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
More Top Reads From Oilprice.com:
- Is The Russian-Turkish Standoff An Opportunity For The West?
- How Much Oil Is Needed To Power Santa’s Sleigh?
- OPEC Members In Jeopardy, How Long Can They Hold Out?