‘Free’ Solar programs are not just a US phenomena. They are offered in England too. There they also are called “rent a roof” programs. They are also called “schemes.” So is Free Solar a scheme?
What’s a FREE SOLAR scheme?
‘Free’ solar lease programs are offered by financing companies eager to cash in on all the government subsides available for solar. Their business model is based on the revenue stream they will receive for the next 20-30 years from the thousands of lease agreements signed by homeowners wishing to enroll in their program. There are a number of companies in the US currently offering PPA and solar leases: Sunrun, Solarcity, Vivint Solar, Sunpower, Sungevity, CEP, etc are dominating the solar market.
These companies offer in essence “to lease your roof” for 20-25-30 years and, in exchange,they install and maintain solar PV panels on it. This means you do not have to put any cash upfront for the panels and you benefit from a portion of the free electricity produced by the system.
What’s the catch with ‘free’ panels?
While you do benefit from the free electricity the system produces for your home, the financing company generally takes all of the incentives offered from the government, and pass on to you financing charges that cancel out most of the benefits of the free electricity the panels on your roof are producing. They also take most of the electrical savings. The homeowner on average is left to realize 10 -15 % savings on their electric costs. The rest of the savings goes to the financing company.
Free solar panels vs buying your own
Benefits for going solar vary state to state – so you have to do your own comparison. In New York State for instance, right now the contrast is stark. Total cost for a solar lease or PPA for an average size 8,000 watt system totals $32,000 with payments stretching over twenty years. If you were to purchase the system outright and keep all the incentives yourself a solar electric system will cost you net under $7,000.00. You will, with good exposure, recover that investment in less than 4 years and you will gain ALL of the savings from the electrical production, not a 15% fraction. At the end of the 20 year lease you will have paid $34,035 in total for a $32,000 product.
We have all seen the story about ho SolarCity inflated the price of their leased solar even to increase their tax claims and profits, reducing the return for the homeowner even further.
Cost $4.00/w -cost – $32,000
Incentives – (benefits paid by the government)
New York State rebate -$9,600
New York State Tax Credit -$5,000
Federal Tax Credit -$9,309
Net cost $6,922*
Total payments for 8000 watt system in a 20 year lease agreement. $34,035*
*both equipment costs and state benefits have been reduced since these original calculation – so the amounts net out about the same.If you want to know how much you could potentially earn through solar panels and how they compare to other investment options then see our guide to our post green bubble 1.
Taking out a loan instead
If you can afford it, you should consider buying the solar PV system upfront. Even if you have to finance part or all of the cost, you probably would still be better off in the long run. See our blog post on green bank and crowd financing.
Predictably, the financing companies stand to benefit far more from the arrangement than householders. Research has found that consumers – if they can take the tax credit, can save thousands of dollar over the next 25 years by buying their own solar PV system instead of signing up to a scheme offering ‘free’ solar panels.
Are FREE SOLAR schemes a good option?
They are worth considering if you:
1. Can’t take the tax credits.
2. Can’t afford the upfront cost of a solar PV system
3. Can’t qualify for a loan.
The solar leasing companies tell people that their programs are better because the system is completely covered for maintenance and damage. But we have found they are usually not covered for all damage and that most purchased solar electric equipment are warrantied by the manufacturer for a good portion of the lease period and are virtually maintenance free.
What does the lease agreement commit me to?
The other issue with free solar schemes is the small print. You are entering into a lease contract with the company, renting out your roof to someone else for 20-25 years. If you look at a contract from a PPA company you will find issues with liabilities and provisions that favor the company:
- The contract may stipulate that the householder is required to get consent during the term of the lease if they want to sell their house or make any alterations or additions to the building near the solar PV system.
- If the homeowner need to have panels removed, to do maintenance work on the roof, they will have to compensate the company for the missed energy production.
- If the homeowner sells their house during the lease, they must find a buyer willing and is qualified by the leasor to take on the lease for the remainder of the contract.
It has also been reported that some mortgage suppliers are refusing to provide mortgage for houses with lease agreements attached to them. It is like having a second mortgage on your home.
Leaser beware – what to look for?
Get legal advice, do not sign an agreement without legal council. You should consider who owns the system, what happens if you want to end the contract early, who is liable for damage, who pays for insurance, upkeep and repairs, and what happens if you move out of your house.
What is good about the Solar PPA and Lease programs?
We cannot continue to pollute the planet, we cannot continue to irresponsibly burn up irreplaceable resources. We need to transition to a much cleaner, sustainable way of harvesting the energy we need. Solar energy is proving itself to have huge potential in allowing us to generate electricity without burning fossil fuels. The faster the industry grows and more solar that is installed the better it is for all of us, the planet and the future. These lease programs are a huge boost to these efforts because they have made solar available to thousands who who otherwise could not afford solar. This quick adoption of solar has greatly increased the visibility, acceptance and power of solar and allowed it to be an industry that can compete against other forms of energy economically, and has allowed it to have the scale and the clout to stand up to vested interests and entrenched businesses as well as their political allies who are working to see it fail.
What is wrong with Solar PPA and Leases ?
The government solar incentives are paid for by everyone – all electricity customers pay a small fee on their bill that help fund the solar incentives in each state and we believe the benefit should go to everyone. These incentives were put in place to assist people and private business to transition to Greentech. With solar lease and PPA programs the result may be an accelerated conversion to solar, but it is a conversion where the greatest percentage of benefit is being funneled to the financing companies and their shareholders and not to the homeowner. Most people are really just exchanging one energy supply company for another. The reputation of solar itself may be at stake here. The danger is that if this financial scheme in the long run is not really beneficial to the individual, it is not just the financing program that will get a tarnished , it will be solar itself. Leasing programs are another unfortunate example of diverging wealth in this country, where the individual is reaping a small gain while the corporate heads and their shareholder are taking the lion share of the profits. As we pointed out – the recent study shows – the majority of people going solar are from the middle class.
PowerTWO believes in the democratization of solar, that the benefits of solar power, like the sun, should fall upon everyone equally. Solar power ideally should go to the individual. The ownership will not work for everyone, but people should be aware that they have options and what the benefits are. Solar companies should take responsibility for their stewardship of this most important solution to the energy and environment crisis in which we find ourselves. Giving people the power to produce their own clean energy, the ” empowering” of the individual is something we should strive for. We rather see the democratization of solar energy rather than simply its commoditization.