If you’ve been shopping around for a solar panel system, you’ve probably heard at least one company advertise ‘free solar panels’ – that they will install a solar energy system on your roof for free. But, much as with anything, remember that there is no such thing as a free lunch (or a free solar panel).
What do companies mean when they say free solar panels?
Decoding the sales pitch: The terms ‘free solar panels’ or ‘no cost solar program’ are sometimes used to advertise solar lease or solar power purchase agreements (PPAs). Under both types of arrangements, a company will put solar panels on your roof for no money up-front but will charge you for the electricity that they produce. Most offers will save you money but not all of them, so make sure you’ve thoroughly compared all your options. Also consider buying the solar panels or financing them with a zero-down solar loan.
So what do a company’s marketers and salespeople mean when they say ‘free solar panels’ or ‘no cost solar program’? Usually, they are referring to solar leases and power purchase agreements (PPA’s). Under these solar financing arrangements, a solar company will put a solar system on your roof at no up-front cost to you for installation, enrollment, or maintenance. This sounds great – you get to say that your home is powered by clean energy, and can even point to the solar panels on your roof to prove it.
But the reality is that you do not technically own the system, and the solar energy the panels produce is not part of a “no cost” solar program. Under solar lease agreements, ownership is retained by the solar company, and you pay for the electricity it produces. In essence, the company has built a small power plant on your roof and is selling you the electricity.
Will free solar panels save you money?
You may have various reasons for going solar. If you’re like most people, saving money, eliminating your utility bills and/or reducing your carbon footprint are probably at the top of the list. The environmental benefits of going solar are more or less the same regardless of who installs your system, so it’s key to focus on the financial benefits.
Regardless of its ‘do-good’ image, the solar industry is an industry like any other: the companies offering products are looking to turn a profit. Providers of solar leases make their money by selling you electricity, usually at a lower rate than what you pay your utility.
Although companies like SolarCity once dominated the market for solar leases, countless other players have since entered the space and begun competing with each other. Some solar leases will save you more money than others. You as a solar shopper can now take your pick of company based on their offer. So even if financial gain is secondary to environmental considerations for you, you should still shop around to make sure you’re getting the best deal.
Interested in learning about your local solar options? By shopping on the EnergySage Solar Marketplace you can compare not only solar lease options, but also purchase and solar loan options. Sign up today to get quotes from solar installers in your area.
Looking for free solar panels? Try financing your system with a solar loan instead
The revolutionary thing about solar leases was that they made it possible for virtually anyone with a roof to go solar, regardless of whether they had cash in the bank to purchase a system. Solar leases were crucial in removing barriers to entry back when solar system prices were prohibitively high.
But times have changed substantially since solar leases were introduced. Solar systems are now more affordable than ever, now that financing options other than solar leases have become viable. The most important of these is the solar loan, which combines the ‘zero-down’ aspect of the solar lease with the benefits of system ownership (‘the best of both worlds‘).
The falling cost of solar
So before you sign up for the first ‘free solar panel’ or ‘no cost solar program’ deal that comes your way, make sure you understand what you’re being offered and that you’ve considered all of your other options. In other words, be a smart solar shopper.
Hidden costs of free solar panels by payment plan – how do loans and leases compare to an outright purchase?
Now that you understand the nuances between solar leases, power purchase agreements, and solar loans, it’s important to assess the return on investment in each scenario. Here’s a break down of the most potential to least potential return depending on the payment plan you choose:
- Cash purchase: buying your solar panel system outright is usually the best value over 25 years. Even though your initial cost will be steep, you can reap all of the financial benefits and savings associated with going solar (incentives, tax credits, and more).
- Personal loan: applying for a solar loan is the next best option when it comes to a return on investment. The initial cost is $0; however, interest payments chip away at energy savings for approximately the first 7 years (or however long the loan takes to repay) until the loan is paid off. After that time period, you get to keep 100% of your energy savings.
- Solar leases and PPAs: choosing to go with a solar lease or PPA may be something worth considering for certain homeowners. The biggest selling point here is that there is no upfront cost, but beware that the value is dampened by the solar company who takes out their cut of your savings each month. By the end of your warranty period, the lease or PPA will have taken up more than half of your potential savings as profits for the solar installer.
Take a deeper dive into the different solar financing options in this article.
Federal and local solar incentives that lower the upfront cost of solar
The main takeaway when considering a ‘no cost’ solar program or PPA is that you don’t own the solar panel system on your roof—the installer does. Most agreements are structured in a way that heavily benefits the installer, and it allows them to claim the Federal Investment Tax Credit (ITC), as well as any local incentives, for going solar – as of 2021, the ITC represents a 26 percent credit on the consumer’s total costs to switch to solar. For example, if a system costs $10,000 and the ITC awards $2,600 to the system owner, the installer would get the money instead of you. Essentially, you’d be missing out on the financial benefits of investing in renewable energy.
However, if you’ve been on the fence about switching to solar energy, there may be a financial incentive offered by the government that seals the deal for you. Right now, the best solar incentive is the Residential Renewable Energy Tax Credit (ITC), which is available to all U.S. homeowners. This federal allowance allows you to claim the credit when they buy a solar energy system—you can currently credit up to 26% of your spending on the purchase and related installation costs. This tax credit value is applicable if the system is placed and in service by January 1, 2022.
The other perk here is that you can apply the 26% discount costs of your solar system after also taking any state-level rebates or incentives, meaning you can benefit from both federal and state incentives to help offset the costs of going solar. On a state level, most have an incentive program in the form of a tax credit, but it varies state-to-state. Lastly, many local cities and counties offer direct rebates to help with the costs of solar panel systems and installation.
Two other programs worth mentioning include Solar Renewable Energy Credits (SRECs) and performance based incentives. First, some states that have ambitious renewable energy goals are striving to meet quotas related to solar production which has led to SRECs. Eligible houses with solar systems that can produce more than 1 megawatt-hour (MWh) of electricity can claim SRECs. Additionally, performance based incentives are rewards given for producing a certain amount of solar energy. If this is available to a homeowner, their utility would agree to pay them for producing a set quantity from their solar system, whether they choose to use it in their house, or if they simply send it back to the grid.
Commonly asked questions about ‘no cost solar’
Whether you’re considering opting into a no-cost solar program, or you’re second-guessing the sales pitch, check out a few frequently asked questions people have regarding this trend in renewable energy:
Simply put, you cannot get free solar panels from the government. These payment plans are actually solar leases or power purchase agreements (PPAs), and they’re a no-cost upfront option that gives ownership to the solar company or installer. You pay for the electricity the system produces, and you miss out on many of the financial benefits and incentives of renewable energy. That’s not to say that PPAs or solar leases are bad – you can still save money in the long run! If you’re interested in learning about ways that the federal and local government can offset the cost of installing solar panels, we recommend learning more about the Renewable Energy Tax Credit and exploring state and local programs you might be eligible for.
Because ‘free solar panels’ is a misleading statement, it’s important to say this—no one is eligible for ‘free solar panels.’ However, solar leases have made it much easier for anyone with a roof to go solar, regardless of whether or not they can afford the upfront cost of installation.
No, there is no such thing as a no-cost solar program. These programs are actually solar leases or power purchase agreements (PPAs) in which a company will install solar panels on your roof for no money up-front, but they will charge you for the electricity produced.