Solar Panels are Not a Scam… Unless…

A number of organizations and newspapers have published stories in recent months alerting consumers to the risks of loss in connection with solar photovoltaic projects.

Most of the warnings related to residential and small commercial projects.  They range from concerns about the quality of panels, quality of construction, availability of tax rebates and other incentives, and the potential savings.

For example, the Better Business Bureau has published a report:  “Don’t be Swindled by Solar Energy Scams.”  http://www.bbb.org/boston/news-events/news-releases/2014/06/dont-be-swindled-by-a-solar-energy-scam-this-summer/. In this report the BBB laid out several tips for avoiding disappointment in a solar project, including:

  • Making sure there is sufficient sun exposure;
  • Confirming that the roof is in good condition;
  • Checking bills to make sure they are high enough to justify the time and investment;
  • Reading contracts closely for hidden fees and deposits; and
  • Reviewing potential savings.

Recent articles in the Wall Street Journal have reported on concerns raised by regulators and utilities about savings claims made by solar developers in Arizona.  http://www.wsj.com/articles/solar-power-fight-hits-home-in-arizona-1438335000 .  In May the Journal published an opinion piece titled “The Hole in the Roof-top Solar Craze.”  http://www.wsj.com/articles/the-hole-in-the-rooftop-solar-panel-craze-1431899563 .

All of these concerns are well-founded.  Smart consumers should always take steps to protect themselves from contractor schemes.  However, the abuses of some solar promoters should not tarnish the efforts of all.

In the case of commercial solar projects we work with our clients to avert surprises.  A solar project should reduce risk of energy volatility, not increase risk!   It should reduce costs, not increase them.

When it comes to watching out for commercial solar scams we are on the lookout for a number of factors.  Some of these are similar to the BBB’s residential solar scam warnings.  Others are different but bear keeping in mind:

  • Savings.  First and foremost projected savings must be based on reasonable – and not inflated – expectations of future utility price increases.  We have seen some solar developers project utility increases of 5-7%.  One national developer even claimed in a mailing to potential consumers that prices have gone up an average of 7% per year for 20 years.  Wrong!  Utility price increases nationwide have been under 3% per year for the past couple decades and in some years since 2008 they have actually gone down.   We believe savings can be demonstrated without resorting to lying about future utility prices which are completely unpredictable.
  • Panels.  Panel quality, output, annual degradation, and warranties are all important.  But most important is the credit quality of the panel manufacturer.  After all, a fabulous warranty from a bankrupt manufacturer is worthless.
  • Incentives.  In large commercial projects the availability of incentives can spell the difference between a viable project and a useless one.   Many contractors are unfamiliar with local utility and state incentives and rely on outdated information from websites and other sources.  We work hard to stay on top of regulatory changes but we have learned not to take our data for granted.  Every assumption made in cost calculations must be verified with the local utility, regulators, and sometimes municipal and county officials (e.g., in the case of property taxes).   Our clients cannot afford surprises. 
  • Timing.  Many projects may look good on paper.  But without permits from local governments and contractors who can perform the work the project may never materialize.  When we conduct an RFP we are careful to screen the developers and contractors we solicit – as well as interview the bidders – to make sure they have the resources, both financial and personnel, to complete a project.
  • PPA Terms.  Finally, the terms of a Power Purchase Agreement are critical to a project’s success.  Clients are frequently surprised that not all PPAs are the same.  Some terms can prove costly in the event of unforeseen developments.  Some can prove to be traps for the unwary.  We work with our clients to negotiate PPAs that protect them from unexpected costs and delays.  We also help them understand the economics of developers so they know how far they can reasonably push to negotiate some terms.

Every business invites unscrupulous or aggressive participants who take advantage of unwary customers.  In the case of residential solar, consumer protection advocates like the state Attorney General’s office and local utilities will often adopt rules that protect customers from potential scams.

In the case of commercial solar, consumers are often left to their own devices.  Caveat Emptor, let the buyer beware, is the general theory of regulation.   These customers have lawyers and other professionals that can conduct due diligence and negotiate contracts.

Nevertheless, even commercial solar consumers can do well by keeping their antennae up and maintaining a healthy degree of skepticism in reviewing contractor bids.