States are finding that subsidies and net metering policies for rooftop solar panels are costing taxpayers millions and tend to benefit higher-income households, who can more afford them.[i] Furthermore, households with solar panels are finding it more difficult to sell their homes if the lease on the solar panels has not been paid off. Prospective homeowners are worried that the solar equipment will become obsolete or will not save as much on electricity bills as advertised. Real estate agents indicate that potential home buyers lose interest in purchasing a home if they need to qualify for credit to take over solar lease payments for the next 15 to 17 years. As a result, current home owners often find that they need to buy out the remaining lease payment stream — $15,000 or $20,000 or more.
Louisiana Study Regarding Solar Policies
Professor David Dismukes of the Acadian Consulting Group prepared a report for the Louisiana Public Services Commission that evaluates the costs and benefits of the state’s solar energy tax incentives. The state solar policies consist of net metering and tax incentives.
Net metering policies allow homeowners to sell solar generation that their household cannot use back to their utility, offsetting the cost of the energy that they need to purchase from the utility when the solar panels are not generating sufficient power. When the excess generation enters the electric grid, it uses the utility’s transmission and distribution system, but does not get charged for its use making other non-solar customers foot the bill.
In 2007, the Louisiana Legislature created tax incentives to encourage solar and wind energy development that included an income tax credit equal to 50 percent of the first $25,000 of the cost of each wind or solar energy system. In 2009, the Obama Administration’s Stimulus Plan provided an additional tax credit of 30 percent on the total cost of the system. At one time, the 30 percent federal tax credit could be taken as a direct rebate through the 1603 Treasury Program. These state and federal incentives have led to an increase in solar installations in Louisiana.
Three different sets of solar panel installation levels were used in the Dismukes study based on:
- Historic 2008 to 2014 solar installation levels provided by the utilities.
- The assumption that solar installations will continue to grow at each utility’s observed 2012-2013 rates up to the year in which the capacity of these additional installations reaches 0.5 percent of each utility’s system peak load as measured by that utility’s highest monthly peak in a 12 month period, and then held flat.
- The assumption that solar installations will continue to grow unbounded at their utility-specific 2012-2013 growth rates until 2017, at which time those growth rates are assumed to slow to 10 percent per year until 2020.
According to the results of Dr. Dismukes’ study, the estimated costs associated with solar net metering installations outweigh their estimated benefits to the ratepayers. If current installation trends continue, solar subsidies have a “net negative benefit” of $89 million in Louisiana alone, though that figure could be larger–between $125.5 million and $488.3 million under the two forecast growth scenarios defined above. His study also found that solar customers pay only about 64 percent of their full cost of service forcing other utility ratepayers to pay the remainder. Currently, the cost of that subsidization is about $2 million per year in Louisana, though it could increase to between $5 million and $31.4 million in 2020.[ii]
Because the median household income of solar customers is about 35 percent higher than the median statewide income level, higher income households tend to benefit more from Louisiana’s solar subsidies. If the current program continues as currently designed with caps on the number of installations that can benefit from the state subsidy, Louisiana’s solar subsidies will impose total economic costs of more than $281 million between 2008 and 2043. If the caps are removed, ratepayer bills could increase by $809 million for those years.
Leased Solar Panels Affecting Home Sales
Real estate agents are indicating that home sales are in jeopardy in California and other states due to leased solar panels where the lease is still active. Rather than adding to the appeal of the home, prospective home owners are weary regarding the ability of the solar panels to produce the electricity claimed or that the equipment will not last for the term of the lease.
In Fresno, California, for example, a couple had to move because of an employment transfer. Although their house attracted offers quickly, two successive sets of buyers backed out of contracts because of the leased solar panels on their roof. The contracts fell through because the long-term cost of the lease was too high or because of the qualifications needed to take over the lease. The home owners had to pay $22,000 to get out of the lease and sell their house.[iii]
Real estate agents indicate that disputes over solar panel leases are an increasing problem for sellers and buyers, and they are expected to get worse. Sales have fallen apart when the parties could not agree on how to handle the substantial payments owed on long-term leases that can be as much as $30,000 or because buyers thought the leases were bad deals. One real estate agent found that out of four leased panel agreements she analyzed, only one was any good.
The Solar Energy Industries Association claims that residential solar installations are up by 50 percent per year since 2012, with more than 600,000 homes and businesses having on-site solar. The fastest growth rates are occurring in Maryland, Massachusetts and New York. Clearly, homeowners need to be aware of the potential complexities that can occur when solar panels are leased—both in terms of the long-term obligations and the energy savings claimed.
Conclusion
Most states[1] have net metering policies and many of those have seen substantial growth in solar panel installations on residential and commercial buildings due to federal and state subsidies. The subsidies are being funded by taxpayers and ratepayers, who may or may not benefit from the electricity produced by the solar panels. Further, because solar panel owners do not pay their full cost, non-solar home owners are subsidizing them through their electricity bills. The Dismukes study shows that the costs associated with these panels outweigh the benefits to ratepayers.
Further, real estate agents are finding it difficult to bring closure to contracts where payments need to be made on leased solar panels because of uncertainty regarding the electricity they provide and the equipment’s longevity as well as the need to qualify for a loan to pay for the leased solar panels. As a result, home owners that have leased solar panels and need to sell their home may need to pay off the lease before finding an agreeable buyer.
It is clear that federal and state governments have pushed solar projects to their constituencies, subsidizing them generously, without fully studying the issues that may arise from their growing use.
[1] All but 4 states in the lower-48 have net metering policies.
[i] Daily Caller, Louisiana Solar Subidies are Welfare for the Wealthy, March 3, 2015, http://dailycaller.com/2015/03/03/report-louisiana-solar-subsidies-are-welfare-for-the-wealthy/
[ii] David Dismukes, Estimating the Impact of Net Metering on LPSC Jurisdictional Ratepayers, February 27, 2015, http://lpscstar.louisiana.gov/star/ViewFile.aspx?Id=f2b9ba59-eaca-4d6f-ac0b-a22b4b0600d5
[iii] LA Times, Leased Solar Panels ca complicate—or kill-a home sale, March 22, 2015, http://www.latimes.com/business/realestate/la-fi-harney-20150322-story.html
