If our parents taught us anything it is that we should beware of anything that seems too good to be true.
If you've seen an advertisement for a solar panel system touting "free solar panels", the first thing that might pop into your head is what's the catch? Is it some sort of solar energy scam?
If you look into it in more detail you'll work out that the term "free solar panels" is essentially referring to a zero down method of installing solar panels on your house. These offers are not free but instead, they refer to residential solar PV systems purchased by way of a solar loan or lease where there is no upfront payment by the homeowner and the homeowners monthly saving on utility bills are as much or more as the cost of the solar loan or solar lease payment.
So I guess we would have to say these ads offering “panels for free” or “renewable energy” for free are a bit misleading but not a complete lie. The fact is a zero down solar system installed on your home will save you a lot of money over the 25-year life of the system. They will save you far more than efforts to be energy efficient and in some cases, solar can save you over $50,000 over the 25-year life of the solar panels even after This can be because the solar panels are funded 100% by a loan or more commonly because it is a third party owned solar product that the solar company is offering to install for you.
Are deals advertising free solar systems usually for third-party owned solar leases?
A third party owned solar product is a product where the solar company retains ownership of the solar panels they install on your roof but charge you a rate for the power they produce for a length of time, usually either 15 or 20 years.
There a broadly two types of third-party owned solar products. Solar Leases and Solar PPA products. The difference is that with a lease the monthly payment is fixed for the lease term and with a Solar PPA the amount charged is an amount per kWh (usually 15-17 cents per kWh). In both cases the solar company retains ownership of the solar panels until the end of the contract term and then usually the ownership would pass to you the homeowner. In the case of a solar lease, there may or may not be a residual payment at the end of the lease.
There is a currently a 30% federal solar tax credit in place until the end of 2019 and so we recommend highly that if you want to take advantage of one of these free solar power offers that you gather solar quotes from one or more local solar companies now. Read more about the advantages and disadvantages of solar leases and the advantages and disadvantages of Solar Power Purchase Agreements.
Are zero down solar offers a scam?
Getting back to our original question, are zero down solar offers a scam? The answer generally is no!! Whilst there are better and worse third-party-owned solar deals they are based on fundamentally sound economics both for the homeowner and for the solar company. There is a number of reasons why solar leasing companies can offer you zero down solar panels. Firstly, when they do this they retain ownership of the 30% federal solar tax credit and any other upfront or ongoing incentives that attach to you installing solar panels on your roof. Also, the real cost of solar panels to large companies like SolarCity or Vivint is much lower than the retail market price for installed solar systems.
The real question is not whether zero down products are a scam the real question is whether third-party owned products are the best way for you to get solar panels.
The issue is this: You only have one roof and one electrical load to service. You have to choose to either buy your own solar panels (either cash or with a HELOC loan) or enter into a third party owned zero down solar agreement. Both will save you money, but can't do both. The reason that both will save you money is predominantly because of the 30% solar tax credit and the effect of the net metering law. These incentives have been awarded to you the homeowner by the legislature and they afford you a rare opportunity to make a significant profit on an investment.
This is the real issue with zero down products, it's not that they don't save you money, they typically will (and you take no financial risk) it is just that usually you could have saved tens of thousands of dollars more if you bought your solar panels outright.
To demonstrate this point I used a homeowner in Los Angeles with a $200 per month power bill.
They will save $63,000over the life of the system after all repayments.
This compared to their net position if they didn't buy solar. You can check this maths for yourself, and using your location and electricity usage using the Solar-Estimate.org solar panels calculator. If our same homeowner from above was to enter into a 20 year PPA agreement at 16 cents per kWh with a 2.25% PPA price inflation then their savings over the 25-year life of the system would be around $18,000. This is still pretty good given the person made no financial investment but is less than one-third of the savings made by someone who purchased their panels using a HELOC loan or cash.