‘Free’ Solar Panels Are Not Free: What You Need to Know

The phrase “free solar panels” is a misleading marketing tactic some companies use. There are no companies or government programs that offer free solar panels. When you see the phrase “free solar panels,” it can mean one of the following things:

• Solar lease agreement
• Power purchase agreement (PPA)
• Government program for low-income households

If the offer doesn’t fit in any of the above categories, it may be a scam.

What Is a Solar Lease?

Having a solar lease is like renting a car or apartment. A solar company installs panels on your property for $0 upfront, and you sign a contract in which you agree to pay a monthly fee for using the equipment. Some companies describe lease contracts as giving you “free solar panels” because there is no initial investment, but the term is misleading because you still have to pay a monthly fee.

Despite this misnomer, there are advantages and disadvantages to solar leases. Let’s examine what a solar lease is and is not so you can decide if it is the right option for you.

What We Like About Leases

The main advantage of a lease is you avoid the initial cost of a solar installation, which is around $17,094 for a 6 kW system. You can also go solar at $0 upfront with loan financing, but solar leases are less demanding on your credit score. A solar lease also makes the system provider responsible for maintenance, which means your solar company must assume the cost of any repairs and part replacements.

We at the MarketWatch Guides team recommend a solar lease if you do not have access to low-interest solar loans. Leases have higher monthly payments but also simpler application requirements than loans.

What We Don’t Like About Leases

The main disadvantage of a solar lease is having to share your power bill savings in the form of monthly payments. Since you do not own the solar panels directly, you cannot claim financial incentives like the 30% federal tax credit. Instead, the solar company that provides the lease claims the benefits because it is the legal owner of the system. Two other lease details to note:

Solar leases can also have a term of up to 25 years, with rising payments and significant penalties for early termination. If you plan to sell your home during this period, you will have to look for a buyer who is willing to assume the rest of the lease.

You can achieve higher savings over time with a solar loan — although you pay interest, the monthly payments are typically much lower than that of a lease contract.

What Is a Power Purchase Agreement (PPA)?

A solar power purchase agreement (PPA) is similar to a lease, but you do not have a fixed monthly payment. Instead, you pay for the electricity the solar panels generate, similar to how you purchase grid electricity. To make the deal attractive, solar companies often set the solar PPA price lower than local electric rates. Some companies also refer to PPA contracts as giving you “free solar panels” because there is no upfront payment required, but this is not technically true since you still have to pay for energy generation.

What We Like About PPAs

The main advantage of a solar PPA is paying for the electricity generated each month instead of having a fixed fee. For example, if the solar panels have low energy production during a winter month with cloudy weather, your PPA payment is also reduced. Under a traditional lease, you pay the same fee regardless of solar panel performance.

A solar PPA offers the same advantages as a traditional solar lease with a $0 upfront cost and delegating maintenance to the system provider. Solar PPAs also tend to have less demanding application requirements than solar loan programs.

What We Don’t Like About PPAs

A solar PPA has the same downsides as a solar lease — you share your energy savings with the provider while missing out on solar incentive programs. PPA contracts can also have a term of up to 25 years with penalties for early termination. Many solar PPAs also have an escalator clause, which means the kilowatt-hour price of energy increases along with local utility rates. Additionally, a PPA can make it harder to sell your residence because the new owner must be willing to assume the contract.

If you can qualify for a solar loan or choose a cash purchase to cover the upfront system cost, you can expect much higher savings in the long run.

What Are Government Solar Programs?

Government-subsidized solar programs do exist, but they are rare and only available for low-income households. These programs are normally managed by government agencies, regulated utilities or nonprofit organizations. Private companies may participate as approved installers, but they are subject to stringent guidelines.

To summarize, “free” solar panel offers are not always scams, but they are misleading. Many companies are more transparent in their sales pitch: They will clearly state that the upfront payment is zero, but you must sign a solar lease or PPA and make ongoing payments to the solar company.

Generally speaking, you cannot get free solar panels from the government. Some government agencies have created programs that subsidize solar panels, but these programs are only available for low-income households that meet certain requirements.

The agency in charge of such programs will filter applications by income level and hire qualified contractors to install solar energy systems. Other government programs may offer you a discount on your energy bills.

The U.S. has no federal programs offering free solar panels for low-income families. Some states may offer a similar program, but it is rare. Below are two examples of programs offered in California and Maryland.

Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH)

Location: California

Program value: $3 per watt of solar capacity ($3,000 per kW)

Frequency: Single-use

The DAC-SASH program offers a one-time solar incentive of $3 per watt for low-income households in California. Given that home solar systems have an average cost of $2.51 per watt in the state, this incentive fully covers the upfront cost in most cases.

California households must meet the following requirements to be eligible for DAC-SASH:

• Your household must be located in one of the state’s top 25% of the most disadvantaged communities, according to the California Office of Environmental Health Hazard Assessment.
• You must be a customer of Pacific Gas & Electric (PG&E), Southern California Edison (SCE) or San Diego Gas & Electric (SDG&E).
• You must have a household income below the limits established by the CARE/FERA program, which are updated annually. For example, the upper-income limit for a three-person household is $49,720 from June 2023 to May 2024.

GRID Alternatives manages the DAC-SASH program for the entire state of California. You can apply by filling out a form online.

Maryland Energy Authority: Solar Energy Equity Grant Program

Location: Maryland

Program value: 100% of solar system design and installation costs

Frequency: Single-use

The Solar Energy Equity (SEE) Grant Program offers up to $25,000 for solar panel systems, covering both design and installation costs. The incentive is available for Maryland homeowners who meet the following requirements:

• Households with low-to-moderate income levels or households located in overburdened or underserved communities as defined by the Annotated Code of Maryland.
• The home must have energy efficiency and weatherization upgrades, which are usually available through other grant programs in the state.
• The residential solar system must be 1 kW to 10 kW in size.

The Maryland Energy Authority (MEA) has announced a program budget of $3 million for 2024. Applications are submitted by local governments and non-profit organizations, not directly by homeowners, with a deadline of Feb. 22, 2024.

Read more about the SEE grant program on the MEA website.

There are many ways to reduce the upfront cost of a rooftop solar system without having to sign a lease or PPA contract. The financial incentives available for solar panels in the U.S. include:

• State and federal tax credits
• Sales tax and property tax exemptions
• Solar rebate programs
• Solar renewable energy certificates (SRECs)

These solar incentives can be combined, making your photovoltaic (PV) system much more affordable. When you get a solar lease or PPA, all of these benefits are claimed by the company offering you the service, as they are the legal owner of the system. So, as the homeowner, you aren’t able to cash in on these incentives.

Tax Credits

The solar investment tax credit (ITC) has been a major incentive for U.S. solar installations since 2006. This incentive is also known as the federal solar tax credit, and it gives you back 30% of project costs as a tax deduction.

Depending on where your home is located, additional tax credits may be available from your state government, and you can capitalize on both incentives. For example, New York offers a 25% solar tax credit for homeowners, up to a maximum amount of $5,000. This incentive can be stacked with the federal ITC to save you even more on your system.

Use the dropdown below to learn about the specific tax credits, rebates, and incentives offered in your state.

Tax Exemptions

Some states also offer tax exemptions, which are slightly different from tax credits. In this case, solar panels are exempt from taxes that would normally apply to other assets.

• You may get a sales tax exemption, which represents an immediate discount when purchasing solar panels. It ensures you won’t pay your local sales tax on solar panels and mounting equipment.
• Local governments may also offer property tax exemptions for solar panels, mandating the increase in home value resulting from the installation is not taxed. For example, a $500,000 home that gets a $25,000 solar panel system will still be taxed based on its $500,000 value.

Rebates

Solar rebates are direct cash incentives for installing photovoltaic systems. These programs are normally managed by government agencies or local utility companies. Solar rebates and tax credits can be combined, but you must subtract the rebate first and then calculate the tax credit based on the net system cost.

Solar Renewable Energy Certificates (SRECs)

Solar renewable energy certificates (SRECs) reward solar owners for the amount of electricity their solar system generates. Here’s how these programs work:

• You earn one SREC for every 1,000 kWh of energy your panels generate.
• You can sell SRECs to local utility companies or other businesses that have a legal obligation to support renewable energy in your state.
• You can use the income from selling SRECs to lower your power bills.

SRECTrade has a list of states with active SREC programs, with the corresponding market price per credit.

WalletWatch Tip

New Jersey SRECs have been trading at around $207 in the first half of 2024. If you own a home solar system that generates 10,000 kWh of energy per year and you earn 10 SRECs, you could sell the credits for around $2,070. These savings represent additional income beyond your power bill savings, which shortens your payback period.

A low-interest solar loan is the best financing option for solar panels since you own the equipment directly and still qualify for incentives like the federal tax credit.

Industry experts recommend solar leases and PPAs as a secondary option because they have simpler requirements than loans, but take away your incentives and cut into a larger fraction of your overall energy savings.

Compare Financing Options

As a quick example, let’s say you plan to install an 8 kW solar system and are trying to decide between a solar loan or a lease. Assume you get the following conditions in each case:

• Solar loan: 6% annual interest with a 15-year term and $135 monthly payment
• Solar lease: $180 monthly payment with a 25-year term

Under favorable sunlight conditions, an 8 kW solar system can generate more than 12,000 kWh of energy per year. If you live in a state with high electricity rates and your tariff is 25 cents per kWh, you can save around $3,000 per year or $250 per month with solar panels. In this example, your net savings would be $70 a month with a solar lease and $115 per month with loan financing.

You would pay off the solar loan in this example after 15 years, while the lease has a 25-year term. You would end up paying $24,300 with the loan and $54,000 with the lease.

However, this is a simplified example. When comparing financing options from solar companies, ask for a detailed breakdown of your expected payments. Solar loans normally have lower monthly payments, but there may be exceptions.

There are many solar providers and installation companies on the market, so choosing the best option can feel like a challenge. We recommend looking for a solar company offering both high-quality products and professional workmanship. The following steps can help you narrow your options when choosing a solar company:

1. Compare costs: The average cost of a solar installation (including equipment and labor) is around $3 per watt. Before choosing a solar company, compare multiple quotes to understand how your total cost breaks down per watt. Be mindful of companies that try to pressure you into signing a contract without evaluating your options.
2. Compare financing options: Not all solar panel companies offer solar panel leases or PPAs. If you want to lease your panels, look for companies that offer this financing option. Additionally, if you’re taking out a loan, be sure to ask about the interest rate and fees built into your contract.
3. Look for a local installer: In general, we recommend avoiding door-to-door solar salespeople and instead hiring a solar company that operates locally. Companies that are locally based and have an in-house team of contractors tend to have a deeper understanding of local policies and more consistent customer service.
4. Confirm your company’s reputation: Verify that your solar company is trustworthy and reputable by reading customer reviews on third-party sites like the BBB or Trustpilot. Check how long your company has been in business and verify its certifications are up to date.

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