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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Are Solar Panels Lifespans As Long As Industry Claims?

Are Solar Panels Lifespans As Long As Industry Claims?

The success of solar has really been a case of successful innovations in financing as much as successful innovations in technology. As with some many other major capital expenditures consumers have traditionally had a hard time paying for rooftop solar systems up front. With system costs totaling $20K or more for many projects, most consumers simply do not have the cash needed to buy a system outright. SolarCity in particular changed that business model, and the rest of the industry has followed suit.

Today the standard is for a consumer to pay little or nothing upfront for their rooftop solar system upfront. Instead, the consumer pays for the system over time through the equivalent of lease payments (often structured as a predetermined purchase agreement for power generated). This is really just the consumer equivalent to a standard sale/lease-back transaction which is common across much of structured finance.

Yet there is a problem here. The important underlying assumption in any sale/lease-back transaction is that the asset will be durable enough to survive for the length of the lease payments. If the asset fails before the end of the lease period, it creates a problem for both parties. The issue is resolved based on the documents backing the transaction of course, but it creates a risk inherent in the deal for one party or the other. Related: America’s Top Shale Gas Basin in Decline

The same logic applies to leased rooftop solar panels. These panels are supposed to last 20 years or more in many cases. That level of assumed durability has not been widely tested though since rooftop solar is really only came into prominence in the last decade. Now some solar executives are starting to raise concerns about whether the systems in question are really as durable as many consumers and solar companies have expected. If the equipment fails prematurely, one party or the other is in for a very unpleasant surprise.

In most cases, the solar company itself is likely to be liable for repairs to the rooftop system. If these systems begin to fail prematurely on a wholesale basis, it creates a serious unplanned liability for the solar companies. This could be a serious issue for solar companies just as the government is likely to eventually begin phasing out the incentives that have helped fund the solar panel revolution in many parts of the country. Related: Just About Every Part of the Permian Basin is Unprofitable at $30 Per Barrel

The value of rooftop solar as a green effort is debatable, but that is not what has driven the widespread adoption of solar arrays. Instead most consumers have been motivated by the prospect of saving money on their electric bills. Yet consumers could be in for a very unpleasant surprise if their solar array fails after a few years and the installation was done by a smaller operator. Should a rash of failures occur, it could drive small solar installers out of business which in turn would leave homeowners with a nonfunctional rooftop eyesore.

At this stage there is no way out of this conundrum. Whatever systems have been installed on consumers roofs are what is there. In the future though, more rigorous systems and component testing could help to ensure a better and more effective rooftop solar network. Currently there are no metrics to measure quality and durability of rooftop systems. That is a hole in the existing industry that should be rectified as it would benefit consumers, installers, solar bond investors, and even the government itself which provides the panel subsidies on the basis of long term system efficacy.

By Michael McDonald of Oilprice.com

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  • David Hrivnak on December 23 2015 said:
    Curious do you have any supporting data? Is it more likely or less likely that facking for gas may have long term problems let alone reliability?
  • mulp on December 24 2015 said:
    The author has virtually no clue to understanding product reliability.

    If there were a looming reliability problem, five years of installed million count panels would be showing significant failure rates which the quality engineers and actuaries would be hyper focused on. With dozens of large makers and installers with liability for problems, this is a problem that can't be ignored.

    Solar panels have been used in harsh conditions for decades and current panels are either incremental refinements, or significant enough changes that the testing and validation must be very rigorous to overcome the conservative opposition to change from existing reliable design and process.

    And the odds of a failure of most of an installation of 50 to 100 standard components are very low. One problem part has been the DC to AC converter, but after those reports a few years ago, it seems the makers reacted and fixed the problems. A design or manufacturing flaw that would make 10% fail in 5 years will result in hundreds failing in year for only a few thousand are installed and that will result in fixes. Even if it take five tries of a year each, by the time 10% have failed, replacements will be not only far more reliable but cheaper due to the economies of scale higher volumes offer. And incompetent makers will go out of business.
  • Randall Smith on December 25 2015 said:
    Good point. However, the twenty 250 watt solar panels used in a 5Kw system would cost about $ 4,000 (bought it bulk at wholesale prices) to replace. Not a huge amount compared to the $ 20,000 total cost of the system.
  • Secret Agent on December 26 2015 said:
    That being said, the glass vacuum tube solar water heaters should last for ages if they are made with stainless steel.
  • Secret Agent on December 26 2015 said:
    In my industry we use very expensive high end electronic devices. They are made of the highest quality in Japan where you know they are using good components. Nevertheless, after about 10 years they begin to malfunction and break down. I asked the engineer why and he said that after about 10 years the chemical components in the chips and processors begin to break down and die of old age. I'm sure the same in true for solar panels, especially ones made with cheap components and materials. 10 years of reasonable performance for the high end stuff.
  • Jhm on December 26 2015 said:
    Most solar panels include 20 year warrantees from the manufacturer.
  • Lee James on December 27 2015 said:
    Of course everyone wonders "if" in regard to solar panel life. But this article offers now data whatsoever. Just "if." Meanwhile, solar panels have been installed on the face of the earth and in space for a lot longer than 20 years.

    Please post something by someone who is knowledgeable about the life of solar systems. We might also take into consideration good old fashioned technological obsolescence. Tomorrow's installation may require half the roof-top area, or even look like standard roofing material.
  • Jim Harvey on December 28 2015 said:
    "It's about economics, dummy". The economics are alternatives are not there and with oil moving to new lows for the long term, it is still the best bargain in town. This is not to mention the use of NatGas to generate electricity.

    Let's face it this administration tried to skew the economics for it's "green" friends to try and guarantee alternative use. The all but killed coal to try and run up electrical prices and they told us they would do it. Luckily, market economics always trumps idiots.
  • Roger DePoy on December 31 2015 said:
    Perhaps another issue is the condition of the underlying roof. Even if newly roofed, very few roofs will outlast the 20 to 25 year life of the solar array. I would imagine the cost to disassemble and re-assemble the system, even if none of the components are damaged, would be quite costly! The roof would need to be replaced anyway, but which party incurs the costs of disassembling and reassembling the solar array?
  • GeorgeWind on January 22 2016 said:
    Michael,
    when you wrote this article, why did you decide to totally ignore the fact that the solar panel manufacturers already solved this question long time ago via performance warranties.??

    In case you are not aware of this solar industry performance degradation yeardstick and its successful application, here is an example.

    The solar panel efficiency of the solar irradiation conversion to electricity slowly degrades every year.
    For example, California's Sunpower Inc (SPWR) conversion efficiency starts at 20%.
    Typically, every year the solar conversion efficiency drops a fraction of 1 percent.
    In 20 years the efficiency drops roughly from 20% to 18%, e.g. about 10%.
    That is the "performance warranty" directly from the panel manufacturer who is confident that the performance will be actually better than this "worse case".

    The Chinese solar panel giants like Trina (TSL), Jinko (JKS) and JASolar (JASO) have similar warranties actually even custom tailored to the installation geographical location.
    Different degradation for hot or cold climates, even salt water or sand storm exposures.
    Modern theoretical and test-laboratory physics is capable to precisely predict the annual degradation for many years ahead, with monthly granuality of degradation.
    Since all these premier solar panel manufacturers (mentioned here) have been shipping solar panels for the last 10 years, they have a wealth of actual field data confirming their laboratory and theoretical physics solar efficiency predictions.

    Without mentioning this successful prediction history of the solar panel efficiency degradation, your article makes no sense.

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