Myth Buster: Beware of Solar Scams

In our four year history we have reviewed dozens of proposals from solar contractors that are too good to be true.

Perhaps we should not be so surprised:   New industries often attract sales hustlers that hype the benefits and downplay the risks of their products.    Remember when the phone business opened up and everybody’s mailbox was filled with amazing offers?  Or when mortgage brokers started to push the benefits of home ownership and countless people who could not afford to make their payments were getting approved to buy homes?

Or more recently when energy deregulation allowed competitive suppliers to offer electricity and natural gas?  Many promised savings that turned out to me nothing more than “bait and switch”:  Savings in the first month and ridiculous premiums in the next.

As the price of solar has come within reach of homeowners, and as commercial building developers and managers have started to realize the way in which solar can lower operating costs, aggressive sales people have started to take advantage of the interest with schemes that are misleading and sometimes truly deceptive.

We have assembled some of the more common ploys.  Consider this a guide to solar scams – and a caveat emptor for anybody seriously considering the benefits of solar.

All of these solar scams are associated with a common strategy for marketing solar:  Third party ownership in which developers own the system on a customer’s roof or land and enjoy the tax benefits and other subsidies associated with the solar system.  The solar host, meantime, pays a monthly lease payment or PPA payment – i.e., a price per kWh under a Power Purchase Agreement – to the developer.

Please don’t misunderstand us:  Just because some contractors are taking advantage of these solar scams does not mean that all are.   Moreover, some contractors may not even realize that their products are not good for consumers:  They may be pushing somebody else’s product with the best of intentions and not realize they are effectively aiding and abetting a solar scam.

Finally, some contractors may simply be so eager to help their customers that they fail to alert them to the risks.  We may be old fashioned but we believe that consumers should understand the risks up front so they or other stakeholders are not blindsided by surprise costs they were unaware of.

We should also emphasize that third party ownership may be necessary in cases where a homeowner or an institution such as a school or other non-profit entity does not have an income and so cannot take advantage of the tax credits and other benefits that are available to the owners of a solar system.  In those cases third party ownership is desirable.

However, even in those cases consumers must be realistic about their expectations:  They should not be misled by exaggerated projections of savings, or false assurances about the ease of sale, or silly claims that the panels will be “worthless” in 20 years and so will cost nothing to remove.

1.   Solar Scam Ploy No. 1:   You Will Save Lots of Money Because Utility Prices Are Going Up 6%

Wrong!

Solar salesmen are notorious for projecting a hockey stick chart of savings for the next 20 years.  This chart, for example, comes from a well-known national solar contractor:

chart

There are several things wrong with this graph:

  • This company, and many more like it, prefer not to lock in flat prices but have an escalator, often as much as 3% per year, in the “solar energy plan” price.  In most parts of the country if the price were flat it would start over the current electric rate!
  • Utility prices are generally NOT increasing as fast as the chart would seem to indicate.  Indeed, in most parts of the country they have been increasing at an annual rate less than 3% — in other words, less than the escalator in most solar contracts.
  • Most utility prices have come down from where they were in 2008.  Imagine if you had bought solar in 2008 – today you would be spending more than you would pay to your local utility!
  • To be fair, this company does not put numbers on the graph.  However, call the company’s sales desk and chances are they will tell you – as we have been told recently by several sales people from other solar companies – that utility prices are likely to rise by 5-6% a year over the next 20 years.  Don’t ask the salesman for proof:  His crystal ball is broken!

2.   Solar Myth No. 2:  With $0 Down Solar You Can Easily Sell

Wrong, again!

$0 down solar is offered where homeowners and businesses are willing to enter into a lease or PPA agreement for the next 20 years or so. In a PPA agreement the consumer agrees to pay a certain minimum amount per kWh, often escalating year-to-year.  The price may be 10% of so less than the local utility price in the first year but over time could rise above the utility price if the contract escalator exceeds the utility price increases.

If you sell your home or business your contractual obligation continues, to make your lease or PPA payments.  Suppose at the time you sell you are paying more for solar than you would pay the local utility.  What are the chances somebody will assume your contractual obligation?

3.  Solar Myth No. 3:  There is No Penalty if You Sell

Wrong!

The third party developer of your home or business solar system has received certain tax benefits – investment tax credits and depreciation allowance – which vest over a five year period.  If you sell before the end of that period they will lose those benefits on which they based the financial terms of your offer.

Who will pay for that loss?  The owner of the building where the solar is located.

4.   Solar Myth No. 4:  The Panels Will Be Worthless at the End of the Term

Wrong!

Ironically, if you ask a solar contractor who offers a $0 down solar installation how long the panels will last he will tell you 30-35 years.  He is right.  But if your contract is 20 years and the panels have another 10-15 years of life, are they worthless at the end of the term?  Hardly.

This factor is important – to you and to anybody you sell your home or business — for this reason.   Under IRS rules, in order for the owner of your solar system to receive certain tax benefits the structure of their deal must provide that at the end of the term the value of the solar panels will be at least the fair market value.

What is the value of panels that may produce power for another 10-15 years?  At least the net present value of a stream of payments due for that period.  Take the price that will be due to the contractor in year 20, multiply it times 10-15, and discount to present value. That price is considerably more than $0.

Accordingly at the end of your term there are three possibilities.

  • You can pay the contractor the fair market value, or
  • You can renew your contract with the contractor, even though your PPA price exceeds the local utility price, or
  • You can pay the contractor to remove the panels.

This potential liability in year 20 will weigh heavily on the value of your home or business when you try to sell it with the solar panels.

5.   Solar Myth No. 5:  Leased Solar Will Increase the Value of Your Home or Business

Wrong!

Solar contractors are fond of citing statistics from Lawrence Livermore Laboratories that solar increases the value of a building.  That might be the case if you own your solar but remember:  You have leased your solar or entered into a PPA.  You do not own it, it is not yours, and so you have an obligation that continues for the term of your deal.

If you could demonstrate with certainty your savings over the life of your solar panels you could take the present value of those savings and consider that incremental value to your building.  But you cannot demonstrate that with certainty.  Utility prices could come down and your savings could be eliminated.

Moreover, the fact that there could be additional liabilities at the end of the term suggest that a leased solar system or one subject to a PPA could decrease the value of your home.  Recently there have been some stories published about consumers complaining about that very result.