For years, buying your own solar panels has been a great way of reducing your energy bills and guaranteeing your long-term energy costs will remain unchanged. Then, solar prices got low enough (and incentives good enough) that third-party ownership became a viable option, and companies like SolarCity and SunRun now offer $0-down solar leases and Power Purchase Agreements (PPAs) to homeowners across America, including in Arizona, one of the best states for solar.
Well, utility companies are seeing the effects of all the recent residential solar development, and two major electric companies in Arizona have gotten permission from the Arizona Corporation Commission (ACC) to install solar panels on rate payers’ roofs. The utilities will contract with local companies to perform the installations starting this spring.
In exchange for “renting” their roofs, homeowners will either get a discount on their monthly bill or a guaranteed rate for electricity for 25 years. This has been heralded as an unalloyed good by the plans’ supporters, and some good may come of it, but, dear readers, there is a long history in Arizona that precedes these programs, and it’s worth talking about in context.
Arizona’s Solar History
Over the last decade, Arizona has been a place of tremendous growth in solar installations, culminating in 2013, in which the state saw 700.7 MW of new solar installed—a figure equal to 1/3 of all solar ever installed in the state. And there isn’t any signs of that growth slowing down. Arizona is second only to California among the US states in total solar energy generation. And with a significant portion of the new solar projects coming from those 3rd-party ownership companies, Arizona utilities figured they better get into the game before the game passed them by.
The first tactic the utilities, especially Arizona Public Services (APS) tried to get the ACC to agree to charge solar owners between $50 and $100 per month for the right to sell their energy back to the grid. The practice of selling energy back to the grid to offset a solar generating home’s usage during times the sun isn’t shining is called net metering, and it’s one of the most important reasons solar is affordable and available today. After a drawn-out fight over net metering, the ACC decided to charge homeowners a small monthly fee, $0.70 per kilowatt (kW) of energy capacity. That adds up to around $5 per month, far less than APS was seeking.
The new tactic is getting the ACC to allow these installations, which on the surface actually seem okay. APS is offering a $30 monthly credit to a solar customer’s bills, totaling $7,200 over the 20-year contract for the panels. Tuscon Electric Power, on the other hand, of offering a set rate for electricity for 25 years with its program, which will vary based on the historical average electricity usage at each customer’s address, and can be adjusted (down or up) if that usage differs more than 15% from the historical rate.
Considering that electricity rates rise at an average of about 3.5% per year and will long into the future, the TEP plan will likely offer much better outcomes for consumers. Here’s a chart that compares the likely outcomes of the two plans and the comparison of the plans with the results of buying a system outright in AZ:
The APS plan looks terrible front, back, and sideways. It actually saves consumers a comparable amount to other types of solar purchases up until year 13 or so, when inflation renders the $30 bill credit moot. APS will generate tens of thousands of dollars worth of electricity from the panels they put on your roof, and they’ll pay you $7,200 for it. What’s more, they’ll likely keep charging their other customers high rates for that cheap energy, and there’s no guarantee they won’t raise those rates by the historical 3.5% per year or higher. To us, that looks like a bald-faced cash grab.
The TEP plan works very differently. TEP will install solar panels on your roof, collect a one-time $250 fee to get you set up, and then essentially charge you the same monthly dollar amount you’re paying now for the next 25 years. If electricity prices rise at their historical 3.5% per year, you save a nearly $16,500 over the life of the contract—very similar to the results of a 3rd-party lease. TEP also promises that creditworthiness will not be considered in their program. People who’ve been denied by 3rd-party solar companies because of bad credit might have better luck signing up here.
The one caveat here is in the fine print:
The energy rate paid by program participants will remain the same for up to 25 years as long as their annual energy use remains within 15 percent of the 12-month average annual consumption defined in their contract. This fee also is subject to changes by the ACC.
There’s a not too insignificant chance that TEP and APS will be lobbying the ACC to change those fees sooner rather than later. Then again, there’s a not too insignificant chance that TEP and APS will be lobbying the ACC to increase fees on leased and owned solar equipment, so this plan is looking like a way to hedge their bets while they jockey for market share.
3rd-Party Leases and PPAs
For the 3rd-party leases and PPAs currently popular in the industry, this is how it works: you sign a contract to either lease solar panels or buy the power they produce, and the company installs and maintains the system for you. This is great for people who are averse to risk and who don’t have many thousands of dollars to spend on solar right now. You pay the company less per month than the savings you see on your bill. They collect all the tax benefits and rebates, and make money from your payments.
AZ no longer offers very good rebates and tax breaks, but solar costs have become so low that 3rd-party solar companies can still make money there. If APS gets their way and the ACC starts charging even more per month in additional fees for net metering, these low-margin 3rd-party solar companies will likely stop operating in the state.
Finally, in a traditional purchase scenario, the homeowner spends about $10,000 out of pocket (after the first-year energy savings and tax credits), then slowly recoups that cost until the system has paid itself back. At that point, all the avoided costs of paying for electricity become a profit on the purchase. The system could last for more than 25 years and provide a better return, making it even more lucrative. Then again, the homeowner who buys a system takes on all the risk and responsibility for maintenance and repairs (outside any warranties).
As it stands, the best possible financial outcomes will be seen by people who buy their systems outright.
The bottom line is, nobody knows where this is going. The APS and TEP programs are small pilot projects that will probably see lots of interest from homeowners in the state who want to do the right thing for the environment and their pocketbook, but who for one reason or another haven’t decided to go with a solar leasing company or a full system purchase.
One thing we can say with certainty is that APS and TEP have a lot of pull with the ACC, and that should make interested homeowners sit up and take notice. If rules are written that allow the companies to change the terms of these contracts after the fact, there’s no telling what kinds of changes are likely to be made, but they’ll probably mean increased costs for solar homeowners. The utility companies have a vested interest in keeping people buying their power and keeping the rules stacked against net metering.
Your solar panels might come from the electric company, or they might come from your neighbors’ savings accounts. The one thing we know is that we’ll be here to help you make sense of it (and by the way, we used this company for our roof installation, if you’re wondering). After all, going solar is still the right thing to do financially and ethically.
Watch this space for updates.