The solar industry has experienced some remarkable growth over the past few years, aided significantly by favorable legislation at the federal level, as well as the steadily growing trend of environmental awareness. The general population is gradually becoming more educated on the dangers of climate change and the long-term benefits of reducing carbon footprints. Eco-friendliness has come so far in recent years, and people are now taking measures to ensure that they adopt as many “green” habits as possible.
Whether it be Leonardo DiCaprio at this year’s Academy Awards, or a topic at a presidential debate, the global community is buzzing about how to reduce our impact on the environment. People are more willing than ever to enact significant changes in their lives and adopt renewable technologies, provided that the price of these systems is not exorbitant. Now, the challenge is to make renewable technologies, such as solar, more affordable and applicable in the residential market.
The five-year extension of the investment tax credit (ITC) last December will prove to be a huge boon for the industry, as consumers can now be certain that the federal regulations for solar investments will be stable, at least until 2021. This will help to alleviate any concerns that a solar customer might have about investing in solar panels at their home. The residential solar industry has continued to mature at a steady rate as prices have become more competitive. The total number of homes that installed personal solar systems increased again this past year, a trend that has continued to experience growth over the past several years. Although states like California and North Carolina still account for a large portion of the total residential solar output, many other states are rapidly growing theirs. All of these elements, combined with the fact that improvements in solar technology manufacturing have led to residential solar panels that are much more reasonably priced, have created a residential solar industry that is primed for a huge takeoff.
Now that the stage has been set for the residential solar market, the dilemma for consumers is to choose between leasing solar panels from an installer or owning them outright.
The leasing option involves a distributor installing the solar panels on the consumer’s home at little to no upfront cost. This is an attractive option for consumers who simply do not want to deal with maintenance issues that can occur with solar panels and want the installer to worry about them instead. The distributor still owns the panels and the energy produced by them, but the monthly payments that a consumer makes to the third party essentially replace his or her electricity bill. The third-party installer will perform any maintenance or replacements as needed, and these panels usually come with a 20+ year warranty.
However, one disadvantage that consumers are beginning to realize is that leasing the panels, as opposed to owning them outright, results in the forfeiture of the federal tax credit, which would then belong to the distributor. The ITC set the federal tax credit at 30% of the entire solar project for the consumer’s residence, so this is quite a substantial figure.
Owning the panels outright provides an interesting alternative. Although high upfront costs may simply prove to be prohibitive to many potential consumers, purchasing the panels delivers greater savings to consumers in the long run, as there are no payments to a distributor and all of the energy that the consumer produces is his or her own. In many U.S. states, this allows the consumer to sell any excess energy back to the grid for additional savings. The initial cost may seem daunting, but there are several reasons why the high price point might not be as major of a deterrent for a customer’s investment in a personal solar system as it was in years past.
In the current market, distributors now have to be more transparent with consumers than in previous years. Average consumers are more knowledgeable about exactly what they are looking for and why they want to go the solar route. Also, loans for buying solar panels are easier to obtain and understand than they were earlier. Although it does mean more work initially, in order to grasp the fundamentals of the finances, the long-term savings can make this commitment more attractive nowadays.
Furthermore, the price for purchasing solar panels has fallen dramatically over the last few years. As the technology continues to improve, the panels have dropped in price and become much more practical for consumers.
The rising trend in the popularity of owning the panels outright is also due to the fact that people are now, more so than ever before, viewing their own solar system as a full-scale investment. Instead of viewing solar panels as way to make a few extra dollars on the monthly electricity bill, consumers are looking at panels the same way that they would look at investing in real estate or perhaps buying a boat. These are long-term assets that can provide enormous amounts of utility over their respective lifespans. The warranty for the purchased panels is similar to the leased panels, as both are guaranteed for around 20 years, depending on the manufacturer. This helps to ensure that these investments are protected for the long haul, which is the paramount concern for most consumers.
People who choose outright ownership want peace of mind when these panels are installed, and like consumers who choose to lease, they want to deal with the panels as little as possible. To help with this cognitive dissonance, consumers who go the ownership route will often opt for well-known and trustworthy panel brands with an established track record in the solar industry. Reputable companies with solid histories are easier to rely on if the panels do need to be adjusted or repaired in any way after their installation. Consumers will also be encouraged by investing in companies that have histories of innovation.
Another trend that has surfaced in recent years is the rise in popularity of owning high-efficiency panels in residential settings. Consumers are beginning to realize that, if they are going to be paying a premium upfront anyways, they might as well get the highest-quality product available to them.
High-efficiency panels are designed to maximize the available roof space in a home and convert more sunlight into electricity than conventional solar panels. These panels are more costly to buy initially, but they provide greater savings over the long run. For consumers who may not have huge amounts of serviceable roof space, these panels also offer the most potential profit over a 25-year period.
Quality high-efficiency panels should perform in all weather conditions, including extreme heat, and maximize the energy produced on cloudy days. As solar technology continues to improve, the prices of these high-efficiency panels will decrease, and the panels will likely become even more popular among consumers. With these panels now reaching close to 24% conversion efficiency, the continued innovation of this technology will be key to its sustained adoption rate.
In addition, leasing companies will also benefit from improvements in technology, as the prices for leasing panels will gradually fall, as well. These third-party installers will grow as the residential solar movement gathers more momentum, and the low upfront costs, combined with the provided maintenance, will likely continue to be an attractive offer for consumers.
The debate between leasing solar panels from a third-party distributor and buying them outright is one that does not really have a wrong answer. The decision to go solar is one that is based on a genuine concern for the environment and a desire to reduce the cost of energy. Both options involve a significant financial commitment, and whether it be primarily upfront or over an extended period of time, that investment will pay off in the long run.
Although the rising trend of purchasing panels outright will cut into the residential solar market, both options will continue to co-exist in the industry. That being said, some consumers may think that owning the panels outright offers more flexibility down the road because once the panels pay for themselves, all of the ensuing profits go straight to the consumer, without any interference from a third party.
Mukesh Sethi is group manager and head of the solar products group at Panasonic Eco Solutions Company of North America, a unit company of Panasonic North America that markets and sells Eco products, including solar panels.