Everything companies mean with their power purchase agreements and solar leases spiel.
Sunlight is free. Solar panels are not.
With electricity prices higher across the US than they were just a couple of years ago, many people see solar panels as an increasingly appealing option to power their homes.
The fact that some companies market "free solar panels" makes them even more tantalizing.
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Solar panels generally cost about $20,000, after federal tax incentives, to install on the typical American home -- not exactly pocket change. This expense is what makes solar installation companies' so-called "free" promotions so alluring. But as with most things in life, you need to read the fine print.
"'Free' can mean a number of different things," said Phillip Haddix, Solar for All Portfolio Manager at DC Sustainable Energy Utility, a provider of rebates and incentives for people to install solar systems. "It'll primarily depend on where those companies operate. A lot of what is possible in terms of affordable or free solar depends on not only the federal incentives that are available, but also what is available at the state level."
What solar companies usually mean by "free" are either power purchase agreements or solar leases, both of which might actually be a good deal. Solar PPAs are available in at least 28 states, including California, New York, Texas and Georgia, so if you're interested in solar you should research which programs are available where you live.
If you live in a state that offers strong incentives or allows leases and power purchase agreements, "free" solar panels may be legitimate. There might still be a cost to these schemes, however.
In some places, such as Illinois, certain government incentive programs offer solar panel installation for free if you meet certain criteria, such as an income requirement.
More often, these offers involve leases or power purchase agreements. Under a PPA, a solar company will install a solar system on the roof of your home and charge you for the energy you use. You, the homeowner, won't own the solar system. The company will.
Solar leases are similar to PPAs in that the homeowner will not own the system. Think of it like renting a vehicle. Leases typically don't require any money upfront -- you just pay a fixed rate each month to keep the system on your home. This way, you still enjoy the benefits of lower energy bills without the need to shell out the entire cost of solar or financing.
Both PPA and solar leases are "a way that people can still participate in the solar energy economy, but with a contractual obligation with this outside company who is bearing those costs," said Gilbert Michaud, assistant professor at the School of Environmental Sustainability at Loyola University Chicago.
Power purchase agreements and solar leases allow people to realize savings on their energy bills but without a huge upfront cost. But there must be a catch, you may be thinking. Sort of. Much like getting into any other financial agreement, pay very close attention to the rate you'll pay, whether that's the price per kilowatt-hour for a PPA or the fixed monthly rate of a lease. Make sure you're getting a good deal, and watch out for "escalators," which will raise the rate after a certain period of time.
Another "catch": Since the solar company maintains ownership of the system under a PPA or lease, it will generally be the one who benefits from both tax incentives and renewable energy credits. Entities such as power companies will pay owners of solar systems for these RECs, which are created when a certain amount of electricity is generated from a renewable source.
One advantage of owning, rather than leasing, your solar panels is that they tend to boost home values. "If you own the asset, it actually increases the value of your home, as opposed to if you're in a lease or PPA program, you don't really own anything," Michaud said.
Still, for those unable to afford purchasing their own solar system, a PPA or lease can help you save on your energy bills. In the fourth quarter of last year, PPA prices were on average about 5 cents per kilowatt-hour, according to one estimate, compared to an average of about 15 cents per kilowatt-hour for electricity across the US.
Interested in adding solar panels to your home? Here are some things to consider with various financing options.
Cash: You've got the funds to pay upfront for the purchase and installation of a solar system. Great! This will grant you all the benefits of solar, including energy savings, tax credits and a higher home value. The only potential drawback here is that since you own the system, you'll be responsible for its maintenance.
Home equity: Home equity loans and lines of credit, or HELOCs, are tools that use your home as leverage for a loan. It's best to avoid them unless you're sure you'll be able to pay the debt off. Failure to do so can result in your home being foreclosed upon. With that said, if the math of potential energy savings works in your favor, it may make sense to leverage your home's equity to finance a solar system.
Other loan: If the potential energy savings outweigh the interest rate of the loan, borrowing money to pay for a solar system may make sense. Some lenders now offer loans specifically for buying solar systems, but again, make sure the terms are favorable and that you'll be able to make the monthly payments.
If you're ready to commit to a solar system for your home, but still worried about its cost, there are some ways to reduce the financial hit. Most importantly: Get quotes from multiple companies.
"Solar companies will come to your house, they'll do site assessments, they'll sit down in your living room and walk through different options," Michaud said. "That's valuable. Engage with folks and understand what's out there and what exists."
Haddix said to compile all this information together. "As with any big purchase, get multiple offers and compare them," he said.
There are also less obvious, more complex ways to save on the upfront costs of solar panels. These include: