Pro's and Con's of Investing in Home Solar Systems. My Advice? Do Your Homework and Choose Wisely.

Clients called me recently, extremely distressed because they’d installed solar energy panels on their home a year ago with a 20-year rental lease contract and were now selling to move for work. The agent had asked for a copy of their lease contract that my clients now couldn’t put their finger on, nor the ‘installation guy’ to get a copy of it. That home solar system had quickly become a large headache.

I confess I couldn’t believe my ears when they told me about the 20-year rental lease contract. I was shocked and seriously concerned to think that any consumers could be tied into a 20-year chattel payment agreement for anything other than a mortgage home loan. I did a bit of googling into home solar systems and quickly realised that the decision to install home solar systems is significant. Further, glossing over the finer details without doing your cost/benefit homework or properly understanding the scope of the contract could have significant future financial impact for consumers. I note Consumer New Zealand’s website* also has a bit to say about this too.

It would appear there are generally two main options for home solar systems: 1. buy outright or 2. Lock into a 20-year rental lease contract with little or no upfront cost and a monthly payment over the 20-year term.

Pros

Little or nothing paid upfront with monthly payments over a long term is likely an attractive financial option for some homeowners (some advertised in the vicinity of $90/month, others twice that much depending on the size of the system being installed).

On the other hand, if the system is purchased upfront, the homeowner owns it outright.

In my google travels, I also noted some banks are specifically offering short-term energy upgrade home loan top-ups at reduced interest rates, which could be worth finding out about if you’re considering investing in a solar system for your home.

Cons

Firstly, if you choose the rental lease option, I’d point out that not even a car hire-purchase would ever be over such a lengthy term.

Secondly, any product warranty is only as good as the company who installed the system and/or the manufacturer even still being in business. Do your homework on the history of the business you’re buying the system from, as well as the product manufacturer.

Third, technology advances so quickly it’s difficult to know what solar technology will look or how it will function in even a few short years from now, let alone 20. Is the system’s payback time longer than its lifespan? Should part of the system or panels fail or become obsolete, or need repairing or upgrading, then what? And who pays if it’s rented or leased?

Fourth, you might not even stay in your home for the next 20 years. Core Logic, for example, estimates most homes change owners approximately every 7.4 years! If you choose the 20-year payment option, you’d need to convince the next owner to take over the contract. And whether you own or rent the system, if any new owner doesn’t want to be burdened with it, you’ll face the cost of removal and reinstallation elsewhere and/or being stuck having to buy out the remainder of your 20-year rental payments (ouch!). Oh, and those holes in the roof where the panels were installed? They’ll need to be properly fixed, too.

Fifth, if you go for the rental lease option, what does the contract say about any increase in monthly payment costs? Will it increase? By how much? Does that change if a new owner takes it over? The reality is no one knows what the cost of anything will be in 20 years, so how realistic is it to rely on claims or 'guarantees' it won’t increase?

Sixth, how realistic is it to rely on claims 'guaranteeing' power savings, or statements on how much you might be able to sell your excess power to the grid for, and is that even financially feasible?

Seventh, when doing the math, check how much each kw of energy will cost you using the solar system, then add in the monthly lease rental cost (if you choose that option). Next find out exactly how much it will cost you to purchase additional electricity if you need it. Are the savings you think you're going to make big enough to justify buying or renting the solar system?

In my opinion installation of a solar system is a significant financial decision. Getting the system installed is just one part of a much bigger equation. I recommend doing a lot of research into the pros and cons before committing., and doing the math on cost/benefit is perhaps the most important. Also check out the Consumer New Zealand website* which has some good articles on things to think about when considering solar.

*www.consumer.org.nz