The Hidden Costs of Free Solar Panels
Published on 14 May, 2018 by Andrew Sendy
4 minutes read
"Free solar panels" is a marketing phrase you're likely to see bandied about if you're in the market for a residential solar energy system. "Buyer beware" is common wisdom, and that phrase should pop into your mind immediately if you come across a sales or marketing pitch touting free solar panels (or free anything really).
Invariably, what you'll find if you dig deeper into any offer of free solar panels is that they really aren't free. You'll pay for them in one way or another, even though it may not cost you anything to have the solar panels, as well as the inverters, wiring, etc. that goes into a functional solar home energy system, installed and brought up and running initially, there will be payments.
Free Solar Panels?... What's the Catch?
Market-leading third-party-owned (TPO) solar lease companies have grown into multi-billion dollar businesses by taking exactly that approach. Offering to install a home solar energy system for zero money down, pioneering residential solar finance providers, such as SolarCity (or Tesla-SolarCity), Sunrun and Vivint, own, operate and maintain customers' rooftop solar photovoltaic (PV) systems.
The economics, and financing, of residential solar is undergoing a shift, however; one fueled by the ongoing decline in installed costs and ratcheting down of the 30 percent federal solar investment tax credit (ITC). Contributing to a shift towards taking out a loan to finance a home solar installation as opposed to signing a lease contract, growing numbers of TPO solar lease customers have come to realize that the leasing companies have been retaining the lion's share of the value derived from a home solar system.
The ongoing decline in installed solar costs is making home solar more affordable for more Americans. Coupled with the scaling down of the maximum 30 percent ITC that's driving a shift from TPO solar leases to solar loans. The ITC is scheduled to begin decreasing come 2020, dropping down to 10 percent in 2022 and holding at that level thereafter.
Image source: US EIA, Dec 2016
Homeowners that sign TPO solar leases sign long-term lease agreements (anywhere from five or 10 to 20 years) and make monthly lease payments to the provider that typically amount to less than their current utility bills. At the end of the lease's term, homeowners can opt to purchase the system outright, or the solar leasing company can reclaim and remove the system, reusing or recycling the components, or perhaps relocating the entire system at another location.
TPO solar lease-installation companies embed several important assumptions and contingencies into solar lease agreements, clauses or sections that can have a large impact on the ultimate value, and return on investment, that goes to the lessee (the home or property owner).
Should I lease or loan? Investigate your solar panel system finance options.
Solar Lease Cost Escalators and Solar Energy Incentives
TPO solar leases also typically incorporate what's known as price, or cost, escalators. Monthly TPO solar lease payments are keyed to forecast increases in the cost of local grid electricity and rise along with them – hence the term price escalators.
As a result, a TPO solar lease customer in some instances could wind up paying more over the 10- or 20-year term of a residential solar lease than they would have paid a utility for electricity over the same period of time, pointed out Stanley Fishbein, the co-founder and one of two managing partners of CleanView Capital, a solar energy finance company focused primarily on the commercial and industrial segments of the solar energy market.
Furthermore, TPO solar lease-installation companies retain ownership of the ITC, as well as any state or local solar energy subsidies or other incentives. In return, TPO solar lease-installation companies agree to operate, maintain and remove home solar energy systems over a lease agreement term.
The value of the ITC is due to begin dropping Jan. 1, 2020, however. Furthermore, state solar incentive programs are almost invariably being continually challenged by vested industry interests.
TPO Solar Lease Customer Pushback
Solar energy industry analysts, along with some homeowners, quickly realized that TPO solar lease companies were retaining most of the value derived from installation of a home solar energy system, and they expressed their criticism publicly.
CleanView Capital's Fishbein has been a solar advocate for 10 years, doing pro bono work as a tax attorney and equipment finance specialist for the New York chapter of the American Solar Energy Society (ASES, NY). Recalling the experience that led to CleanView's creation a couple of years ago, Fishbein said:
"Many [solar customers] told us they were not happy with solar industry finance, including third-party-owned solar lease [providers] – they believed that too much value was being retained by the lessors [the TPO solar lease providers] as opposed to their customers...We [ASES, NY] saw tremendous pushback as more and more customers got to know that."
A shift away from TPO solar leasing to use of loans to finance residential solar installations where the customer owns their solar panels has gained momentum since. Tesla SolarCity financed more residential solar energy installations via loans last year than they did via TPO leases, Fishbein noted.
Other major players such as Vivint Solar and Sunrun who were big in third-party owned solar leases and PPA agreements have now also moved to offer loans and outright purchases of solar systems. Vivint solar reviews and Sunrun Reviews support Fishbein's observations that customers of the large leasing and PPA solar companies have been unhappy compared to customers of local solar companies.
Going Solar for Free: The main difference between Solar Leases vs. Solar Loans. As opposed to TPO solar leases, home and property owners can finance residential solar energy systems via loans. There are two main differences between third-party-owned solar leases and a purchase of solar panels funded by a solar loan.
In the case of a solar loan:
- They can also gain full ownership to the ITC and any state or local incentives or subsidies.
- The homeowner is responsible for maintenance of the system as they own it.
Similar to TPO solar leases, solar loans with zero down payment are available. A homeowner may be able to have a solar PV system installed and start producing their own emissions-free electricity for free as a result. Of course, the cost becomes apparent shortly thereafter, when they have to begin making monthly loan payments.
Are Free Solar Panels Really Free?
We should point out that other types of free solar panel or energy offers exist. The gist of the message is that you may be able to acquire solar panels for free if you're willing to do some research, and probably at least a fair amount of negotiating and physical legwork. More specifically, some websites suggest that those looking to obtain solar panels for free search for and negotiate with homeowners upgrading their solar PV systems to haul away their used solar panels for free. Another suggested option is taking a similar approach by offering to do the same for solar energy installation companies.
You may indeed wind up obtaining solar panels for free by following these approaches. They are not free, however. Used solar panels may be damaged and solar panel performance degrades over time. And the obscured cost of following these approaches to obtain free solar panels comes in the form of time and effort.