Free solar panels
Published on 01 Nov, 2017 by Chris Meehan
5 minutes read
Are Free Solar Panels Really Free?
You’ve seen ads for free solar panels or free solar rooftops, but are they actually free? Well, not really. But the offers also aren’t scams. Most of the companies offering free solar are actually offering zero-down solar power agreements through a loan, lease or power-purchase agreement (PPA) instead of buying them outright.
Zero-Down Solar Options
These zero-down solar options have some 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, even.
One of the disadvantages of third-party ownership arrangements is that, as the homeowner, you don’t get all the benefits of the incentives offered like the 30 percent 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 that it’s best to talk with a local solar installer who knows more about local incentives and 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 anticipated rising costs of energy, the agreements also include rate increases 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 you still have to pay for the system over time with an included interest rate, which 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 PPAs 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.
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So, What are PPAs Anyway?
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 up-front 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 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—sometimes during it—customers have a chance to purchase the system outright.
How’s a Solar Lease Different?
Solar leases are also financed and owned by third parties. They’re kind of like a car lease. 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 knowledge 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 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 to expectations the companies are supposed to ensure that it does or 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 and sometimes at set periods throughout the lease agreement. 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 the solar system’s owner. As such you get all the incentives for installing the system, including net-metering, the ITC 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 add up to more savings than paying for a lease or the prices of electricity through a PPA.
Since you’re the owner of the system when you get a solar loan, however, some companies don’t offer an operations and maintenance service with the loan and you have to choose if you want to spend additional money for the maintenance above and beyond relying on warranties and guarantees.
What it all boils down to these days is: You have a lot of options for going solar. Whether you want to maximize your potential savings by purchasing a solar system outright or still want 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 estimator tools at Solar Estimate.