Are free solar panels offers ever really free?

It is possible for residential solar panels installed on your home to be free in certain circumstances.

This is not to say the equipment or the labor to install them is ever without cost. It is simply that there are some circumstances and financing methods that can make them effectively free to you.

Often, these "free solar panels" offers have been used as a marketing tactic by some less reputable solar companies.

This is a shame because it takes attention away from something that is an extremely attractive option for some homeowners - the opportunity to swap their home energy supply over to solar without out-of-pocket costs and to gain both monthly electric bill savings and an insurance policy against rising electricity prices. 

There are very few opportunities in life to make a risk-free profit without any financial outlay. Some homeowners can do this in 2020 by installing solar panels on their homes while current solar incentives remain.

What are the different types of free solar panels offers?

There are three broad ways that solar panels can be free for a specific homeowner.

1. The first is where a combination of federal, state, county, or utility incentives and tax credits pay for the entire cost of the system.

It is rare to find this situation in 2020 because upfront utility-based solar rebates have largely disappeared from the US market. However, there are some cities across the country where combined state, federal and utility solar incentives can still pay for the majority of a home solar power system.

2. The far more common type of free solar panels offer is a solar system that is financed in such a way that:

• You, the consumer, pay nothing upfront (sometimes called "zero-down solar offers")
• The monthly financing payment you pay for the system is less than the monthly electric bill savings the system generates

In this way, the homeowner makes a profit without ever outlaying any money other than paying part of the electric bill savings to the finance company. The amount paid to the financing company (and more) would have been paid to the electric utility if the homeowner did not install solar panels, so this how it is "effectively free".

3. The third type of free solar panels offer is when a consumer refinances their entire home loan to a cheaper interest rate. They can then add on the cost of a solar system without increasing their monthly mortgage payment. Even if you are not considering solar, you should always ensure that your home loan rate is competitive as your credit score improves over the years and your debt falls as a percentage of the value of your home.

Are "effectively free solar panels" a realistic option for my specific home?

This depends on a number of factors, including your location, how much your utility charges for electricity, the amount of electricity your home consumes, local rebates and tax credits, your credit score, and how difficult it is to install panels on your home.

The calculator at the top of this page is the best online solar estimator in America and can work out exactly what the monthly payment will be for the exact size of solar system you need to offset your usage. It'll also work out how much rebates and tax credits will reduce your monthly payment and exactly how much you will save each month. 

It shows very accurately if free solar panels are possible on your home. 

What are the zero-down options to get "effectively free solar panels"?

These zero-down solar options have both advantages and disadvantages for the homeowner. For instance, PPAs and solar leases are owned by a third-party - either the solar installer or a financier. If you choose a solar loan, you may still get a zero-down—or low-down payment solar installation—but you become the owner of the system. These products are offered by solar installers, white-label financiers like Mosiac or Spruce Financial, or banks or credit unions.

One of the disadvantages of third-party ownership arrangements is that, as the homeowner, you don’t get all the benefits of incentives, including the 26% federal investment tax credit (ITC) for the system. Rather, the third party accumulates the incentives and splits them with you. 

In most cases, as long as your state and utility offer it, you will be eligible to net meter your excess energy (or at least receive some credit for the excess energy your system produces). To learn more about net metering, it’s best to talk with a local solar installer who knows more about local incentives, as well as any issues that may keep you from realizing the most savings from solar.

The lease and PPA agreements are designed to cost less than the electricity that comes from the local utility. But to keep up with inflation and the rising costs of energy, the agreements also include rate increases, which are designed to keep pace with anticipated inflation and utility rates.

So, the goal is to get your locally-produced renewable energy at lower costs than you could otherwise get electricity.

Still, a disadvantage of such arrangements is that the system ends up costing more than if you purchase the system outright and get those incentives directly. A loan, like a home equity line of credit (HELOC), is sort of a happy medium. You get the ownership rights and incentives but still have to pay for the system over time with an included interest rate. This makes the system more expensive than paying for it outright.

Leases and PPAs—as well as loans—also carry long repayment periods. Loans can carry repayment terms as short as 10 years, but most leases or PPA agreements are for 15 to 25 years. That’s longer than most people own a home in the US these days. After all, the National Association of Realtors in its "Home Buyer and Seller Generational Trends Report 2017" found that the average length of homeownership in the US is 12 years.

Thankfully, most solar leases and PPAs have provisions allowing homeowners to transfer the lease or PPA to the home’s new residents or for them to potentially buy the system as part of the home purchase. In some cases, however, the home seller may have to pay a fee to get out of the contract, particularly if the homebuyer doesn’t want the solar system.

Is a PPA a good way to get "effectively free solar panels"?

PPAs are agreements under which a third party finances and owns the solar system on your home. You pay the third party for all the power that the system produces. Since a third party is financing the installation, you don't have to make an upfront payment for it.

Instead, you’ll pay for the panels over time as part of your monthly payments for the power the system produces. An advantage that PPAs have over solar leases is that you only pay for the electricity your system produces. If a system produces less than usual in a month, you pay less. If the system produces more power than you use, the excess will be net metered and credited towards your energy bill, reducing it further.

Power-purchase agreements also come with maintenance packages. Since you only pay for the energy produced by the system and not a monthly fee, the financing company has an interest in ensuring your system is producing as much energy as possible, so they can sell it to you.

Generally, PPA contracts last anywhere from 15 years to 25 years. During that period of time, the cost of energy coming from the panels will rise as scheduled. The price rises are meant to keep the cost of the power lower than the rate increases anticipated by utilities, so you’re still saving money by going solar. At the end of the contract (and in some cases, during it), customers have a chance to purchase the system outright.

How is a solar lease different?

Solar leases are also financed and owned by third parties; they’re kind of like car leases. You pay a set fee per month and get all the other benefits of the clean energy, like net metering, lower-cost electricity, and the assurance that you made a sound economic and environmental choice.

Unlike a PPA, you’re not paying for the power produced with a solar lease. Rather, you’re paying a fixed monthly fee. If your system produces more solar power than expected, it’s all yours to use and net meter - you don’t pay anything extra. Conversely, if your system produces less than expected in a given month, you still pay the same amount for the power produced.

Still, like a PPA, most solar leases include operation and maintenance agreements with the financier or solar installer. And many solar energy leases include a production guarantee, under which the solar system is expected to produce a certain amount of electricity each month and year that’s covered in the lease. If the system isn’t performing as expected, the companies are supposed to ensure that they reimburse you for the lackluster performance.

Like PPAs, solar leases generally have 15 to 20-year contracts which usually allow you to buy the system at the end of the lease. Sometimes this is possible during set periods throughout the lease agreement, as well. Also, like a PPA, many solar leases have pricing escalators in place. The escalators raise the cost of the solar power slightly on an annual basis and are designed to keep the cost of power from the solar installation at levels lower than the expected prices of electricity from utility companies.

Now what’s the difference between a solar lease and a solar loan?

The third potential offer for a zero-down solar installation comes in the form of a loan. Unlike solar leases and PPAs, when you choose a solar loan to finance your system, you’re considered as the solar system’s owner. As such, you get all the incentives for installing the system, including net metering, the federal tax credit, and any other local incentives offered by your utility, municipality, and state.

Unlike leases and PPAs, the term for a solar loan can be as short as 10 years. This could mean higher monthly payments, but the loan usually has fixed payments for the life of the contract. Also, if you can lock in a low-interest rate, it could wind up saving you more than if you paid for a lease at the prices of electricity through a PPA.

However, since you’re the owner of the system when you get a solar loan, some companies don’t offer an operations and maintenance service. This means you have to choose whether or not you want to spend additional money for maintenance.

What it all boils down to these days is this- you have a lot of options for going solar. Whether you want to maximize your potential savings by purchasing a solar system outright or you would like to go solar and save money with a PPA or lease, one of the best ways to learn more about the potential costs and savings associated with going solar is to use the solar costs and savings estimator tool.