling point for me was this: I am paying no upfront costs for the inspection, design, or installation of the system. And once the panels are up, our monthly electric bill will be roughly 1/2 of our average electric bill from Central Hudson—our current supplier (the exact amount of savings, if any, will differ for everyone depending on the state you’re in, the size of the solar array, the previous electric bills, etc).
And of course, there’s the obvious benefit that I’m moving to sustainable electricity immediately and easily—a goal I thought would take years of planning and saving to accomplish.
I will have a predictable electricity bill for 20 years (with slight increases over time that essentially match inflation).
I will never own the panels (I have the option to buy them at the end of the 20 year contract for a fairly low price, but by then they will likely be obsolete). However, precisely because I don’t own them, maintenance, monitoring, and upkeep are entirely the responsibility of Verengo. If something goes wrong, they’ll come out and fix it.
And because the panels are connected into the grid, I get paid (by Central Hudson, our utility company) for any surplus energy that the panels generate. This is, admittedly, kept to a minimum, since the system is designed to match our typical energy usage as closely as possible. But there is the chance that I’ll be cutting my electric bill even more with money generated from the very electricity the panels produce.
Where does the money come from, and where does it go?
All this ties into the question of, “How do companies like Verengo make money from a solar lease?” First, as with any lease, since I am extending my payments over a longer length of time, I will end up paying more than the system would have cost if I had simply bought it today. However, while I can’t speak for all companies, in the case of Verengo—as they have explained it to me—as of today, they make their money mostly off of the tax incentives from the government (and indirectly from utilities) for supplying renewable energy. While our panels allow us to personally get up to $5000 in tax rebates for the first 5 years on our payments to Verengo (i.e. essentially free electricity for five years), Verengo gets all the other incentives from the state and federal government (of which there are many), and from the utility directly (since many utilities need to supply a certain amount of renewable energy to meet renewable electricity standards).
Tax incentives are always in flux, but there’s a huge push for renewable energy right now. And as more and more states approach (and surpass) grid parity for photovoltaics—where the levelized cost of electricity from solar energy is the same as or cheaper than buying from the grid—it’s a good time to go solar.
Verengo will make a profit off of my panels. They’re a well-funded business, and turning a profit is what businesses aim to do. But that’s okay with me. I’m helping them by offering up my roof where they can get tax incentives and some profit from my lease. They’re helping me by letting me buy cheap, renewable electricity—enabling our home to be one less that runs on electricity generated mostly by a mixture of coal, gas, and nuclear power (by the way, you can find out how clean the electricity you use is here).
Getting solar panels through a solar lease is not a money-making endeavor. It is not the best return on investment you can get from solar panels. If you’ve got $20,000-$40,000 dollars in the bank—by all means, go and buy your own panels right now, because there are at least 13 states (some say 46) that are sunny enough with the right tax incentives and utility rates where you’ll be making a 10-24% internal rate of return (IRR), which is better than the average compounded annual growth rate of the S&P 500 over the last 50 years (9.9%). So depending on how you play it, you could be beating the stock market by selling your solar power back to the grid.
If, however, you’re like me, and wouldn’t even be able to consider the upfront cost of solar panels if there weren’t a third party involved, a solar lease simply means saving money on electricity (since your electric bill is likely to be lower with the panels) and helping the environment at the same time.
Which, when you think about it, is a pretty sweet deal.
- More details on solar leases and solar power purchase agreements (PPAs).
- You can track the progress of solar parity in the United States (commercial and residential, with and without state tax incentives) here. Thanks to John Farrell for pointing me in this direction!
*Note: Last week, NRG Energy announced their acquisition of Verengo Solar’s Northeast operations (of which my solar panels will be a part). I will continue to refer to the company I chose as Verengo for the purpose of this blog (since that is how I knew them over the past few months that these entries describe), but technically I am now a customer of NRG Energy.