A couple of months ago, I wrote an article about SolarCity’s “shockingly high MyPower prices” compared to competitors’ prices. The article was based off of an analysis by Pick My Solar. There’s a Part 2 to the story, though. Unfortunately, it’s no prettier.

Let me reiterate that I’m long SCTY (which is difficult this week), have no intention of buying or selling shares any time soon, do think SolarCity has good intentions and some strong competitive advantages, and think I can even see why it sets up its loans the way it does (particularly, note that it is not in financial heaven and is likely trying to make sure it stays alive for the long term).

Getting on to Part 2, the key point is that some of the fine print is not entirely exciting for the consumer (to put it mildly) in the MyPower loan contract. Here’s a quote from Pick My Solar:

“MyPower does indeed provide loan financing, but you get the impression it looks a lot like a Power Purchase Agreement (PPA). Reading through their 34-page contract will not clear this up for you (a concise solar contract should cover everything in 3–5 pages – this contract takes fine-print to the next level). Payments are made to SolarCity based off system production at an ‘equivalent rate per kWh’ that increases 2.9% each year. These variable payments (due to being based off of production) are applied to the loan as any mortgage payment would be. The variable payment structure is set up with the goal of having the system completely paid off after 30 years. However, if the solar system doesn’t hit the ‘Expected Annual Production’, which the monthly payments are based on, it is possible to still owe thousands of dollars at the end of 30 years. The power production guarantee is considerably lower than the ‘Expected Annual Production’, making this an entirely possible scenario. The contract has a clause called ‘Variance of Loan Term’ which discloses this possibility. It explains that in the event there is a remaining balance at the end of the Loan Term, MyPower will provide a refinance option for the outstanding balance.” (emphasis added)

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

Typically, one should expect to pay off their solar system within 5–15 years these days. Maybe 20 in bad circumstances. 30+ years? That doesn’t seem like a smart option. And that gets to another concerning part of the MyPower contract….

“The financing has another ingeniously deceptive twist. By charging you a low ‘equivalent rate per kWh’ upfront (and then increase it by 2.9% each year), most of your initial payments will go toward interest. As the rate increases over the years, you start paying off more of the principal. Loan structures are typically setup this way, to pay more interest upfront, but by increasing the payments with an escalator, it completely skews the payback dynamic. The customer ends up paying a much larger amount toward interest and ultimately thousands more than would have been paid with a conventional flat monthly-payment financing option. With this payment structure, the effective APR ends up being almost a full percent more than the 30 year stated rate. (emphasis added)

Anyone who has paid back a big loan should know that initial payments are just covering interest to an absurd degree. When I was paying off my graduate school loans, this was so irritating that I decided after a few years to simply pay the loans off as quickly as possible. I ended up saving probably $10,000–15,000 by doing so. But many are not capable or simply don’t do the math and think about paying back a loan faster. If such a person is in a SolarCity contract, they’ll end off even worse than with many other loans. A ridiculous amount of their payments will be going toward interest.

As both an investor and someone who cares about the common consumer, I’m not happy to see either of these clauses. While they are likely in there to try to ensure SolarCity makes a profit and doesn’t go out of business as the solar industry grows, they seem sneaky and unhelpful for customers, and they seem like there’s a good chance they could backfire in the long run.

SolarCity’s desire to bring solar power to more people via $0 or a small amount of money down and low monthly payments is commendable, but if that requires sketchy fine print and poor repayment terms, I think we start moving backwards. I hope these issues will be addressed soon. And in the meantime, I encourage anybody looking to go solar to look closely at the fine print and compare options.

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

SolarCity MyPower System Cost: $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 Installer System Cost: $23,400
Lifetime payments (tax credit used): ~$22,310 (12 year loan)
Avg. Cost Per kWh: 9.3 cents (25 years)
Avg. Payments: $155 (12 years)

That’s a shocking difference, in my book.