In this podcast, Brian Sadler from Solaris Renewables explains what “free solar” really means. He talks about the leasing and power purchase agreements that helped the solar industry to grow. Then, he talks about other ways to invest in solar and outlines which options make the most sense for different types of homeowners.
John Maher: Hi, I’m John Maher. I’m here today with Brian Sadler, Vice President at Solaris Renewables, a solar company in Massachusetts providing premium solar and storage technologies with exceptional customer service, and designing, installing and servicing solar systems in Massachusetts, Southern New Hampshire and Maine. Today we’re talking about free solar. Welcome, Brian.
Brian Sadler: Thanks, John. I appreciate the intro and introduction.
What Is Free Solar?
John: Sure. Yeah. So Brian, what do we mean by free solar? I hear that a lot, but I don’t really understand what it is.
Brian: We hear it a lot too, so for sure. I think we see it a lot through social media mostly is where you see a lot of that. It’s a lot of its clickbait and lead generation.
John: Yeah. It’s like get solar panels on your house for free, no money down, or no cost to you, or something like that.
Brian: And a lot of times they’ll have public figures, the governor or someone famous saying that they’re giving solar away and as long as you have a roof, it’s free. So this has long been a situation that we’ve seen and we needed to talk effectively about it and address it head on.
But essentially what they’re saying is free installation. So this is overall what is under third party ownership, or TPO as we call it in the industry, which is a lot of times referred to as a lease.
So it’s leasing, or what most prevalent historically is what’s called PPA, or power purchase agreement. And these are really just financing. So there’s a lot of inaccurate information that we spend a lot of time unwinding through the educational process with our potential customers and really with the general public as well.
So we want to make sure that we’re being clear and transparent about how solar works here in Massachusetts and in the region. But as we all know, there’s nothing for free. So sometimes I joke around when folks ask, “Do you guys do the free solar?” And I’ll say, “Yeah, we do the free solar that you pay for the next 20 to 30 years. Sure.”
Leasing Solar Equipment
John: Yeah. So talk a little bit about that. I mean, obviously people who are thinking people go, “Well, there has to be a catch. It can’t be free.” So maybe shed a little bit of light on what these companies or organizations are really offering when they say free solar and what these common models or arrangements are.
Brian: Sure. So it’s really, like I said, third party ownership and just the type of financing. What the third party ownership means is that the owner of the system is eligible to receive the incentives. So in this case, the property owner, by using this type of model, financing model, is giving up their rights.
They’re signing over their incentives to the third party who’s financing the system, and therefore it comes across to the homeowner as free installation or simply no money down. So instead of having to put a down payment or deposit down, which is we see historically, you can also finance it through a traditional loan with no money down as well, but this is where that connotation and now we see some negative and misunderstandings about it with the quote, unquote free solar.
So really there’s a lease, which is what we typically think of. You have a fixed monthly payment over whatever term it may be and you don’t put any money down. And you, the homeowner or property owner are going to receive the electricity from the solar system to offset your electric bills. And then the lease owner or the financing company is going to receive the tax credits and other local incentives in order to pass this free installation of solar back to you for usually there’s a term of 20, 25 years is most often what we see.
Power Purchase Agreements
And then very similarly is what’s called a PPA, or power purchase agreement, which means that, same way again, financing, that the property owner is signing over their rights to the incentives to the leasing company or third party owner, the financier, to give them a solar system. So essentially they’re paying someone like us, the installer to install a system, and then the homeowner over the course of time is paying the finance company for paying that solar system off.
And again, they receive the electricity and they get the electricity savings, but they’re giving up their tax credit or any other local incentives to that financier in order to get quote, unquote cheaper electricity. So with a PPA, you pay a lower per kilowatt-hour rate than what you’re paying now to the utility, and you’re really buying the power that the solar system generates. So it works a little differently. So you’re basically saying, okay, right now our electric rates are very high in the Northeast in general, and they constantly go up nationally, but we have a very steep incline here in Massachusetts and the rest of the Northeast. So we’ll just say that you’re paying 20% less than you’re paying today in order to have electricity in your home, but you are paying based on what the solar system generates, not necessarily what you are using.
So there are creative PPAs now, which they’re flattening out that payment. So it’s more compelling and more understandable than also fluctuating solar payment as well as your fluctuating electric payment. So these are the things that create a lot of confusion in our industry and unfortunately sometimes give our industry a bad name or get people confused. And a lot of times when folks are confused, we tend to get a little negative. So a lot of this was really to help the solar industry nationally grow. So this started happening in the early 2000s, and there was a boom and there was a lot of large national companies that came to light and really, really thrived through this model, because you don’t need to understand the local incentives, how solar works, what the regulations are and such. All you need to know is I’m paying this today and I’m going to pay this much less now moving forward.
So it is compelling. It’s easier to understand. And a lot of these companies were sending out folks from other regions that were spending their summers all over the country and selling solar, which again is not the best model, I would say. But the financing of a third party ownership, it can be compelling. And at the end of the day, having more people being able to access solar and save money is a good thing.
Who Qualifies for “Free Solar”?
John: Right. Right. Who typically qualifies for these types of free solar programs or offers? Is it everybody, or are there situations where somebody would not be able to participate in a free solar program?
Brian: Yeah, good question. It’s typically based on credit score, because again, financing. So really it’s essentially each different company has a minimum credit score they’ll accept, and then sometimes there’s different tiers or criteria. So they might have 550 to 600 you qualify for this kind of rate. And then from 600 to 650, it’s this rate. 650 to 700 this rate.
So it’s basically their risk, because again, this is just financing. So typically most folks do qualify, especially in the Northeast, the credit scores tend to be strong and there are lower default rates. So most folks in our area qualify. And what that model is good for are for those folks that can’t necessarily take advantage of the tax credit or have no tax liability. So folks that may be on a fixed income or are retired and their tax liability has shrunk, this is a great way for them to be able to access solar and save some money with the quote, unquote free installation of solar, which again, it’s a financing mechanism.
What’s More Cost Effective — Buying Your Own Solar or Using Third-Party Ownership?
John: Okay. So what do you think is the best way to install and maintain solar panels while still making it cost-effective for consumers?
Brian: Yeah, that’s a good question. I think, again, fortunately in Massachusetts we have strong programs and incentives that make it compelling for homeowners and business owners to own their solar system. And so typically we have guided homeowners through that process, and in most cases, homeowners are going to save more money, they’re going to pay less over less time by owning the system, and then there’s more benefit directly to the homeowner and to their property value by owning the system.
Third party ownership does have a place, and again, like I said, it’s helped to grow the industry so it’s a positive. And for either those that have limited tax liability or if frankly they don’t care to understand the ins and outs, because like we’ve spoken about, that there are some nuances to doing incentives in going solar and some folks don’t care to understand that.
And so using a third party ownership option where you are basically just saving money is a good option. But usually those savings are more limited than if the homeowner’s receiving all of the benefit, not only the energy savings, but also the tax incentives, be it federally and statewide, as well as any local incentives.
Benefits of Buying Your Own Solar Equipment
John: Right. So combining all of those incentives with the money that you’re making back by selling the energy back into the grid, those things combined usually make it better off for you in the long run than doing this free solar leasing program.
Brian: Yeah, I would say so. Again, fortunately for us here that we have incentives that help you start saving right away. So you’re saving, and then by getting the tax credit, there’s a larger windfall of benefit that comes in that first year.
And then as you’re getting some of these local income incentives that we’re fortunate to have here in our region, that’s going to further offset your cost and grow your savings. So in all cases, it’s really going to be the most benefit to the homeowner to own the system and to get all of the incentives and all of the benefit back to them directly in order to maximize their return on investment as well.
Financing Options for Home Solar Systems
John: What about for somebody who just says, you know what? That’s all fine, but I just don’t have the money upfront to put down for solar panels. Are they good financing options that are available so that it ends up being not much more to own your system than it would be to lease it?
Brian: Absolutely. So great point, John. Really the financing in our industry has matured so much. I think that early on, even though solar technology has been around since the 50s and we put it into space, but now it’s a new product we’re putting into residential and commercial applications. So at first banks were a little hesitant. It’s something new and is this really going to work? What’s the default rate? What’s my risk here?
But over time it’s really taken off and it’s tried and true at this point. And the industry is moving quickly in terms of technologies, peripheral technologies, integrated technologies and now financing. So the financing market has been its own market in itself for solar. And the financing has special treatments for the tax credits and even other incentives. So there’s a lot.
We don’t have rebates, or statewide rebates I should say, in our state any longer, but other states do, and those financing will have treatments for that as well. So essentially what a lot of the companies are doing is they’re essentially fronting homeowners that tax credit value, meaning that the homeowner’s really paying their monthly payment based on the net cost of the system.
So it really drops that upfront cost right away, and now we’re talking about saving money compared to your electric bill. Because we also don’t pay for our electric bill 20 years in advance and things like this. So if we’re talking about comparing a financing mechanism to what your electric bill is for solar and you’re saving money a lot of times month one. So absolutely, the financing has matured a lot and homeowners that don’t have cash on hand or a HELOC and things like this in order to pay for solar upfront, which is totally understandable. Like I said, we don’t pay for our utility power in 20 year chunks either.
So there’s an opportunity to make this really cost-effective and accessible to everyone to own the system with financing options available to us.
Reach Out to Solaris Renewables Today
John: All right. Well that’s really great information, Brian. Thanks again for speaking with me today.
Brian: Awesome, John. Thank you.
John: And for more information, you can visit the website at solarisrenewables.com or call (781) 270-6555.