Solar Panel Warranties from Bankrupt Manufacturers
Manufacturers of home solar panels have ballyhooed their every increasing warranties. That is great, but what happens when that quarter of a century warranty goes down with the ship when the solar manufacturer goes out of business. I think that is what you call an illusory promise, because when it comes time for the company to honor the warranty, the homeowner who has purchased solar panels is going to call the manufacturer and get a recording: “that number is no longer in service.” We’re going to talk about warranties from solar panel manufacturers in this blog post so that homeowners may be able to take a few precautions when purchasing a solar panel system for their homes.
Purchasing a solar power system for your home or business is a major investment that most consumers expect to make a return on. Conventional wisdom is that the break even time for a solar panel system for a home ranges from seven to ten years, with some optimistic predictions suggesting it will drop to as little as three to five years by 2020. With the industry standard for solar panel warranties being twenty-five years, this would seem to indicate that the solar consumer is in for at least fifteen years of pure, worry free profit! Unfortunately, the ability of solar manufacturers to make good on those quarter century warranties is far from a given.
The threat: bankruptcy
If the manufacturer of your home solar panels goes under, your warranty likely goes down with the ship. Under bankruptcy law, a warranty is considered an unsecured liability, meaning that it will more than likely be entirely wiped out. Even in instances like the bankruptcy of Solyndra, where the manufacturer successfully persuaded the judge to set aside a portion of the remaining assets for honoring warranty claims, the evaluation and decision to honor those claims (at pennies on the dollar) is no longer in the hands of the solar manufacturers, but in the hands of the other unsecured creditors and the court, potentially making redemption a bureaucratic nightmare.
The risk: higher than you think
The chance that the manufacturer of any given solar panel will undergo bankruptcy in the next twenty-five years is very real. Experts believe that continuing consolidation will be the name of the game for the next ten years, with some suggesting that as many as 75% of the current manufactures of photovoltaic panels will be out of business by 2016. Even major manufactures shouldn’t be considered risk free, with big players like LDK and SunTech currently facing short term liquidity issues and many others struggling to with high leverage burdens and ever shrinking margins.
This kind of consolidation isn’t unusual for a young industry, but the length of the warranties being offered is. The names Digital Equipment Corporation, Kaypro, or Apollo Computers have long since ceased to be associated with the computer industry, but all three were major players that went out of business less than twenty-five years ago. Had they offered the same warranties on their products that solar manufacturers do, the 150MHz servers sold by DEC would have been sold under warranty until 2018.
The solution
While the solar manufacture’s warranties may not be dependable by themselves, the good news is that there are a number of ways for the risk conscious solar panel consumer to mitigate the impact of bankruptcy on their warranty.
- Buy an extended warranty. Extended warranties offered through the solar panel retailer are a contractual agreement between the retailer and the consumer, making them still legally valid in the event that the manufacturer goes bankrupt. Unfortunately, while this diversifies your risk, you’re still out of luck if your manufacturer and your retailer both go out of business.
- Insure your installation. Chartis, formerly a division of AIG, now offers insurance policies for solar and renewable energy installations. These policies, while potentially expensive, can cover not just the health and power output of the panels, but potential installation and operation related damage to property such as roofs. Because modern solar technology has only a few years of in-the-field data to draw from, Chartis won’t commit to anything longer than a five year policy, but they have said that they will negotiate new contracts after each five year term.
- Buy from a warranty-insuring manufacturer. Probably the single best risk mitigation option for the home solar consumer is to purchase their solar panels from a manufacturer who has insured their warranty guarantees against bankruptcy. By doing so, such companies can commit to their warranties being honored even if they close their own doors, as the liability is transferred to the insurer. So far, only two manufacturers have announced that they insured their warranties in this fashion, with Canadian Solar standing out for having secured warranty insurance with three different international insurers for added diversification of risk.
Limits of a valid 25 year warranty
Even after taking all necessary precautions, the solar panel consumer should still carefully consider from which manufacturer to buy their home solar panels and other solar equipment. Most warranties provide for the repair or replacement of the module with another module of the same type, but not monetary compensation in lieu thereof. Even if some Solyndra customers purchased warranty insurance or extended warranties from a third party retailer, the chance of them being able to find a replacement part twenty years from now is not good. The longer the legs of the manufacturer, the better the chance the warranty will mean something in the long run, even if the responsibility for fulfilling it is diversified or transferred to a third party.