Are free solar panels actually free?
You might have seen solar installers advertising ‘free solar panels’ and thought: this is too good to be true.
Well, your gut instinct is correct. most things in life don’t come free. These tricky “free solar” marketing tactics refer to certain financing options where homeowners don’t own the solar panels on their roof and instead just use (and pay for!) the energy they generate.
Trying to navigate what a company offering free solar panels is trying to sell you can get confusing. Luckily, we’re here to help. Keep reading, and we’ll tell you exactly what you’re getting into before you choose free solar panels.
Free Solar Panels: 5 Solar Scams To Avoid
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Free solar panels at a glance:
- Free solar panels usually mean a solar installer offers solar leases or solar power purchase agreements (PPAs).
- With free solar panels, you don’t have to pay for the solar installation; instead, you pay for the solar energy the panels on your roof generate through monthly payments to the solar company.
- You cannot get free solar panels from the government, but many homeowners can take advantage of government solar incentives to lower the costs of purchasing solar panels.
- Buying solar panels with cash or a loan is a better investment than installing free solar panels, as these options provide higher long-term electricity bill savings.
- You should only consider installing free solar panels if you do not have cash for an upfront purchase, do not qualify for a solar loan, or do not qualify for the federal tax credit.
What do solar installers mean when they say ‘free solar panels’?
When installers talk about free solar panels, they are referring to one of two solar financing options:
With solar leases and PPAs, you enter into a long-term contract with a solar company. The company will install solar panels on your roof at no cost to you. This is why companies will often advertise these financing options as “free”.
However, you are still paying money for going solar. Instead of paying for the solar panels, you’re paying for the solar electricity.
It’s also important to note that if you go solar through a lease or a PPA, you do not own the solar panels on your roof. The installation company is the sole owner of the solar system.
Are free solar panels a scam?
Free solar panels aren’t necessarily a scam as much as they’re a sneaky marketing tactic. As we said, the solar panels are, in fact, free. Companies just tend to leave out the part that you have to make monthly payments to them for the energy the panels generate.
Here’s how it works: the installer puts the panels on your roof and retains ownership of the system. You get to use the energy generated by the solar panels instead of taking energy from the grid, which lowers your monthly utility bill. You also get to take advantage of net metering, which reduces your utility bills further.
However, you do have to pay the solar company for using that solar energy. Exactly how the monthly solar payment works depend on if it’s a lease or a PPA and the terms of your contract. The solar payment is typically designed to be lower than your utility bill before the panels were put on your roof, so you will still be saving money on electricity.
How To Get Solar Panels for Free: Clarification Regarding “Free Solar Panels”
Since solar energy is a complex topic, misleading terminology and blatant lies can be used to extract money from unwitting customers.
There is no such thing as a free solar panel. There are always costs involved.
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Whether the costs are primarily upfront costs or charged over time depends on how the customer purchases or leases the solar energy system.
For example, some states and companies offer panels in exchange for delivering energy to the public grid. Yet, this is also tricky because there is usually a monthly ‘fee’ charged to the homeowner, and the panels never become their personal property.
Government tax credits can help reduce the overall finacial burden of installing solar panels on your home, but the credit is usually around 5-10% of the price you’ll pay.
Whether or not the customer realizes any of the financial benefits of a solar energy system relies heavily on performing due diligence and focusing on facts and data instead of hype and vague guarantees.
What Are the Eligibility Requirements for a Federal Solar Tax Credit?
The IRS is the best source for information on what are the eligibility requirements for a federal solar tax credit. 14
As of December 2022, there was no dedicated federal solar tax credit. The Residential Clean Energy Property Credit governs whether a solar energy system qualifies for a tax credit.
It cannot be repeated enough times that there is no way how to get solar panels for free. What some would call a free solar panel is either a reduction of the upfront costs – such as grants and credits – or a financial rearrangement of how and when the costs are paid.
Solar loans with fair terms are a beneficial example of a financial rearrangement; any loan, lease, or power payment agreement with outrageous charges and fees qualifies as a detrimental example of a financial rearrangement.
What’s the Real Cost of Solar Panels?
The upfront costs involved with purchasing and installing solar panels and their necessary supporting equipment – such as physical mounts and solar charge controllers – are the most expensive aspect for consumers seeking solar energy systems.
Though maintenance and cleaning do incur expenses as well, the typical costs associated with monitoring solar energy systems and cleaning solar panels are very small compared to the upfront costs, and to the maintenance costs of many other forms of energy generation.
“Free solar panels” is a misleading claim that refers to an outside agency – typically a third-party solar company with government backing – accepting the financial and physical responsibilities of installing the solar energy system. The solar company owns the solar energy system, which typically means that the solar energy system provides warranties for the solar panels and is responsible for honoring the terms of the warranty.
However, this also means that the solar company receives governmental benefits from the solar energy system. In addition, the solar company collects routine payments from the customer.
When the solar company leases the solar energy system to the customer, the customer’s solar lease payments are analogous to lease payments for apartments and temporary housing; the customer is paying for the right to use the solar energy system.
When the solar company establishes a power purchase agreement with the customer, the customer pays the solar company for the electricity that the solar energy system generates; some power purchase agreements charge the customer for the electricity that the solar energy system generates instead of the amount of energy that the customer consumes from the solar energy system.
The adage “If it sounds too good to be true, it usually is too good to be true” applies to free solar panels.
The term “Free solar panels” can be used as a hook, intended to lure customers. It’s also misleading – or a downright lie – due to the monthly payments that customers will send to the solar company.
A general rule of thumb is that phrases such as “Free solar panels,” “No-cost solar programs,” and “No cost solar” have significant catches involved.
“Solar panels for zero money down” is a more honest assessment when the customer has the option of purchasing the solar energy system from the solar company. In such a scenario, the upfront costs associated with acquiring and installing solar panels are analogous to the down payment for a home or an automobile.
“Solar panels for zero money down,” however, is misleading when the solar lease or power purchase agreement does not allow the customer to buy the solar energy system from the solar company. An alternative to solar leases and power purchase agreements is a solar loan.
A solar loan is a type of home improvement loan, where eligible customers borrow money from a financial institution and pay it back – with interest – via monthly payments.
The biggest benefit of a solar loan is that the customer owns the solar energy system. This means that the customer receives government incentives, electricity credits, and other financial benefits associated with solar energy systems.
When faced with solar companies misrepresenting their services or engaging in fraudulent activity, consumers have resources available to protect themselves. Such resources include, but are not limited to:
- The Federal Trade Commission, 1 allows customers to report fraud through their website
- State consumer protection offices (USA Gov) can help customers find their state consumer protection office 2
In addition, the National Renewable Energy Laboratory provides information about solar consumer protection. 3
Solar Panels for Home
The first question that homeowners should ask themselves when considering solar panels for home energy generation is “Is my home environment a good match for solar energy?”
A solar energy system requires access to direct sunlight to achieve its peak operating capacity.
Homeowners living in areas with large numbers of cloudy days might not achieve environmental and financial ROIs on a solar energy system as soon as others who have longer average daylight hours.
Also, homeowners contending with high amounts of air pollution should forestall or forego solar energy since the contaminant particles can block sunlight and damage solar panels.
A solar energy system also needs a significant amount of physical space. Roofs are a common solution, but homeowners must determine if they can place enough solar panels on their roofs to achieve the benefits that a solar energy system can provide.
Roof installations may not be possible if the roof cannot sustain the weight of solar panels due to disrepair or age, so it’s helpful to know how much does a solar panel weigh.
The U.S. Department of Energy offers a helpful checklist that guides homeowners on how to prepare their homes for solar energy system installations. 4
Are leased solar panels really free?
In addition to outright scams, “free solar” claims are used to sell solar leases and power purchase agreements (PPAs) that often benefit the installer far more than the homeowner. But leasing solar panels does not make them free.
Leases and PPAs were popular in previous decades when the average cost of solar panels was much higher. But today, with substantially lower solar panel cost, owning solar panels is much more beneficial.
Solar leases and PPAs
Solar leases and PPAs are arrangements in which a company installs solar panels on your roof for no upfront cost and then charges you a monthly rate that is typically lower than your utility rate. In a solar lease you pay a flat monthly fee for the electricity, whereas in a PPA you pay per kWh of electricity generated.
Both arrangements typically include a price escalator that raises the monthly payment between 1% and 5% each year. It’s also important to note that the installation company owns and maintains the panels, so the solar system doesn’t add to your home value and can complicate the sale of the home.
Technically, you don’t pay for the solar panels in either arrangement – but that’s because you don’t own them. However, you do pay for the electricity they produce, which can add up to more than the cost of a solar system over time.
And just for comparison, you can also buy solar panels with a zero money down using a solar loan, but that doesn’t mean they’re free.
If you don’t own it, is it really free?
Imagine this: An exercise equipment company advertises a free rowing machine. You claim the offer and they set up the rowing machine (which they still own) in your home at no cost. But when you turn it on, it costs 2 cents per stroke to use it.
Would you really consider that a free rowing machine?
Now, we’re not saying that all solar leases and PPAs are scams, but we certainly disagree with the marketing choice of advertising free solar panels that aren’t really free.
Owning vs leasing solar panels
Even though there’s no such thing as free solar panels, going solar is still a great way to reduce your energy costs.
Leases and PPAs were more prominent in the past when the cost of going solar was much higher. But the cost of solar panels has come down substantially in the last 10 years, making ownership much more affordable and accessible.
Here are some things to consider when deciding whether to buy or lease your solar panels.
Maximum savings potential
If your primary goal is maximum savings, then owning is the way to go – especially if you buy with cash.
The chart below shows the cumulative cost of owning and leasing the same 8 kW solar over 25 years.
Here’s how the average monthly electric bill with solar panels breaks down over 25 years for the cash purchase, 12-year loan, and 25-year lease shown above.
Leasing may be the cheapest option early on, but it becomes more expensive than buying with cash in year 12 and a solar loan in year 15.
By year 25, the solar lease is nearly 24,000 more expensive than buying in cash and around 18,000 more expensive than a 12-year solar loan.
There’s two reasons leasing solar panels is more expensive than owning in the long run:
- The payments endure for the life of the lease
- The escalator increases the payments each year
With the 2.5% escalator we used in our example the monthly payment increased from 100 per month to 180 per month over the life of the lease.
To be clear: All three solar options are cheaper and cleaner than grid electricity, but owning your solar panels – especially if you pay in cash – substantially increases your return on investment.
Do solar panels add value to a house?
In addition to electricity savings, solar panels increase the value of your home by up to 4.10 per watt. That amounts to 32,800 for an 8 kW system, but you only accrue this value if you own your solar system.
But if you don’t buy the solar panels, they can’t add value to your home.
In a solar lease, the installation company owns the system. Not only do you miss out on the increased home value, having a leased solar system can complicate your home sale if you decide to move.
Basically, if you decide to move before your solar lease is up, you have three options:
- Ask the buyer to take over the lease
- Buy the system outright
- Make the remaining payments and termination charges
The first option relies on finding a buyer that is willing and able to take over the lease. The second and third options rely on you making a lump sum payment for the solar system – which is exactly what you tried to avoid by leasing.
Government solar incentives
In August 2022, the Inflation Reduction Act increased the federal solar tax credit from 26% to 30%, where it will remain until 2032.
That means if you purchase a solar system, you can lower your federal tax liability by 30% of the installed cost of the system. So if an 8 kW system cost 24,285.71 upfront, the 30% tax credit would be worth 7,285.71 and bring the net cost to 17,000.
There are also state and local solar incentives that can be used in addition to the federal tax credit to bring the cost down even further.
These incentives make going solar more accessible and increase your overall savings, but they only apply if you purchase the system instead of leasing it. In a solar lease, the installer claims the incentives and may or may not pass the savings on to you.
No such thing as free solar panels
If you’re reading this article, then your Spidey Senses were spot on. There is no such thing as free solar panels despite what the online ads and door-knockers try to tell you.
often than not, marketers using the ruse of free solar panels are trying to get you to sign a solar lease or power purchase agreement. Although these solar financing arrangements can increase your energy costs, they offer far less savings potential than solar ownership, and certainly shouldn’t be considered free.
Benefits of Financing Your Solar System
If you’re looking to go solar, we usually recommend a partial for full cash purchase and financing the rest of the cost whenever possible, in place of leasing. In fact, at Sun Valley Solar Solutions, we don’t offer our customers a lease option anymore. We made this decision a couple of years ago because our financing options have better terms than leases in most cases, and it allows our customers to reap the tax benefits of going solar. Below are a few benefits of financing versus leasing.
You Own the System the Tax Credits
As opposed to leasing, where the leasing company gets the tax benefits, with financing you’re able to keep those for yourself. as long as you have a tax liability. The most lucrative ones are the 30% federal solar tax credit and the 450,000 state of Arizona tax credit. You’ll also be the one to own the system, which adds value to your home and can give you a competitive advantage over other homes on the market.
Quicker Return on Investment
Financing your solar energy system typically results in a quicker return on your investment. Depending on your electricity costs and the size of your system, most homeowners see a positive ROI in 7-10 years.
Solar Incentives Can Make Solar Affordable
As mentioned in the section above, there are some lucrative solar incentives that can make solar more affordable. The most notable is the 30% tax credit, which was refreshed in August 2022 when President Biden signed into law the Inflation Reduction Act. With this important piece of legislation, the previous ramp down schedule was revised with the reinstated 30% tax credit and a 10-year extension for any residential installations through 2032.
Rebranded as the Residential Clean Energy Credit, the new rate is retroactive to any solar, or solar and battery system placed into service on or after January 1, 2022. Beginning in 2033 the tax credit will gradually phase out and be gone by the end of 2035. The state of Arizona also offers the 450,000 tax credit along with no sales tax on a solar energy system purchase. So although solar isn’t free, the current solar incentives are there to help make it more attainable.
Choose Your Solar Partner Wisely
While all of these shady marketing tactics might sound intimidating when first looking into solar, they are quite easy to avoid when you know what to look for. We hope this article has helped you know what red flags to look out for when continuing your solar research.
One of the biggest pieces of advice we can give is to research all of your options thoroughly and to choose your solar partner wisely. At Sun Valley Solar Solutions, we have over 17 years of experience helping Arizona homeowners go solar. We even have an in-house service department to help keep your system performing at peak efficiency for years to come.
We invite you to download our free guide, Are Solar Batteries Right For You? In it, you’ll learn the various factors that make up a solar and battery purchase. Or if you’re ready to speak to one of our solar integrators about solar for your home, simply click the button below to request a free, no-obligation quote.