Are "Free" Solar Panels Really Free?

If you have been in the market for a solar panel system lately, you’ve probably seen advertisements for “free solar panels.” Companies offering these deals promise to install a solar energy system on your roof for free.

However, when you look at the fine print, you will find there is no such thing as a free solar panel. After all, solar panels cost thousands of dollars, and no company can afford to give that much product away.

So what do companies mean when they advertise “free” solar panels? They really mean no money down, but you must lease the panels for a recurring fee.

Are such deals worthwhile?

Let’s look deeper into these offerings to see if they provide value.

Decoding the Free Solar Panels Sales Pitch

“Get your free solar panels. No charge for solar panels!”

It sounds too good to be true, and it is. The term ‘free solar panels’ is usually used in advertisements for solar power purchase agreements (PPAs).

Under these agreements, a solar company contracts to install solar panels on your roof for no money up-front. In that sense, you do get your free solar panels. However, you will be billed for the electricity produced by the solar panels.

Many of these offers can provide savings. After all, solar panels are expensive, and many people cannot afford the cost of purchasing and installing them.

If you find the cost of solar panels prohibitive, a leasing agreement could allow you to save money every month on your utility bills. If this savings is larger than the cost of leasing, a PPA may make financial sense.

Households that can afford to purchase their own solar panels will have to foot a large bill in the beginning. Over time, the savings on utility bills (without leasing costs) may ultimately result in more savings versus the leasing option. However, if you do not plan to remain in the property for the long term, you may not recoup your investment.

Another option is to finance the cost of the solar panels. This avoids a huge cash outlay at the start, and some consumers may qualify for zero-down solar loans.

When comparing offers, it’s important to compare the costs of financing solar panels with the cost of leasing them to determine which option provides the best outcome.

When accepting the leasing option, it is important to remember that you are renting the solar panels, so you do not technically own the system, and the solar energy the panels produce comes at a cost.

Under solar lease agreements, the solar company retains ownership and charges you for the electricity the solar panels produce. In a way, the company has built a small power plant on your roof and sells you the electricity it produces.

This is fundamentally different from owning the solar panels and the power they produce.

Will Free Solar Panels Save You Money?

There are a number of good reasons to convert your home to solar energy. Saving money, eliminating utility bills, and reducing your carbon footprint are all compelling reasons to go solar.

As far as the environmental impact, the carbon footprint savings are largely the same regardless of the installer or whether you rent or buy the solar panels. The key difference lies in the financial impact on your household.

Though the solar industry benefits from its environmentally friendly reputation, consumers should remember that solar companies are in the business to make money. After all, they cannot help the environment if they make no money and go out of business.

Solar lease providers make their money by selling you electricity. The rate is usually lower than what you would pay your utility company, so there are financial benefits to these arrangements.

Companies like SolarCity once dominated the market for solar leases, but recently, many other solar lease companies have emerged, shifting the competitive landscape. Some solar leases offer more savings than others.

Solar panel buyers can now shop multiple vendors and compare and contrast offers. Even if financial gain is secondary to helping the environment, you should still get multiple quotes to ensure you get a great deal.

Try Financing Your System with a Solar Loan Instead

Solar leases revolutionized the market by making it possible for virtually anyone with a roof to go solar, even if they lacked the funding to purchase a system. Solar leases crushed the financial barrier to going solar, taking solar panels from a rich person’s option to one any homeowner can afford.

Solar systems are more affordable than ever before. While a solar lease may be an attractive option, do not forget to consider a loan to buy the solar panels. When you finance the panels, you own the electricity output of your system.

That means no more electric bills. You just have to pay off the system. By performing an apples-to-apples comparison of a lease versus a financed purchase, you can determine which option most benefits you.

How Solar Loans Work

Thankfully, cash solar panel purchases and solar leases are no longer the only options for property owners who want to install solar panels.

For solar panel buyers who lack the capital for a cash purchase but want to maximize the financial benefits and own their own solar energy system, the solar loan offers a practical solution that saves money and the environment.

Consider the following characteristics of solar loans:

Many solar loan options are available
With a solar loan, homeowners can save 40-70% over the lifetime of their solar panels
Many homeowners qualify for $0-down loans, which allow you to finance the full balance of your solar panel system loan
Many different types of institutions offer solar loans, ranging from banks to solar panel manufacturers

All Solar loans have the same basic structure.
The terms and conditions are largely that same as other home improvement loans
Homeowners gain immediate financial benefit because they save money on electricity bills right away (no long amortization period as with a cash purchase).
The monthly savings help you repay the loan (almost like free money)
Many solar marketplace networks help consumers find and evaluate their solar loan options
Solar marketplace networks also provide reviews and ratings of solar installers

Solar panel loans are similar to home improvement loans. Homeowners have been using home improvement loans for decades to build decks, add second bathrooms, or complete other renovation projects. Why not use them for solar panels?

Solar panel loans are structured like any other home improvement loan. The homeowner borrows money from a lender, agrees to pay it back, plus interest, in monthly installments over the loan term.

Solar Panel Loan Considerations

Lower interest rates result in lower overall costs for borrowers
Loans with shorter terms will generally have higher monthly payments and lower total costs over the life of the loan
Solar panel loans can be either secured or unsecured, which results in a wide array of interest rates, term lengths, and credit requirements among loan offerings

One Distinct Advantage Over Regular Home Improvement Loans

A solar panel loan allows you to purchase an asset that generates significant financial value every month. While a home improvement loan may allow you to complete renovations that increase property value, you cannot realize the gain without selling your home, and that comes with major expenses and lots of headaches.

When you purchase solar panels, the electricity generated by them is yours. Usually, the monthly cost of financing the solar panels is less than your former electricity bills, resulting in immediate profits.

In addition, you become eligible for a 30% federal investment tax credit and other large rebates and incentives, such as the solar renewable energy credits. A new kitchen or deck may be a nice addition to your home, but financing it will cost you extra money each month, while a solar loan leads to instant savings.

Key Solar Loan Questions

As with any financial product, understanding solar panel loan structures, terms, and conditions is very important. To find the solar energy loan that is right for your household, there are two fundamental questions you need to ask.

Do you want a secured or unsecured solar panel loan?

Secured loans require you to pledge an asset as collateral for the loan. In most cases, that asset will be your home. You may get better terms and conditions with a secured loan, but you could be forced to sell your home in the case of a default.

On the other hand, unsecured loans require no collateral other than the solar panel system itself. You may have to pay more, but you will not risk your home.

How much are you willing to pay for each monthly loan installment?

The monthly payment impacts the interest rate and the length of the loan. Loans with longer terms tend to have smaller monthly payments, but the interest rate will be higher, and you will pay that higher rate for a longer period of time.

In contrast, the payments on solar energy loans with shorter terms may exceed your monthly utility bill savings. While initially this seems a disincentive, it’s important to consider the fact that you will pay less interest and retire the loan sooner, which means no electricity or loan bills! Now that will make your budget look a lot better!

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Availability of Solar Loans

In addition to traditional banks, many other types of institutions offer solar energy loans. Here is a listing of alternative funding sources:

Many solar panel manufacturers offer loans. These loans are often run through their solar installer networks, which can be a help in finding qualified installers as well as financing.
Credit unions have developed solar energy loan products for homeowners. Many of these are the lowest cost loans available.
Many national lending institutions offer specialty loan products tailored to residential solar panel systems
Public-private partnership programs may offer solar energy loans. Local government agencies partner with private lenders to offer solar loans with low interest rates and no fees!
Some utilities offer “on-bill financing programs.” These financing options allow homeowners to finance solar energy systems and repay the borrowed amount through electric bills.

Many municipalities now offer Property Assessed Clean Energy (PACE) programs that assist with solar energy financing. These loans are repaid by an annual assessment on property owners’ property tax bill.

“Free” solar panels are really leasing agreements. Rather than paying up front for the solar panels or financing them, you get the solar panels installed at no cost in exchange for agreeing to lease the panels through the electricity they generate each month.

These deals can be attractive, However, before signing up, check into financing options. You may find that you can save more money by financing the solar panels and still save on utility bills every month. In time, you will own the solar panels outright, freeing you from loan and utility bills.

Whichever option you take, you will save money while helping clean up the environment.

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