A Plethora of Solar Options 2
By: Cary Weiner, 8/2/2017
In Part One of this series, we explored some basic reasons for choosing between solar leasing, owning, and gardening. In this Part Two, we dive deeper into the financial arguments behind this decision. Below is a table comparing a cash purchase, a loan purchase, a lease, and a garden share of similar size for an average household using a mix of assumptions from different utility service territories. In other words, it’s a hypothetical comparison based on real offerings throughout Colorado.
$0.10/kWh Year 1
2.5% electric utility rate increases
0.5% annual solar production decrease
$762/305W garden panel
$57/month lease for 5 kW
4.5% discount rate
*$0.136 for 20 year garden share
In this example, a 5 kilowatt PV array is used, generating almost 7,500 kWh per year. The price for individual arrays is $3/watt, whereas a community solar garden share comes in cheaper at under $2.50/watt. Note that in reality the price of CSG shares can vary widely, at times being significantly more expensive than individual arrays on a per-watt basis. Utility rebates are available, in this example, for purchases only. The 30% federal tax credit is applicable to the purchases as well, although in some cases it may be possible to take that tax credit if a CSG share is owned (rather than a lease or pay-as-you-go subscription). The down payment row illustrates significant differences between the approaches. While the cash purchase requires 100% down, the loan requires 10% down. Note that loans provided by certain solar companies (“solar loans”) offer a zero money down option. Leases are commonly offered at zero money down, and CSG share down payments can vary widely. In this example the shareholder paid cash for simplicity.
Annual savings are the average savings experienced over 20 years. Note that in this example, the CSG subscriber receives an annual incentive (for kilowatt-hours generated by the share) above their retail rate of electricity instead of a simple bill credit. But it is also common for CSG subscribers to simply receive retail rate credits on their electric bills. Annual payments are the average payments based on loan and lease characteristics. Here the loan term is 7 years – not uncommon for an energy loan – while standard 20-year lease and CSG share terms are used. The loan incurs a 4.5% interest rate, which is conservative compared to the low-interest energy loans available in Denver, Boulder, Fort Collins, and elsewhere. O&M costs represent the replacement of an inverter in Year 15 for system owners where that isn’t typically covered. (Solar loan participants, however, may be covered for the duration of the loan period which may last up to 20 years.)
Payback years are based on cash flow analyses and look similar, although a cash purchase will beat a loan purchase every time (since no interest payments are added to the total payments). The CSG subscription does very well in comparison to its peers in this example, which is not always the case as share costs and incentives can vary quite widely. The modified internal rate of return (MIRR) and net present value (NPV) provide handy reference points for comparing what otherwise might be apples and oranges. The lease in particular isn’t best analyzed by “Payback year”, but the NPV can be helpful. The lease has a higher NPV than either of the purchase options in this example because less money is going out the door initially and today’s money is worth more than tomorrow’s money. To best compare owning and leasing from a financial perspective, play around with our solar calculator using numbers specific to your situation in Colorado.