Are “Free Solar Panels” Really Free?

If you’re in the market for residential solar, you may have come across offers for “free solar panels." But is free solar just a marketing gimmick, or is there a tangible advantage to these offers? 

In order to make the best decision for your solar energy needs, it’s important to go beyond the sales pitch and analyze the fine print. 

What Do Solar Companies Mean by "Free"?

When companies advertise free solar, they are generally referring to either a solar lease or solar power purchase agreement (PPA). In both cases, a company installs solar photovoltaic (PV) panels on your home, often with no up-front costs and no money down. Instead, you host the system and are charged for the electricity it produces, which on average is less than the electricity bill you’d normally pay your utility.

A solar lease means a company owns the panels it installs on your home, which eliminates your installation costs. You enter into a lease agreement, typically for a term of 10 to 25 years. During the lease, you pay a monthly fee for use of the solar system plus the energy you consume. This can be appealing given the sometimes steep upfront cost of buying a solar system yourself — somewhere between $15,000 and $25,000 on average before federal and state tax credits and incentives.

A solar PPA is very similar to a lease, except you are purchasing the power generated by the system at a fixed rate per kilowatt hour of energy produced. As with a lease, there is usually little to no upfront cost. Both options simplify the process of going solar because you don’t have to find an installer and financing, and the company handles the permitting and paperwork. 

At the end of the lease or PPA, you can either extend the agreement, terminate it, or buy the solar system and take it over. If you terminate the lease, the company will usually remove the panels at no charge, but it’s important to make sure this is part of the contract.

Are Free Solar Panels a Good Deal?

Solar leasing agreements and PPAs do have drawbacks. They may limit your ability to make renovations or other alterations to your property. (Make sure there is a provision in your lease agreement regarding temporary removal of solar panels for roof repair or replacement.)

And while they may be cost-free to begin with, it’s important to consider the difference in potential long-term savings through leasing and PPAs versus owning. Buying a residential solar system, while costly at the start, can save you significantly more money over its lifetime compared to what you stand to gain from a lease or PPA. Leasing and PPAs don’t allow you to claim the federal and state tax incentives available to those who purchase solar systems; the federal Solar Investment Tax Credit (ITC) alone will reduce the costs of purchasing a system outright by 26% through at least 2022.

Something else to look out for: Some leasing companies put an escalation clause in the contract that allows them to incrementally raise their monthly fee by a certain percentage, further eating into your solar savings over the lifetime of the lease.

The leasing company also dictates the number of solar panels they will install and how they are situated on your roof. This could raise aesthetic concerns, so it’s important to check the final designs before signing. 

If you decide to sell your home during the term of the lease, it’s possible that some prospective buyers will be deterred by the appearance of the panels, or by the obligation of taking over your lease. You might find it necessary to buy out the lease yourself in order to resolve these issues. Depending on where you are in your leasing term, this can be pricey, evaporating some of the energy savings you were enjoying. 

Finally, when the lease ends, the savings end — unless you renew it or purchase the system from the company. 

The Best Choice

Homeowners considering solar have different priorities and needs. While leases and PPAs aren’t the best choice for everyone, they can work well for some consumers. For example, if a homeowner finds the upfront costs of buying solar to be prohibitive and they don’t qualify for a solar loan, leasing and PPAs are alternatives that still provide some savings, even if not as significant. They may also be good options for someone looking to realize some energy savings without the responsibility of owning a solar system. 

For many people who can’t afford to buy a solar system outright, a solar loan provides an alternative to leasing. The best solar loans offer flexible, accessible terms with low or no fees and low interest rates. Monthly payments are lower than an average energy bill, so you can start saving money right away. 

Solar loans function similarly to home improvement loans and are available from various types of institutions including banks, credit unions, utilities, solar manufacturers, public financing programs, and housing investment funds. Depending on where you live, you might be able to get a subsidized solar loan with reduced interest rates. Unlike with a lease or PPA, you’ll be eligible for the federal solar ITC, and possibly other tax credits, incentives, and rebates available to homeowners who purchase solar systems. 

The Clean Energy States Alliance has compiled a comprehensive guide to solar financing that covers solar leasing, PPAs, and loans in great detail. It’s another useful resource for weighing which solar financing option is best for you.