Getting solar panels installed on your house might seem a little exotic, especially if you live outside of states like California, Hawaii, and the Sunbelt where solar is very popular.
In reality, it’s less complicated than you might think. It’s actually not much different from hiring a handyman for a larger house project. You research companies, check their credentials, get multiple quotes, review a proposal, then sign a contract. Then you wait for the installation and permitting work to be completed. In most places in the US, the whole process takes a couple months from start to finish.
It’s the first part that stops a lot of people cold. Do a search on the web for home solar installation companies near you, and you might find dozens of solar installers if you live in a state like California. How do you choose?
One way is to use a service like The Solar Nerd that connects you with prescreened contractors to make sure that you’re working with qualified, reputable companies. If you want to do your own research, this article explains the methodology we use to select the companies that we connect our customers with.
In the fairy tale, Goldilocks finds that the bowl of porridge, the chair, and the bed that are in the middle are best for her. With solar installers, it’s not much different.
Sunrun is the largest solar installer in the United States, but what consumers should know is that their business model isn’t actually based on the sales of solar systems. In fact, they are better thought of primarily as a financing company that just happens to install solar.
If you contact Sunrun, or one of their door-to-door sales people catches you at home, one thing you’ll find out is that they really don’t want to sell you a home solar system. They want to rent it to you.
There are two different financing models for this: solar leases and solar power purchase agreements. Which one they offer to you depends on local laws, but they both work in similar ways. You don’t buy the system, but instead get a system installed for no money down. You pay a fee to Sunrun either in the form of a monthly lease payment or a per-kilowatt-hour charge, and you get to use the solar electricity.
Sunrun isn’t the only company that does this. Vivint Solar is another large national company that offers leases and PPAs, and Tesla (formerly SolarCity) offers a similar rental model. While no-money-down sounds great, it’s a problematic financing model for consumers.
If your only reason for going solar is to help the environment - go ahead, get a lease or PPA. But most homeowners are also trying to save money on their utility bills. These financing models not only save you less money than if you bought the system yourself, but it can actually cost more in the long run than if you didn’t go solar. Read the article linked above for a lot more information about leases and PPAs.
Sunrun isn’t the only company with this business model. Vivint Solar is another large US company that also does door-to-door sales where they push leases and PPAs on consumers.
The funny thing is that their business model isn’t a secret at all. Both companies are public, which means that they have quarterly earnings reports and earnings call transcripts that anyone can read.
The big picture of their business model is they want to install as many “rented” home solar systems as possible in favorable states - those that offer incentives. The companies are even willing to raise capital or use debt to keep up a high growth of their installation rate, because those systems become revenue-generating assets that return value for the company over the long term.
The term that Sunrun and Vivint both use in their earnings calls to describe the revenue that their customers (ie. you, the solar homeowner) generate for them is Net Present Value (NPV). For both Sunrun and Vivint, the NPV they earn from installed systems is around $1 per watt. In other words, each watt of installed solar power generates about $1 of revenue for the company every quarter.
A tidbit from Sunrun’s Q1 2020 earnings call:
We generated $81 million of net present value and created NPV per watt of $0.98, or over $7,100 per customer.
In the slide below from Vivint Solar’s Q4 2019 earnings presentation, the company charts the growth of their net retained value.
One more chart to share. This one is from Sunrun’s earnings report. The bar on the left shows Sunrun’s revenues from a home solar system. The middle bar is their expenses, and the green bar on the right is their profit. You can see that Sunrun makes money through monthly fees and by keeping solar rebates and tax credits. After expenses, a significant amount profit is left over.
To drill the point home, that revenue comes from you. This means that if you bought instead of rented your solar system, that money would stay in your pocket. Over the 25 year average lifespan of a solar system, that $1 really adds up. You can see why these companies are so growth-focused.
While they may use their own crews in many parts of the country, especially the busiest areas of California and the Sunbelt, Sunrun and other large companies often subcontract to local solar installers.
When these companies subcontract, there are at least three possible problems for the customer:
Bottom line: if you hire Sunrun, Vivint, or Tesla to install a solar system, and they merely subcontract the job to a local company, why not just hire the local company yourself? You’ll have a lot more control and transparency into who you are hiring, and potentially save money.
On the other end of the spectrum, it’s generally a good idea to avoid companies that are very small operations. While a couple friends with a truck who decide to hang a shingle could be fantastic installers with great credentials, it’s still a risk to hire a very small outfit.
One of the reasons is that you can expect your solar system to last around 25 years, if not more. All companies will offer a labor warranty, and the best companies will even offer a full 25 year warranty. That means if something breaks within the duration of the installer’s warranty, they’ll fix it for no cost. While solar products often have 25 year warranties, if something breaks and the installer’s warranty has expired, you have to pay the labor cost of replacement. That can be more expensive than the cost of the part.
Even if a tiny company offers a 25 year warranty, will they be around long enough to filfill it? The odds are against it. The failure rate for startups is high, and if a company only has a handful of people, they’re either deliberately staying small or haven’t yet proven they have the ability to grow and survive long term.
Once a company has 10 or 20 employees, at a minimum you know they were able to survive and grow through their earliest stages of their company. This makes it a lot likelier that they will still be around years from now.
In addition, while these local companies may offer financing products such as loans or even leases and PPAs, it’s usually not a core part of their business. In fact, dealing with financing is a pain that smaller companies often don’t like to deal with. They would much prefer if you had cash or financing ready, because they usually provide the financing through a partner, not themselves. Adding financing adds paperwork and slows down the process for them.
(If you do need financing, it’s often a good idea to go to your bank and get pricing on a home equity line of credit.)
In addition to the fact that these local solar installers actually make solar installation rather than financing their main business model, there are a lot of other good reasons to stick with these kinds of companies:
Read my 20 point checklist for comparing solar quotes. It has a lot of tips, including how to check the licensing of the company you are hiring. This is critical in many states, because local or state incentives often have eligibility requirements that make sure you use qualified companies.
Or you can use The Solar Nerd to get your quotes. We do all the background research on companies, and only connect you with “Goldilocks” companies that have demonstrated good track records. Use the links below to get started.