Is SolarCity a Good Deal?
Is SolarCity a good deal? Find out if getting a SolarCity lease is right for you.
If you’ve spent any time at all looking into solar energy over the last few years, you’ve probably heard of SolarCity. SolarCity is one of the biggest names in the leasing game. If you’re interested in installing solar with a lease, you probably want to know if they’re worth it. Read this post if you want to determine whether SolarCity is a good deal for you.
What is SolarCity?
Founded by Peter and Lyndon Rive in 2006, SolarCity quickly became one of the biggest solar installers in the US residential market, serving customers in 19 states. Their business model has mostly been based on leasing or Power Purchase Agreements (PPAs), which they helped to pioneer.
Their business model relies very heavily on the 30% Federal Tax Rebate, which is currently a bit of an issue because it’s expected to be phased out starting in 2019.
Last year they became a subsidiary of Tesla Motors. Elon Musk has always had some involvement with the company — he’s the chairman of the board, as well as a cousin to the Rive brothers. SolarCity carries Tesla’s Powerwall, and when the Powerwall II (see our Tesla Powerwall Review) was announced Musk also announced the introduction of the Solar Roof, which is expected to hit the market later this year.
How does a SolarCity lease work?
In this video, SolarCity explains how homeowners can avail of their solar lease program.
After just a little digging, I was able to find this example contract on SolarCity’s website. It’s for the lease of a relatively small system for a property in California.
So what does the lease include?
The exact details of the system laid out in the contract are pretty sparse. What we do know is that the imaginatively named “John Smith” is getting a 4.25 kW system installed, with the necessary inverters and the mounting equipment for the panels. This will be a straightforward system, with no battery bank.
The warranty SolarCity are offering on the set up is pretty good — you’re looking at a workmanship and defect warranty for the full 20-year life of the lease, and they’re also covering any damage to the roof for 10 years. Even better, if you have an existing warranty on the roof for longer than that, SolarCity will match it.
Making some minor assumptions
Now, while evaluating this lease I’m going to have to make a few assumptions. To simplify things, I’m going to assume that Mr. Smith owns a pretty small house and the system being installed meets all of his needs for power.
It’s worth noting here that while researching this article, I came across several people who complained of being sold a system smaller than would actually meet their needs and facing significant true-up bills at the end of each year. That’s definitely something to watch for when dealing with any solar company sales rep — and hardly something to single out SolarCity for — don’t be dazzled and make sure the numbers really add up.
SolarCity claims that this 4.25kW system will provide 6,016kWh during the first year of operation. According to the US Energy Information Administration (EIA), the average US home uses 10,812kWh per year, so Mr. Smith’s requirements are definitely on the modest end of things.
One thing to note with SolarCity is that all of their systems are priced at $5.10/Watt (at least according to one author), with no scaling to the system’s size — keep that in mind if you negotiate with them as it’s definitely in their best interests to try and sell you a bigger system. Whether that’s worth your while is going to depend a lot on things like your local net-metering rules.
For the first year, SolarCity bills Mr. Smith $75.20 each month. After the first year, there’s an annual price increase of up to 2.9% built into the contract. After 20 years, Mr. Smith is going to have paid roughly $24,000 for the electricity from the solar panels on his roof.
How does that stack up?
Let’s take a look at what Mr. Smith’s energy costs would be like if he didn’t sign up for the lease.
According to the EIA, the average increase in electricity prices in California is somewhere around 2.5% per year. There is a lot of variation here, but that’s the average figure. This is heavily affected by factors like the price of oil and natural gas, changes in energy and environmental policy, and all sorts of other things.
In 2015 (when the example contract was written), the cost of power in California was 15.42¢/kWh. You might notice something here — that figure is incredibly close to SolarCity’s first-year per-kilowatt-hour cost of 15¢/kWh (found in the contract).
Using these figures and assuming everything else about Mr. Smith’s energy usage is identical, the total cost of power (if he purchased all his electricity from the utility) for him over 20 years is somewhere in the region of… $23,700.
You read that correctly. In this scenario, our imaginary friend Mr. Smith is actually $300 better off if he doesn’t sign that contract. This is a bit strange, as solar installers typically try to avoid selling systems that don’t save the customer money. This might seem counter-intuitive initially, but only selling systems that are profitable to the customer makes sense for the installer in the long run. If a customer isn’t saving money, why would they continue paying the solar lease? They could easily just stop paying. Most solar companies know this and take the necessary steps to avoid this situation as often as possible.
Were this in an area with higher electricity costs, it might be a better deal as installation costs vary according to solar-related legislation, available workforce, available equipment, as well as customer needs in different areas.
Why isn’t it worth it?
The big problem here is the Federal Tax Rebate. In this situation, any rebates, credits and other incentives are going to SolarCity — they do technically own the panels, after all. The rebate goes a very long way to making panels a worthwhile financial investment, and not being able to take advantage of it makes the investment more than a little lackluster.
Solar installers typically claim they pass those incentives on indirectly to the customer by lowering the monthly bill accordingly, but it’s really difficult to verify this statement unless you designed the company’s cost algorithms.
Are there other factors which might make it more worthwhile?
Yes, there are other factors, but nothing I’d want to bet on. By taking out a lease on a system capable of meeting all your needs, you’d be divorcing yourself from whatever the local energy market is doing for the term of the lease. If things get dramatically more expensive then you’ll come out ahead — but there’s a solid chance that’s not what’s going to happen.
Another possible factor that might make it worthwhile is if you’re in an area with poor local energy infrastructure and a high likelihood of blackouts. If you can’t rely on the grid, then going solar is likely to be a better option. However, as safety precaution most of today’s inverters automatically shut down when the grid goes down. To continue pumping electricity to your home even during a grid failure requires a special inverter. These inverters aren’t cheap, so you need to weigh the increased comfort and security it would bring against the added cost.
Is the SolarCity lease a good deal?
SolarCity’s lease, in this case, isn’t worth taking on. Without the benefit of the federal tax rebate, the numbers just don’t make it worth your time.
It’s worth noting that the example here is only one scenario, and you should certainly run the numbers for your specific situation. Your circumstances might change the balance dramatically. Either way, though, I think it serves as a good reminder that you should always check the numbers carefully before committing to any deal.
So what about SolarCity’s other offerings?
SolarCity doesn’t just offer leases — they also provide Power Purchase Agreements (PPAs), loans, and the ability to buy the system outright.
Looking at the Power Purchase Agreement
A power purchase agreement, if you’re not familiar with the term, is where the company retains ownership of the panels and sells you the electricity. I was able to dig up an example contract for SolarCity’s PPA, and it has very similar terms to the lease — the same basic rate of 15¢/kWh, as well as the yearly increase of 2.9% per year. It also assumes the same basic conditions for the equipment, and broadly speaking it has all the same terms dealing with things like the warranty, maintenance, and so-on.
Assuming the same conditions we used when looking at the lease, you’ll come out with a loss after 20 years, though not a particularly significant one. This might be due to the fact that it’s just a sample contract, but we can learn the same lessons from this exercise for the PPA as the lease: read over your agreement carefully and ask as many questions as possible.
What about their loans?
SolarCity initially offered a loan product by the name of MyPower, that was structured very similarly to a PPA. It was poorly received, with some very unfortunate terms meaning you could end up still owing money after 30 years if the panels didn’t perform as well as expected. Realizing that MyPower wasn’t up to scratch, SolarCity dropped it in 2016 and replaced it with another offering.
The current loan arrangement offers either a 10 year loan at 2.99% APR, or a 20 year loan at 4.99% APR. You still get an excellent warranty on the system, and the full and immediate benefit of the 30% federal tax rebate, which makes these options much more attractive.
Keeping all the same assumptions about size and usage that we used earlier, I ran the numbers on the ten year option. The monthly payments work out to $209.20, alongside the remainder of the electricity costs (starting at around $75/month and increasing to $100/month over the course of the loan).
The tax credit means you get a rebate of just over $6,500, and if the rest of our assumptions hold, over the full warrantied life of the system (20 years) you’ll see a saving of just over $4,300.
All in all it’s a much better option than SolarCity’s lease or PPA offerings and that’s pretty much the case with any solar company. Ownership will always let you save more than a lease or PPA. That said, under the same conditions the 20 year loan sees you making a loss of nearly five thousand dollars.
Paying in Cash
When looking at the cash option, SolarCity’s prices are pretty reasonable in California – the $5.10 in our example is around average for installations less than 10kW in size, according to the California Distributed Generation Statistics, though if you want a bigger system it quickly gets expensive.
When compared with the national numbers however, SolarCity’s costs are firmly above the average, with most home installs falling in the range of $3-4 per watt.
Another thing to consider is that SolarCity use own-branded generic panels and equipment, and the quality is reported to be no more than average. Another installer may be able to offer you not only a better price, but also a better panel from a reputable manufacturer.
Reputation and Quality of Service
I took a look at the online reviews, to see what kind of reputation SolarCity had with their customers. The results can be quickly summarized as “OK, but not great” — SolarReviews.com sees SolarCity earning a score of 2.63/5, from 81 reviewers. BestCompany gives them a score of 5.9/10 from 291 reviewers.
Perhaps most telling are the Yelp reviews. It was a little fiddly to get a solid overall score, as Yelp has a separate listing for every company location, and SolarCity has a lot. Totaling the first 30 listings and working out a properly weighted average gives a score of 2.93/5 from a whopping 1433 reviewers. It’s worth noting, though, that the scores varied significantly from site to site. I saw results for individual sites that were as low as 2 stars, and some as high as 3.8, so it’s definitely worth taking your local site’s reviews into consideration before making a judgement.
All in all, for the average homeowner SolarCity’s offerings are somewhat below par. There are much better deals available from other installers, and I’d recommend steering clear. If you do move forward with them, be sure to scrutinize your contract and ask lots of questions. Knowledge is power!
SolarCity are worth keeping an eye on — especially since the merger with Tesla, and the announcement of the upcoming Solar Roof Tiles — but in the mean-time if you’re looking for a regular solar install, there are dozens of large national companies and local installers that might fit your needs better.
To get you comparing installers, check out our list of Top Residential Solar Installers (with Most Megawatts Installed)!