Tesla (Solar City) lease coming to and end choosing among the options

[arnolddeleon]

The Tesla (nee Solar City) lease is coming to and end on one my systems. There are three broad options to choose from:

a) buy the system. Tesla has given me a price about $2,500 for a 2.5 kW system. I get to own the system as-is. It stays in the Tesla app, everything is the same except no warranty.

b) continue the lease for 5 years at $50/month. So that's $3000 after 5 years. They will still be obligated to remove the system if I wanted to at the end. So after 5 years I would have been $500 more for a warranty (I think) and option for a "no cost" removal. I don't know if the current high interest rates improve the economics of this.

c) have them remove the system at no cost to me.

I'm trying to find out if there is reasonable path to new a replacement system that will keep me in NEM 2.0. I also have the complication that the system was installed long before the new setback rules were in place. I called Tesla and they don't seem have any experience/expertise/interest in finding a way to a replacement/upgrade in place. I haven't come up with a rational case for this path. I irrationally want a new bigger system.

If I assume that I keep system for another 10 years then option "a" is a clear winner. If expect to remove the system in 5 years then option "b" might be the way to go.

The claim is that price is the fair market value of system. I think removal of the system probably costs them about $1000. So offering that as a discount would have made option "a" more enticing. The present of value of the system is probably increased by NEM 3.0.

By my favorite metric of $/kWh option "a" seems by far the best option. Anyone have wisdom to offer here?

 

[Matt-FL]

My thoughts are option A as well, although if an inverter goes in the next 5 years, B might be an enticing option with continued warranty.

When you lease, do you have full control over the consumption, or are you paying a premium per kWh? I'm not sure the details behind a leased system. If this is the case, then option A becomes even more enticing.

 

[wwu123]

Seems pretty cheap for 2.5kw system, albeit of course that's compared to new prices; though I guess you may not consider it cheap when you factor in the lease payments over the years, but that's a sunk cost. Age-related panel failure seems to be not much of a thing, so if you can hedge the possibility of inverter failure, option A seems pretty good.

I recall you have solar on a couple of houses (including rental properties), but also at least one house had multiple solar installs, perhaps even three? If this is one of multiple systems, and the inverter fails, would it be feasible to just tie in this 2.5kw of panels as another string into one of the other inverters, to keep them productive?

 

[arnolddeleon]

My thoughts are option A as well, although if an inverter goes in the next 5 years, B might be an enticing option with continued warranty.

When you lease, do you have full control over the consumption, or are you paying a premium per kWh? I'm not sure the details behind a leased system. If this is the case, then option A becomes even more enticing.

I get all of the production on this particular lease (no extra charge). If I'm remembering correctly there is minimum performance guarantee. In hindsight the lease wasn't that great ($/kWh wise). It scratched an itch for me at the time, I wanted more solar and I didn't have any "ready cash". It wasn't too long after an expensive remodel and we didn't know how to access other means of borrowing money. On the good side, I got solar with no downpayment, didn't have to wait for a tax credit and the numbers roughly penciled out from a cash flow perspective. Of course, today I would have probably found better financing (leasing after all is just another form of financing) that would have penciled out even better. I think I was clever enough to bet that the end of lease buyout was going to be reasonable because of the removal clause. I was kinda hoping it would be $1.

Your question made do some of the calculations. The system produced about 3,850 kWh last year worth at least $1,500 to me. So the $2,500 bet is paid for in less than two years and it is all surplus value after that. I think I can reasonably expect another 10 years of life with the system.

 

[arnolddeleon]

Seems pretty cheap for 2.5kw system, albeit of course that's compared to new prices; though I guess you may not consider it cheap when you factor in the lease payments over the years, but that's a sunk cost. Age-related panel failure seems to be not much of a thing, so if you can hedge the possibility of inverter failure, option A seems pretty good.

I recall you have solar on a couple of houses (including rental properties), but also at least one house had multiple solar installs, perhaps even three? If this is one of multiple systems, and the inverter fails, would it be feasible to just tie in this 2.5kw of panels as another string into one of the other inverters, to keep them productive?

yeah, not cheap if I count the lease payments but it is all sunk costs. It's just a forward calculation at this point. I compute about $0.07/kWh assuming 10 years of life and no failures. But even if I double cost, assuming a $2500 repair bill, I'm still at $0.14/kWh, well below what I pay PG&E. Brand new cheap solar is around $0.15/kWh.

I think I just making sure there wasn't something valuable that I was missing. I had thought about this last year when the NEM 3.0 thing was rolling out, should I "buy out" the lease and install a new system while I could still get NEM 2.0. When I looked at it then it was proving challenging to find a smart solution. If the "solar tax" passed then it would have made potentially made sense to do a full reset. And I have this absolutely irrational desire to install MORE solar.

This is on the house with three PV system. If the inverter fails the most the cheapest path is to do a DIY replacement although Tesla says they will support me. The oldest system is a 48V nominal system so it can't use the high voltage strings. The newest system Tesla inverter system and it still has its warranty so messing with would probably be challenging but I would imagine all we would need is one MCI and reroute the DC lines.

 

[miimura]

I would just buy it out. Doing a DIY inverter replacement on a old string system without MCIs is really easy. A 3kW Sunny Boy is only $1,395.

 

[hmcgregoraz]

I am going to suggest option B.

If you put the $2,500 into a reasonable High Yield Savings Account, you can almost earn the $500 diff in interest over the 5 years, even if you withdraw $50/month to pay the lease. Basically you would need to put $2650 into a HYSA with 5% interest, to be able to pay $50/month every month for the next 5 years. This is ignoring that you can get better returns than a HYSA, and if you actually have debt that you could pay off instead, there are other savings to be had. Savings Distribution Calculator

Looking at it at face value, it costs $100/year, or $8.34/month to get Tesla Support and Warranty on the system, and an ability to have it removed free of charge if you replace it with a larger system and powerwalls in 5 years, but if you can lock in a current interest rate, it really costs you $150, or $2.50/month.

IMHO the DIY panel/inverter upgrade has too many risks. You can't get it permitted and still stay under NEM 2.0 as far as I can tell.

-Harry

 

[arnolddeleon]

I am going to suggest option B.

If you put the $2,500 into a reasonable High Yield Savings Account, you can almost earn the $500 diff in interest over the 5 years, even if you withdraw $50/month to pay the lease. Basically you would need to put $2650 into a HYSA with 5% interest, to be able to pay $50/month every month for the next 5 years. This is ignoring that you can get better returns than a HYSA, and if you actually have debt that you could pay off instead, there are other savings to be had. Savings Distribution Calculator

View attachment 959797

Looking at it at face value, it costs $100/year, or $8.34/month to get Tesla Support and Warranty on the system, and an ability to have it removed free of charge if you replace it with a larger system and powerwalls in 5 years, but if you can lock in a current interest rate, it really costs you $150, or $2.50/month.

IMHO the DIY panel/inverter upgrade has too many risks. You can't get it permitted and still stay under NEM 2.0 as far as I can tell.

-Harry

Thanks for the doing calculation. I had not done adjustments for the time value of money/opportunity costs. If I was certain I was going to remove the system in 5 years then Option B is definitely a winner. The question is would I ride it out for at least another 5 years beyond that. I expect there will be buyout price then (presumably lower) or possibly another lease extension option. Worst case for option B is probably around $0.14/kWh over 10 years.

 

[hmcgregoraz]

Thanks for the doing calculation. I had not done adjustments for the time value of money/opportunity costs. If I was certain I was going to remove the system in 5 years then Option B is definitely a winner. The question is would I ride it out for at least another 5 years beyond that. I expect there will be buyout price then (presumably lower) or possibly another lease extension option. Worst case for option B is probably around $0.14/kWh over 10 years.

That is diff assumption than I was making, and you need to make sure what it is.

I was assuming (bad on my part) that doing the $50/month option B would turn it into a zero dollar buy out (or $1) at the end of the 5 years.

At our prior house (which is now a rental), we did a 20 year solar lease with Sungevity, which the lease was purchased by SunRun. At the end of the 20 years it turns into a zero or $1 buy out (I don't recall which). For the duration of the 20 years we have all maint and service included, which means when the inverter failed at year ~4, it was covered, etc. Might be nice if the inverter fails again around year 18 or 19...

I only like the idea of option B if written into it is a zero or $1 buy out at the end of the 5 years.

Otherwise, I would go option A, even if I had to put it on a credit card and pay it off over the course of a year.

-Harry

 

[Matt-FL]

@hmcgregoraz, there are ways to make your inverter fail at year 18 or 19... Although I might suggest year 16 or 17 to be safe...

@arnolddeleon, keep us posted on what you choose, and why, if you don't mind sharing.

 

[arnolddeleon]

That is diff assumption than I was making, and you need to make sure what it is.

I was assuming (bad on my part) that doing the $50/month option B would turn it into a zero dollar buy out (or $1) at the end of the 5 years.

At our prior house (which is now a rental), we did a 20 year solar lease with Sungevity, which the lease was purchased by SunRun. At the end of the 20 years it turns into a zero or $1 buy out (I don't recall which). For the duration of the 20 years we have all maint and service included, which means when the inverter failed at year ~4, it was covered, etc. Might be nice if the inverter fails again around year 18 or 19...

I only like the idea of option B if written into it is a zero or $1 buy out at the end of the 5 years.

Otherwise, I would go option A, even if I had to put it on a credit card and pay it off over the course of a year.

-Harry

Ah, thanks for the clarification on the assumptions. I was hoping for $1 buyout but given the length of this lease, 15 years, it's not completely surprising it wasn't zero. I wouldn't be surprised that if it was zero at the end of year 20 but right now they're not telling me anyting. I'm going to wait a few weeks to see if Tesla develops clearer policies. If they give a 5 year extension with definite buyout at the end then it is simpler to the value of the bet.

Right now, with the information I have, option A is the best choice. I think I have a few months to make the decision. As with most things Tesla, the first iteration of a policy tends to be rough.