There are 3 things to remember with Solar Equipment “Leasing:”
- It isn’t really a lease transaction
- Whomever “owns” the equipment makes the real money.
- No matter what method is chosen to get solar for a property, it’s a good thing.
Solar Equipment “Leasing” is generally a misnomer used for convenience in the solar industry. In fact, in most cases the equipment isn’t leased or rented at all. The actual transaction is a Power Purchase Agreement or PPA for short. Here’s how it generally works… a Solar PV system is installed on a property (roof, fixed ground mount, or dual axis tracker) and the ownership stays with the installer or 3rd party investor. The owner, or PPA Operator, takes the tax benefits and charges for the power that is produced by the solar equipment. This is the power purchase.
When a solar marketing company (very different from the actual installation company) says they will “rent your roof,” this is highly inaccurate. There is no actual lease agreement for the space on the roof, rather it’s an agreement to host the equipment free and an obligation to buy all the power it generates, whether that is more or less than the homeowner needs.
That’s not to say there isn’t a “Lease” involved in some solar transactions. With the AllEarth SolarInvest program there is a Land Lease that secures the right to operate a solar generation plant on a Host property for 25 years. The Host is given a generous upfront payment for the right of the Operator to use a small portion of the property. There is no obligation to buy the energy produced, but a PPA is available nonetheless.
Technically, everyone who buys electricity is already in a PPA with their current utility company – the agreement is that the power consumed is paid for or the utility shuts off the connection to the grid. Similarly, the owner of the solar equipment has the same rights, even though it is on someone’s property. The PPA operator will usually make an agreement to incentivize the Host to be a consumer or “Group Member” and to go solar with convenient fixed amount monthly payments that forestall the inflation of ever rising utility rates. A good agreement will also include a one-time buyout option after five years, so there is an optional pathway to ownership for the Host PPA customer.
Savvy investors with modest tax liabilities recognize that this is a stable investment. The combination of the tax benefits, revenue from the monthly payments, and/or buyout funds make this a good investment for the PPA operator, and a good deal (better than paying ever rising rates from the utility) for the PPA customer. The investor, however, could make up to 25% or more returns on the investment from a 25 year lease. The returns vary based on the investor’s income tax bracket, availability to use state tax credits and the amount of debt used to purchase the solar system.
Unfortunately, the current market is heavily dominated by solar conglomerates from out of state who have identified Vermont as a lucrative market due to the state’s past best in class net metering regulations and various incentives. These companies set up a temporary office, then install cookie-cutter solar equipment of low quality materials and workmanship, and close up shop as soon as the incentives change for the program they are promoting. In this world, the name of the game is fast and cheap – in and out. In fact, they often install inefficient systems on wrong facing roofs. Once installed, they bundle huge numbers of the PPA contracts together in what is termed a “tranche”, and then sell the tranche to out of state investment groups looking for tax breaks. In many cases, monitoring, operations and maintenance is subcontracted to a maintenance company, so you lose all contact with the people who talked you into going forward with solar.
Conversely, at AllEarth we have been building our local reputation for over 12 years, and we keep all our transactions in state with local manufacturing, installation, administration and after care. Our SolarInvest micro-investors are local people who deal directly with our solar Hosts and reinvest continually in our community. Our trackers are made here in our Williston, VT factory, and are installed by folks who live and raise families in our surrounding communities. After care is performed by our deeply experienced technical support team. Our mission is to deliver a solar experience that is financially viable for everyone involved in the partnership and lasts for decades. Anyone who pays federal income tax can become a solar investor and have a nice little business with great returns.
Please give us a call if you’d like a deeper understanding of how we can help you become a Host or an Investor.
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