New R.I. Energy Program Expects Solar Growth
June 18, 2015
A low-cost way for going solar is now available in Rhode Island. Leasing, also referred to as third-party ownership, is one more option, thanks to the state’s new solar incentive program, which began accepting applications June 15.
But don’t expect to find solar companies offering leases in Rhode Island just yet.
Leasing is popular nationwide because it typically doesn’t require an upfront payment, which can be upwards of $10,000 for a residential or small-business solar system. In California, the state with the most solar panels, 74 percent of solar arrays are leased, according to PV Solar Report.
Leasing is moving ahead in Massachusetts, too. According to National Grid, at least 80 percent of new applications for its residential solar program were for leased systems. The bulk of the applications were also from one company: SolarCity. The California-based all-in-one solar company is the largest installer and financier in the United States. It’s known for widely promoting its leasing model in big-chain retailers.
On June 8, SolarCity announced its entry into Rhode Island with a new solar loan program. The company also expects to soon reveal the location of a new sales-and-service center in the state.
But SolarCity won’t be leasing right away. Rhode Island’s new incentive program called, RE Growth, isn’t the type of incentive that SolarCity typically offers its leases through. It prefers net metering, which simply allows a renewable energy project to offset its electricity usage, and charges, by sending electricity to the power grid. Rhode Island’s net-metering law, however, doesn’t permit net metering through third-party ownership. A provision that has, so far, kept leasing companies from doing business in the state.
“There is definitely a desire to allow (leases),” said Lee Keshishian, regional vice president for SolarCity. “It’s a big part of solar growth nationwide, especially for people who don’t have the income to write a large check to pay for the installation.”
The prohibition against third-party ownership has allowed smaller, locally owned solar installers to gain a footing in the Rhode Island’s solar market. These businesses, therefore, aren’t compelled to have the capital to own multiple solar arrays. By contrast, national installers such as SolarCity have the scale and money to own and, therefore, lease the solar panels they install. SolarCity has installed 190,000 solar arrays nationwide.
As an alternative to leasing, Rhode Island offers grants up to $10,000 for new solar arrays through its Renewable Energy Fund (REF). Coupled with a federal tax credit of 30 percent, it gives residential and commercial owners about a 50 percent discount on the cost of solar.
Rhode Island’s new RE Growth program offers a 15-year fixed-price agreement with National Grid that allows owners of solar panels to get paid for excess electricity generated. The size of the solar array must match the average electric use of the home or business, but the fixed price means the payment for electricity can offer a revenue stream for the property owner or third-party owner. Another wrinkle is that this revenue stream will also generate a 1099 tax form from National Grid to the owner of the system.
Peter Hughes, who oversees residential solar for Sunwatt Solar of Providence, said customers are already signing the paperwork for the RE Growth program. There has been little interest from customers in leasing, but he expects that companies in Rhode Island will be offering it by the end of the year.
The REF and RE Growth program can’t be combined. But a group discount purchase program called Solarize Rhode Island, which just wrapped up in Tiverton and Little Compton with 55 new solar projects, can cut another 20 percent off installation and hardware costs.
The Property Assessed Clean Energy (PACE) program also is expected to be approved as part of the Rhode Island’s 2016 budget. This financing program allows a loan for a solar, wind or other energy project to be considered a lien on a property and therefore paid off or passed on to a new owner if a home or business changes hands.
Lease vs. ownership
The environmental benefits of owning or leasing a solar array are the same. The economic benefit varies depending on finances. Owning typically has the greatest long-term financial benefit. It requires an upfront payment or taking out a loan. Either way, the economic benefit is better than leasing.
The lease payment is usually less than the monthly electric bill, so owners generate renewable energy with some cost savings. But some monthly payments increase over the course of the lease, which can be 20 to 30 years. And at the end of the lease, the lease is either extended or the solar array is removed or bought by the owner.
Solar owners also reduce their monthly electric bill through the solar energy they send to the grid. Due to the subsidies, the monthly savings can be put toward paying off a loan or as payback of an upfront payment. That payback period, called return on investment (ROI), is about six years through RE Growth program and seven years with the REF. After the ROI is met, the owner essentially pays nothing for electricity and own the panels, which can operate for up to 30 years, free and clear.
All of these programs are run through or in consultation with National Grid, the largest electric utility in Rhode Island and one of the largest in southern New England.
The United Kingdom-based corporation has beefed up its staff to support the RE Growth program.
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Leasing is not a low cost way of going solar. In fact solar leases and PPAs are two of the most expensive ways to go solar. A solar lease, especially a solar lease with an annual payment escalator will cost you nearly three time more than purchasing a solar system outright instead.
Don’t believe it? Well it’s simple math. Add up the 20 years worth of lease payment on a typical 4.7kW leased system and you’ll find that the system will cost you about $28,080. Purchase the same 4.7kW system and apply the 30% federal tax credit and that same system will cost you less than $10,600.
If you’re paying more than $2.10 per watt after the tax credit, or more than $10,000 for an average sized 4.75 kW grid tie solar system that can produce up to 600 kWh per month with 5 hours of peak sunshine, then you’re probably paying too much in today’s low priced market.