Consumer Protection for Third-Party Solar Leases

By Rebekah Fitzgerald, CSG Program Manager for Energy and Environmental Policy
Federal and state tax credits coupled with state policies like net metering were intended to make residential solar installations more affordable for consumers and help states meet their state renewable portfolio standards.   
Their intent seems to have worked—residential rooftop solar is growing but the growth looks different than state leaders anticipated.
Instead of homeowners making the upfront purchase of rooftop solar, an increasing number of consumers are choosing to enter third-party leasing contracts with solar leasing companies. In a third-party lease, a homeowner pays to have the solar leasing company finance, permit, install and maintain the system. The contract is attractive to homeowners because solar is installed without the large upfront costs and their solar utility rate can be set if the rate increased in the future.
Third-party leasing is new in the solar industry, made possible by tax incentives and the declining price of solar installation. Solar leasing companies benefit from federal, state and local tax incentives because the companies purchase and own the solar equipment. Economies of scale allow the third-party companies to make more installations at lower cost and long-term customer contracts gives companies certainty there will be sufficient return on investment. 
But as an emerging industry, it is largely unregulated and difficult for many consumers to understand, said Sheri Givens, president of Givens Consulting and former public counsel of the Texas Office of Public Utility Counsel.
“Solar leases are 20 years long, can cost anywhere from $5,000 to 50,000, and you have to practically be an attorney to read them,” Givens said in “Bringing Balance to the Meter: Net Metering Policies and Impacts on Consumers,” a recent CSG eCademy session. “There is not a lot of good information out there for consumers who will be making the large investment for rooftop solar.”
The boom in demand and incentives in the industry has led to a few bad actors. Consumer complaints—which most often go to the Better Business Bureau or the Internet—have caught the attention of state policymakers.
Givens said consumers have complained about everything from salespeople who harass them to problems with installation. Consumers also have problems with receiving leasing contracts and the lease company not informing the utility the customer is eligible for net metering rates.
Recognizing third party leasing is becoming the preferred method for residents to install solar on their home, state leaders have taken aim at providing better consumer protections for those who lease systems. In recent years, some states have passed legislation, issued fraud warnings and policy statements. 
For example, in 2013 the Louisiana legislature amended the state residential tax credit for solar, lowering the credit amount available for third-party installers.
In Indiana, which does not allow solar leasing, the state legislature is considering a solar bill; a component of that bill would allow for leasing accompanied by identified consumer protections for those who lease systems.
In June 2014, the Arizona attorney general issued a warning to consumers about potential scams related to residential solar sales after an increasing number of complaints. The warning included educational information about the type of questions consumers should ask; it also encouraged consumers to do their research by checking out the Arizona Corporation Commission, Better Business Bureau and the Registrar of Contractor websites for information about the solar company. 
In July 2014, the Washington Utilities and Transportation Commission issued a policy statement concluding the commission has the authority to regulate third-party owners of net metering facilities as public service companies. That authority includes consumer protection issues. The commission asked the state legislature to clarify this point in 2015.
But state leaders make get some help in weeding out bad actors. Leading solar providers also recognize the need for quality assurance standards and consumer protection in the industry and are moving to take action.   
“As the solar industry has matured, the need for national quality standards has become increasingly important both to ensure customers get quality lasting solutions, and so that markets and investors can be confident in the long-term reliability of solar assets,” said Matt Golden, a senior consultant with the Institute of Building Technology and Safety, a nonprofit organization focused on the facilitation and coordination between federal and state regulations.
Golden said the institute convened a group to draft a national consensus protocol for residential solar quality management, which will be released soon.
The next step will require state leaders and solar providers to collaborate, according to Givens.
“Policymakers, legislators, regulators, advocates and utilities should work together collaboratively to promote a variety of distributed energy resources as part of a diverse fuel mix that achieves affordable, reliable and fair rates for all consumers,” she said.
 
 

 

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