What is the fair-market value of the Solar System installed by Solar City in 2013?

Question

I live in the Maryland suburbs of Washington DC. On December 31, 2012, I signed a lease deal with SolarCity (now Tesla) to install solar panels on the roof of my home + associated electrical infrastructure. I would pay $0 down, I would lease the system for 20 years and I would pay SolarCity/Tesla to purchase the electricity it produced.

The contract I signed at that time had a buyout clause where I could purchase the solar-system outright for a lump sum after five years. This lump sum was described in the contract as follows:

[T]he price you will pay for the System will be the greater of the System's fair market value ("FMV") and the amount shown on Schedule A. The interests of any financing party shall not be taken into account when determining the FMV; a third party independent appraiser will be retained to compute the System's FMV.

Below is a screenshot of Schedule A.

Based on Schedule A, my payoff amount should currently be the maximum of $4446 and the FMV of the Solar System. I asked Tesla to provide me the payoff amount and yesterday they told me it is $12,557.07.

I'm very surprised at the large number they have quoted and am wondering if it is legitimate. What is the FMV of my solar system and how can I verify if the number they provided me is actually FMV or a wildly inflated figure? To help you answer this question, I have provided multiple images and supporting links below.

Here is a mock-up images of my roof provided by SolarCity before installation. What they installed matches this mockup. You can see that they installed 38 panels. Here is the datasheet of each panel.

On the side of my house they have installed two large Aurora inverter boxes and some associated cabling etc. Here are the links to those two inverters: Inverter #1, Inverter #2. This is what they look like from far: .

Inside my basement, next to the main breaker switch, Solar City installed this box:

So what is the Fair Market Value of these items?

Answer 1

I am in a similar state, having the same high FMV estimate from Tesla and a 10 year old solar system, with 10 years left on the 20 year contract.

There are 2 methods to value your site: A) The system income string, or B) The system asset resale value on the open market. It appears Tesla is mainly using method A. The income string has two components: 1) your payments to Tesla, and 2) the renewable credits the utility pays to Tesla, which may be notable. In my case, Tesla gets about $1300/yr from me directly, and about $400/yr from the local utility for the RECs. The varying FMV based on A) vs. B) gives a huge variation in the FMV of your system.

The Solar City / Tesla contract does not define which of these methods is to be used in how FMV is evaluated. There is a line in the contract (that you show in your post) that says interests of the Financing Party shall not be taken into account in determining FMV. This is a vague line; is Tesla the Financing Party, and hence their income string should not be used for FMV? A judge may say Tesla's income stream cannot be used, but if you look at your Solar City contract, you committed to arbitration for all disputes and you cannot participate in a class action suit.

I am temped to go to arbitration to get a re-evaluation of the FMV using asset value process B). However, it appears the independent arbitrator is actually hired by Tesla, so you can guess how really independent they are, so I have low expectations. I suspect the "independent arbitrator" is in the camp of favoring Tesla, in a similar manner as the "independent appraiser" Tesla uses.

When I asked Tesla for an independent appraisal of the FMV, I get an email saying Tesla already hired an "independent" appraiser, and that is where the payoff amount they gave me came from. I was told I am not allowed to know who the appraiser is nor am I allowed see the specific equations and process they used to find the FMV. When I asked to discuss that more, Tesla would not respond to my emails or give me a means to call.

A related note, it may be beneficial to push this now rather than at the end of your contract. At the end of your contract, if you do not have Tesla remove the cells and leave you with a damaged roof, you are faced with either renewing the PPA at an increasing payment level to Tesla (see contract; you pay them 90% of average utility bill, god knows how they figure that number), or paying the FMV. There is a risk of them overstating the FMV at that point based on the continued income stream that will happen if they do not remove the cells.

If I had read this contract more closely 10 years ago, I would have at least asked for a better definition of how FMV is evaluated. It is an open invitation to overcharge the homeowner. I also would have looked for an "opt out" clause from arbitration. You lose too much control and turn things over to someone that is paid by Tesla, so they are not really independent.