Jessica PirroJuly 9, 20191180
Have you ever seen a solar company promote the offer of ‘free solar panels’? Sound too good to be true? Well, that’s because it is.
Sure there are legitimate solar installers who will put free solar panels on your for your home, but those ‘free solar panels’ usually come with a catch. The catch being they are required to enter into a solar lease or a power purchase agreement (PPA).
The offer of no cost of solar panels entices people to go solar. However, when you take a closer look at the solar-powered systems contract you will find that it heavily favors the solar installer over the 25-year lifetime of the solar-powered systems.
We will explain the economics behind the solar lease as well as the power purchase agreement, in order to show that when a solar company offers ‘free solar panels’ they will ultimately cost the user money in the long run.
What is a Solar Lease / Solar Panels Power Purchase Agreement
A solar lease and power purchase agreement offer solar panel customers a way to go solar without an up-front cost of solar panels.
When you go solar with a solar lease, the solar installer will build a solar-powered system on your property and then will charge you a monthly fee to lease the equipment from them. With a solar lease, you will pay a flat monthly fee and get to use 100% of the production of your solar-powered system.
Power purchase agreement (solar panels PPA) are very similar, except instead of renting the solar panels equipment from the solar installer, you will buy solar power from the solar installer at a flat rate per kWh. This way if you use less power than your solar-powered system produces, you aren’t going to have to pay for any excess generation.
The Drawbacks of a Solar Lease or Solar Panel Power Purchase Agreement
Under both solar leases and power purchase agreements, the main drawback that comes with them is that you don’t own your solar-powered systems. The solar installer owns it.
This is formatted this way is so that the solar installer can claim the Federal Tax Credit and any local solar incentives. As of 2019, that represents a 30% credit on your total costs to go solar.
A solar-powered system that costs $10k gives back a $3k Federal Tax Credit to the solar-powered system's owner. Since under a solar lease and power purchase agreement, the solar installer is the owner, not you, gets to pocket this Federal Tax Credit. You will miss out on the largest financial solar incentive for switching over to sources of renewable energy.
So yes, a certified solar installer will install ‘free solar panels’ on your roof, but they are also going to be the ones to reap most of the long-term value from owning the solar-powered systems. They will make more than enough of a profit over the lifetime of the solar-powered systems to recoup the cost of the solar panels equipment, savings that should be left in your pocket!
A Better Way To Finance the Cost of Solar Panels
Yes, there is an appeal when it comes to getting a solar lease or a power purchase agreement. You will get to go solar immediately, making a very positive impact on the environment and locking in a flat electric rate for the next 25 years.
A solar lease and power purchase agreement will let you enjoy benefits when you go solar with no up-front cost of solar panels. But there’s another financing option which will give you a much better return of investment: a personal loan from your bank or another 3rd-party lender, to help you go solar.
When you go solar with a solar lease or a power purchase agreement are essentially high-interest-rate loans from a solar installer. You will tend to get better rates and terms from your bank, especially if you’ve been a long-time customer.
But the major distinction is that when you take a personal loan out to go solar, you are the owner of the solar-powered systems. This will also allow you to claim the 30% Federal Tax Credit that you get when you go solar, which you can then immediately apply it to the balance of your loan to accelerate the payback schedule if you choose.
The Hidden Cost of ‘Free Solar Panels’
When you go solar how does it stack up when you compare the cost of solar panels when you buy solar panels versus getting a solar lease and power purchase agreement.
There was some math involved when it came to figuring out the return of investment on solar panels under four different payment plans: cash purchase, personal loan, solar lease, solar power purchase agreement.
The math is based on the own a 5.2 kW system under each of four solar-powered systems payment plans. We assume that the cost of electricity starts at $0.16/kWh and raises by 3% each year for 25 years (the length of a solar panels warranty).
When it comes to purchasing and personal loan options, the value of the 30% Federal Tax Credit is included because you own your own solar-powered system. There’s also a $1/watt installation charge for these options.
For the solar leases and power purchase agreements, the installation charge is not included because it is included as part of the package. The tax credit is also excluded because the solar installer is the owner of the solar-powered systems.
Buying your solar-powered system outright is what gives the best value over 25 years, even though the cash payment will put you in the red upfront.
The next best option is going to be taking out a personal loan. The initial cost of solar panels is going to be $0, but the interest payments eat into energy savings for the first 7 years until the loan is paid off. It will quickly rebound after 7 years when the owner will get to keep 100% of the solar power savings from their solar-powered systems,
After the personal loan, a solar lease or a solar power purchase agreement will be the final option. Though the cost of solar panels will be nothing upfront, the value is going to be dampened by the solar company taking a cut of the savings each month. By the end of the solar panels warranty period, solar leases and power purchase agreements have chewed up more than half of the potential solar power savings as profits for the solar installers.
This is why it is encouraged to choose a personal loan over a solar lease our purchase power agreement option. An offer of ‘free solar panels’ might be tempting, but it could cost you up to $25k in energy savings of the lifetime of the solar-powered systems. You can check and see how much you can save by switching to solar using the hahaSmart price checker tool
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