A hurdle that has long impeded the widespread use of solar energy to heat and cool homes is that the cost of systems is too high for most people to afford, but with a boost from tax incentives, solar power leasing firms say they are bringing energy efficiency to the masses.
The leasing concept allows a homeowner to have a solar power system installed on a home’s roof at no upfront cost. The homeowner signs a long-term contract, pays a monthly leasing fee for the system and, in most cases, sees reduced monthly costs for electric power.
Metairie-based PosiGen LLC began offering solar leasing almost three years ago, and CEO Thomas Neyhart said the company has since installed more than 4,000 systems.
The company aims to save every customer at least $50 a month, but Neyhart said the savings can range higher depending on steps taken to improve a home’s energy efficiency.
Neyhart, who founded PosiGen with businessman Aaron Dirks, now chairman of the company, said that in the past, solar installers marketed primarily to affluent buyers who could afford to pay upward of $25,000 to buy the systems in hopes of recouping their cost through years of energy savings.
He said solar leasing, on the other hand, makes energy savings immediately available to people who need it most. “To the single mother who has three kids in school, $50 a month means something,” he said.
Neyhart said PosiGen boosts customers’ savings by making improved energy efficiency a part of its offerings. The company performs an energy audit in customers’ houses to identify where and how much energy may be escaping due to a lack of insulation, ill-fitting windows and the like.
The company suggests steps to reduce the energy loss, ranging from adding insulation to replacing incandescent light bulbs with energy-saving lights, and monitors ongoing energy use. The resulting improvements combined with a solar power system can sharply reduce energy costs, Neyhart said.
“We just tracked the last thousand systems we installed, and the average customer saved $125 a month” on energy bills, he said.
PosiGen customers pay $50 a month, plus tax, to lease the typical 6-kilowatt system the company installs and a $10 monthly fee for energy efficiency services, for an average net savings of about $60, he said.
Neyhart, who grew up in Ohio and graduated from LSU in 1982, teamed up with Dirks, a Baton Rouge native, in 2011 to explore the potential for solar marketing. Solar leasing, which was taking off in a big way in some other states, had not yet taken hold in Louisiana.
Tax credits lower lease costs
As with solar system ownership, solar leasing relies heavily on the availability of tax credits that help offset its costs.
Taxpayers who purchase a solar system can apply a credit of up to 30 percent of the system’s cost against their federal income tax and also may get state tax relief if a solar credit is available where they live.
Louisiana offers credits of 50 percent on purchased and 38 percent on leased systems.
With leased systems, the tax credits accrue not to the homeowner but to a third party that purchases and owns the system. In PosiGen’s case, for instance, U.S. Bank buys the solar panel systems from PosiGen, receives the tax credits and leases the systems back. PosiGen installs the systems for customers, who sign a 20-year leasing agreement, and services the systems throughout the life of the contract.
Neyhart said that while the homeowner does not receive a direct tax benefit, the tax credits go toward holding down leasing costs.
If a leasing customer decides to sell the home, Neyhart said the new owner has the option to keep the solar system in place and take over the leasing contract, or PosiGen will remove the system at no cost to the owner.
Because the costs for traditionally generated electric power in Louisiana are low relative to many other states, solar power has not been as popular in the state as elsewhere. Louisiana homeowners pay about 10 cents per kilowatt hour for electricity as compared with some northeastern states where the average cost can be nearly twice as high, according to the U.S. Energy Information Administration.
Cost of ownership falling
Nationally, residential solar use grew by 61 percent in 2013, according to solar analyst Nicole Litvak at Boston-based GTM Research, a division of Greentech Media Inc.
She said large national companies such as SolarCity Corp. and Sunrun Inc., which have been offering third-party-owned solar systems since about 2008, have substantially boosted the leasing segment of the industry.
Litvak estimated that solar leasing now makes up about two-thirds of the residential solar market nationwide.
But she said the growth in solar leasing is likely to peak this year because the cost gap between leasing and owning has narrowed. “The cost of solar has come down so much over the past few years that a lot more people can afford to purchase it,” she said.
In addition, homeowners are finding it easier to borrow money to fund a solar installation as more companies have begun offering solar-specific loans, in some cases structuring the loans much like a 20-year lease.
These factors along with the gradual phase-out of solar tax credits may change the look of the industry in time, Litvak said.
“A lot of companies that originally were just in leasing are shifting over to offer loan products,” she said.
Neyhart said PosiGen does not intend to become a solar financing company and will concentrate on expanding its leasing business. The company, which employs 165 people, opened offices in New York and Connecticut during the past year and aims to be in 10 states within the next five years.
Incentives being phased out
Meanwhile, the company would like to see Louisiana slow the phase-out of its tax credit program for solar systems.
While the state tax credit on leased systems started out at 50 percent of the first $25,000 cost of a system, lawmakers have reduced it to 38 percent of the first $21,000, or a maximum of $7,980, according to information from the Louisiana Department of Revenue.
Neyhart terms as “draconian” a further restriction of the credit that will take effect in July 2015 and cap it at $4,560.
“We don’t look for tax credits to maintain our business for decades to come, but we’re a young industry,” he said. “These tax credits are an investment in the infrastructure of our country.”
Federal solar incentives also are winding down, with the credit that’s applicable to leasing investors slated to drop from 30 percent to 10 percent in 2017.
The phase-outs are likely to make it tougher for leasing firms to draw investors to the table. Neyhart said PosiGen will continue to urge lawmakers to reduce the tax credits in smaller increments over a longer period.
Meanwhile, PosiGen is garnering praise for its efforts to make solar power more accessible to large numbers of people.
Neyhart is among 100 individuals who will be honored as “intriguing entrepreneurs” by Goldman Sachs during the company’s Builders + Innovators Summit in October.
The U.S. Chamber of Commerce also recently recognized PosiGen as one of its “blue ribbon small businesses” for 2014.