Cash Up Front For Rooftop Solar?

How about putting solar and my roof and giving me cash? | Photo: cocreatr/Flickr/Creative Commons License

The world has enough strategies to finance rooftop solar panels to make a wonk's head spin. From loading the cost of installation onto your property tax bill (PACE loans) to running your electric meter backwards (net metering) to sellling all your generated power to the grid (feed-in tariffs) to leasing the panels on your rooftop to a solar company, people have a range of ways to make it financially feasible to put their roofs to work generating clean power.

Even with a range of options available, people are still reluctant to go solar. That's probably a mixture of hassle, fear of cost, and personal inertia But a recent suggestion from the dreadnought green energy thinktank the Rocky Mountain Institute (RMI), which has a long history of thinking outside that proverbial box, suggests another way that solar companies might entice homeowners to go solar: give them a whole lot of cash up front.

Story Continues Below
Support KCET

The basic deal offered by solar leasing companies offers a seemingly sweetheart arrangement: they come out and install solar on suitable roofs for free, sell you some of the electricity those panels provide, and make extra money by selling any remainder to the local utility. Meanwhile, your lease is (at least theoretically) structured so that you pay less in your combined solar lease and utility bills than you had been paying the electric company before the solar panels went up.

Free solar panels with the promise of saving money each month afterward seems pretty sweet, but in a post on the Rocky Mountain Institute's blog, consultant James Mandel suggests that free might not go far enough:

Free is great, and most people I speak with are thrilled to get solar for free. I'd argue, though, that third-party financing models haven't gone far enough. Free is arbitrary. In fact, I don't want the slow trickle of savings every month. I'd like third-party financing that is better than free, that pays me money up front for all of my expected monthly savings over the life of my lease or PPA.

Mandel points out that people have a hard time justifying financial decisions that pay off in increments over the long term, or even the medium term. He cites a 1983 study that indicated more than half of potential buyers of refrigerators would balk at paying $40 more for a more efficient refrigerator even if that appliance would pay for itself in less than 2 years.

That refrigerated reluctance seems odd from a 2012 vantage point, as many of us have learned the value of energy efficiency. The percentage of people who'd decline a more efficient fridge nowadays might be lower. Or it might not: $40 in 1983 dollars is worth just under a hundred bucks today. Still a chunk of change.

Either way, Mandel's point that consumers are reluctant to spend more up front to shell out less in the long run stands, and it even affects deals where the upfront cost is $0. Homeowners may not have to pay out cash for a solar leasiing deal, but they do have to invest time and effort into making that deal happen.

What if, suggests Mandel, solar leasing companies front-loaded those energy savings into an up-front incentive payment?

Mandel describes the complex math in some detail, but the gist is this: if putting solar on my roof under current solar leasing arrangements could save me $2,400 over the course of a lease running 20 years, why not give me the choice between the measly $10 per month with which current lease models would reward me and an upfront cash payment of $1,200? I'd be getting half the cash, but I'd be getting it all at once in a sum that might actually do me some good.

And the solar leasing company could keep the rest.

It's an interesting concept, and in the week since Mandel's post has been up it's started to atttract a bit of attention from a core group of solar Twitterati.

There's just one problem: in order for the idea to gain acceptance among solar leasing firms, they'd have to surmount precisely the same psychological obstacle the plan takes advantage of: the notion that it's wise to pay more up front in order to profit by increment later.

A forward-thinking solar firm that pays attention to its accountants might just be able to use this idea to get out in front of its competition.

About the Author

Chris Clarke is a natural history writer and environmental journalist currently at work on a book about the Joshua tree. He lives in Joshua Tree.
RSS icon

Previous

Native Group: Feds Not Following Consulting Rules on Blythe Solar Project

Next

Surprised? California Leads Nation in Biodiesel

LEAVE A COMMENT Leave Comment