It’s not unusual for someone to purchase a home with solar already on it. Because the original purchaser of the system chose how many solar panels to install based on the needs of their household, the size may not match the needs of the new one. Additionally, there can be a misunderstanding of how the system works in conjunction with the Utility, on the buyer’s part.
Recently, a real estate agent I met at her open house gave me a call to see if I could help one of her neighbors who had bought a home with solar, a few years ago, and was unhappy with it.
I offered to see if I could help, expecting that it might well be a problem of perception that could be improved with a bit of education (as is often the case).
The homeowner subsequently called to talk to me about the situation. He had bought this Pleasant Hill, California home with rooftop solar, about three years previously. His problem was that the system was “too big.”
Right away, that’s an unusual problem to complain about.
He had assumed an existing agreement with a third-party solar-electric provider, and was paying for it, monthly. It was not a solar loan, but either a solar lease (as he said) or a solar power purchase agreement (“PPA“) (more common). People often confuse the two, but at this point, I was still digging for his main concern about it, and didn’t try to confirm which it was.
I thought he was primarily complaining about the monthly cost, initially. It was about $235 on average (if I recall correctly). I suspected that a review of his usage would likely show that he was actually still saving money. Despite paying for more than he could use, it was possible. PG&E raised rates many times, six times in 2016, alone, after the deal was made with the prior owner years before.
Most people don’t buy solar equipment, lease it, or purchase the electricity from a third-party rooftop solar company with a PPA, unless it saves them money on a monthly basis. I assumed that was the case with the prior owner, and it should be similar with this one.
Utility Bills and Usage are Hard to Compare
Sometimes, new homeowners move into their first house from a smaller house or an apartment, and don’t realize that their new house is bound to have a higher electric bill. For example, if they lived in a cooler location by the Bay, they may not realize how much more air-conditioning homes further inland use in summer (A/C is one of the bigger consumers of electricity).
Many an older home has less insulation and higher energy needs than a newer one.
Solar System-sizes are Often Too Small, Rarely Too Big
It’s far more usual to find systems that are too small: early installations were often purposely small. If too small, extra power might have to be bought from the Utility at today’s rates. But that’s still a saving over buying 100% from them.
It isn’t common to have an older system that is too big to show savings for the new owners.
Rising utility rates mean increased savings, over time. What is produced, gains in value. Even with a lease or PPA that has a built-in escalator to keep up with inflation, electric rates in California go up faster than that.
However, he said that he and his wife had moved to the home from a neighboring home of the same size. Their electric usage was very similar in the prior home. There was no sudden increase in their usage when they moved in.
The fact that PG&E rate increases made big jumps over time, was irrelevant. They weren’t buying any electricity from the utility at all, as would be the case were the system too small.
Strange. His expectations seemed to be reasonable. And the system was big.
Why so big?
I was puzzled as to why the previous homeowner had put in a bigger system. Lifestyle differences can be an issue: more kids = more laundry with electric dryers, for example. More dishwasher loads, more electronic devices, more lights. … Indoor pot farm? We didn’t know the sellers, or why they needed more production.
The problem now was that the system was producing more than needed, and he was giving it away for pennies (literally) to PG&E, because he couldn’t use it all.
I asked some lifestyle questions about his current usage. The present homeowners had converted to LED’s and seemed to prefer not to use the A/C much.
On the other hand, they had already installed an electric water heater to make use of some of it.
What to do With Too Much Solar Electricity
Gas is usually more cost-effective than electricity for heating, and so an electric water heater is not normally a cost-savings. In this case, it was appropriate to reduce his natural gas use, since the extra electricity was already available.
He’d chosen one of the best ways to use extra power, when the kids move out, for example, by shifting from natural gas use to electric use. You’ll lower the gas bill, which is a better return on investment than selling the electricity to PG&E.
Some of the CCA utilities, might compensate solar owners a bit more for overproduction, but this wasn’t an option in Pleasant Hill.
To reduce other expenses and use more of the system generation, the household can shift to more electric cooking appliances (if they cook), electric space heaters, or an electric clothes dryer (if they had a gas one). Some households get an electric vehicle and recharge it at home, to save on gasoline.
If you have the money, and always dreamed of a hot tub, or pool, you could make an investment in them, knowing that at least part of your electric needs for them are already covered. Pools and hot tubs (pumps and sweeps) tend to use a fair amount of power.
But money isn’t always the issue.
Not so Simple Problem
When the agent initially called me, I expected that this would be a simple problem of the neighbor under-appreciating the value of what he had, because he didn’t realize how much it would cost him to buy electricity if there were no solar, but everything so far seemed to indicate that the client was already pretty savvy about the problem.
I realized I couldn’t fix this by calculating how much his PG&E electric bill would be if he had to buy the same amount from them: he had already done that math. He was getting good value; he was only paying “too much” because he didn’t need it all.
This, despite being installed approximately 10 years ago.
His system has 36 panels. A system that size isn’t at all common in Pleasant Hill, though counting panels is not definitive.
Pleasant Hill is Cooler than Concord in Temperature, at least 😉
Pleasant Hill sits on the west side of Diablo Valley, so the afternoon sun gets blocked by the East Bay Hills. Concord, which is on the opposite side of the valley, has shade from the Mt. Diablo foothills in the morning, with more direct sun into the evening.
Both cities get the same number of sun-hours to generate electricity. But, residents in Concord get direct sun in the hot afternoon, and use more air-conditioning.
To make matters “worse” the 36 panels on the south-facing roof were providing so much shade to the roof, the homeowners used even less A/C.
Personally, I’ve just enjoyed my own first summer with solar, and the house stayed cooler than I can ever recall. With half my panels on the east, and half on the west; the attic stays cooler with both morning and afternoon shade.
Finally, We Get to the Main Issue
As the conversation continued, I still had the impression that money wasn’t really his concern. About half an hour in, I discovered the main problem, for this homeowner. These 36 panels prevented his wife installing the skylights she wants, because they take up all the prime space.
That’s a different problem than the cost. So what are the options?
I suggested installing Solatubes (which could bring light from another roof surface). They produce really nice light (when the Sun is out), without the heat, and the tubes allow one to move the light through a reflective tube from one part of the roof to another. I have four of them in my house.
But they already thought of that, and discovered that, because the vaulted living room doesn’t have an attic through which to bring the light tube, it wouldn’t be possible.
This is a harder problem to solve.
The obvious thing would be to remove a couple of solar panels, and keep them as spares, and install the skylight in the space created.
However, he does not own them; the solar agreement was transferred to him when he bought the house. He can’t remove panels without the solar provider’s cooperation.
Negotiating with the Third Party Solar Provider
I have heard of people successfully getting a lower rate for an existing PPA or lease. First, read the contract for your options, but, terms for consumers have been getting better with time, so don’t rule out being able to renegotiate. They may already routinely provide better terms for their new customers, so they may have the contract language already available.
He had already tried to renegotiate with the provider, and failed.
When the original homeowner of a home with solar equipment owned by a third-party sells a home, it’s common for the equipment owner to offer to sell a rooftop system to the new homeowner. The price is usually calculated based on the future payments. They do this to avoid having to remove the equipment if the buyer doesn’t want to assume the previous agreement.
These third-party solar electric providers sell the system to the new homeowner-to-be for funds from either (or both) the seller’s or buyer’s proceeds in escrow. This allows the new homeowner to have no monthly electric bill or solar bill when they move in. In other words, electricity “comes with the house,” and marketed correctly, the seller may get a higher overall sales price.
The amount, if any, the solar provider can raise the monthly payment for an existing customer, is limited by contract.
However, the solar provider can readily use the cash from a sale to finance a new solar customer, and increase their revenue.
A new customer is probably willing to pay more than the old one was, due to Utility rate increases in the meantime. That’s why a third-party solar company may be negotiable about a sale to the homeowner.
But that opportunity was three years ago
When this homeowner bought the house three years earlier, the solar company had offered to sell it to him for $18,000. If he owned it, he could downsize it. But he rejected their offer, and continued to make payments under the original deal.
If he could get such an offer today, the price would be even lower, due to more amortized costs and depreciation.
Added to a 30-year mortgage, at 5%, $15,000 only costs about $80 per month. The original agreement was probably shorter than 30 years. It was also probably at a time when the cost of money (i.e., interest) was higher. This is also why a new home buyer might really get a good deal buying a home with solar already on it.
Using a new loan, he could pay it off in 7 years or less, and still be paying less than he is, now at $235/mo. Thereafter, he doesn’t have to pay anything for his electricity.
True, the system is already about 10 years old. But it’s probably still under warranty. The life expectancy of the system is typically longer (even decades longer) than the warranty.
It would be a question of whether he can get them to sell it to him, now, three years later.
The cost to reduce the system size by removing panels would be relatively minor, and he could keep them as spares.
He’s forfeiting production he couldn’t use, anyway. And, don’t forget the value of making his wife happy with skylights. He just needs to buy it from the solar provider, if he can.
Big Mystery Solved
But why did the previous owner install such a huge system?
This solar owner finally said something that explained the mystery near the end of our conversation. When he bought the house, it was surrounded by trees.
Ah, ha! The original owner needed more panels, because of the shade!
The buyer had cut many of them down.
Then, with the trees gone, the solar panels produced more electrical output.
Every design calculation is custom to the situation. When you buy a system, you should always take into account anticipated changes to the amount of shade.
Assuming the solar provider was leasing the equipment to the original home buyer, the monthly price had been based on the cost to install that much equipment.
If it was a PPA, the monthly payment might be based on system production. When the trees were cut, the monthly production went up, and so would the bill.
Without the trees, the same output could have been achieved with fewer solar panels. The previous owner would have had a lower payment, and this owner would have had more room for skylights.
Lessons Learned
If you are buying a home with installed solar, be sure to consider all the variables before you make an offer. Most times it will be a good deal, but the time to decide is before you get into escrow.
It’s rare that a system is too big to be a problem.
When they are too small, you will have to buy some of your electricity from the Utility. You’ll owe the Utility an ever-increasing payment for the rest of your life (plus 30 days), unless you add a second solar installation to your roof to make up the difference. But, you will still owe them less than your non-solar neighbors, because they’re paying Utility rates on all their electric use.
Cutting down trees and increasing the system output has no affect on a principle and interest payment of a solar loan, rarely for a lease, but for a PPA where you agree to buy the output, you should be careful. Since increasing the output means your monthly bill goes up, make sure you can use what you produce. In this particular instance, talking to the right person at the solar provider seems like the best bet.
For questions, please contact me here, or get a solar valuation from a professional.
