SolarCity MyPower Loan – The fine print repayment is not pretty

Originally published on Solar Love.

A few months ago, I wrote an article about SolarCity’s “Insanely High MyPower Prices” compared to competitor prices. The article was based on an analysis by Pick My Solar. There is a part 2 to the story, however. Unfortunately, it is not prettier.

Let me reiterate that I am long SCTY (which is difficult this week), have no plans to buy or sell any shares anytime soon, think SolarCity has good intentions and strong benefits competitive, and think I can even see why he sets up his loans the way he does (in particular, note that he’s not in financial heaven and is probably trying to make sure he stays alive. long-term).

Coming to part 2, the key point is that some of the fine print is not entirely (to put it mildly) consumer interest in the MyPower loan agreement. Here is a quote from Pick My Solar:

“MyPower does offer loan financing, but it sounds like a lot like a Power Purchase Agreement (PPA). Reading their 34-page contract won’t enlighten you (a concise solar contract should cover everything in 3-5 pages – this contract takes the fine print to the next level). Payments are made to SolarCity based on system output at an “equivalent rate per kWh” that increases 2.9% each year. These variable payments (due to the fact that they are production based) are applied to the loan as any mortgage payment would be. The variable payment structure is put in place with the aim of having the system fully amortized after 30 years. However, if the solar system does not meet the “expected annual production,” upon which the monthly payments are based, it is possible that thousands of dollars may still be owed after 30 years. The guarantee of electricity production is considerably lower than the ‘Planned Annual Generation’, making this a very possible scenario. The contract includes a clause called “loan term variance” which discloses this possibility. He explains that if there is a balance remaining at the end of the loan term, MyPower will offer a refinancing option for the outstanding balance. (added emphasis)

Catch this? Your monthly payments to SolarCity are based on the expected output of your solar power system. If the return is lower than expected, you may owe SolarCity money after 30 years. 30 years! In such a situation, SolarCity will offer to refinance the remaining loan. Oh joy!

Generally, one should expect to pay off their solar system within 5 to 15 years nowadays. Maybe 20 under the wrong circumstances. 30+ years? It doesn’t seem like a smart option. And that comes to another part concerning the MyPower contract….

“Funding has another ingeniously misleading twist. By charging yourself a low “equivalent rate per kWh” up front (and then increasing it by 2.9% each year), most of your upfront payments will go towards paying interest. As the rate increases over the years, you start to pay off more of the principal. Loan structures are usually set up this way, to pay more interest up front, but increasing payments with an escalator completely skews the dynamics of repayment. The client ends up paying a much larger amount in interest and ultimately thousands more than what would have been paid with a conventional fixed monthly payment financing option. With this payment structure, the effective APR ends up being almost one percent above the quoted 30-year rate. (added emphasis)

Anyone who has paid off a large loan should know that the upfront payments only cover interest to an absurd degree. When I was paying off my graduate loans, it was so irritating that I decided after a few years to just pay off the loans as quickly as possible. I ended up saving probably between $ 10,000 and $ 15,000. But many aren’t able or just don’t do the math and think about paying off a loan faster. If such a person is in a SolarCity contract, it will end up even worse than with many other loans. A ridiculous amount of their payments will be used to pay the interest.

As an investor and someone who cares about the ordinary consumer, I’m not happy to see either of these clauses. While they are probably there to try to make sure SolarCity makes a profit and doesn’t go bankrupt as the solar industry grows, they seem devious and unnecessary to customers, and they seem to have a good chance that ‘they backfire in the long run. Course.

SolarCity’s desire to bring solar power to more people via $ 0 or a small amount of money and low monthly payments is laudable, but if it requires fine print and poor repayment terms, I think we start to back down. Hope these issues will be resolved soon. And in the meantime, I encourage anyone looking to switch to solar power to take a close look at the fine print and compare the options.

In the end, here is what Pick My Solar came up with for a 6 kW system in California:

Cost of the SolarCity MyPower system: $ 33,150
Lifetime payments (tax credit used): ~ $ 50,550 (30 year loan)
Avg. Cost per kWh: 17.3 cents (30 years)
Avg. Payments: 140 $ (30 years)

Typical cost of the installation system: $ 23,400
Lifetime payments (tax credit used): ~ $ 22,310 (loan over 12 years)
Avg. Cost per kWh: 9.3 cents (25 years)
Avg. Payments: $ 155 (12 years)

It’s a shocking difference in my book.

Image via Shutterstock

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