Free solar panels in New Jersey – there has to be a catch, right?
You know what they say: If it’s free – it’s for me!
So when you see solar panels advertised as “free”, you might be interested in getting them installed. But are they actually free? Not really.
When solar panels are advertised as free, it refers to third-party-owned solar panel systems that are financed through a power purchase agreement (PPA) or solar lease. Basically, the solar company owns the panels, and you pay the company to use the energy they produce. So, technically you’re not paying for the solar panel installation, but you still do have a payment to make.
Third-party-owned solar systems are very popular in New Jersey. In fact, 83% of residential solar systems installed in New Jersey in the last 4 years are third-party owned.
Because of their popularity, you’ve likely heard the “free solar panels” speech at some point in the Garden State. We’re going to break down what you need to know about leases and PPAs, why they’re all over New Jersey, and if they’re the right choice for you.
Are solar panels free in New Jersey?
No, solar panels are not free in New Jersey. Solar companies use the term “free solar panels” when they’re talking about solar leases and PPAs, which are financing options that don’t require upfront payments for the solar panels. You do, however, still have to make payments to the solar company.
Much like leasing a car, these two financing options don’t grant you ownership of your solar system. Basically, you pay the solar company for using the panels – but you do get to take advantage of net metering to lower your electricity bill.
Since the solar company is the one that owns the panels, they’re the ones receiving all of the incentives New Jersey offers – such as the 30% federal tax credit and SRECs. The fundamentals of these financing options are pretty similar, so how can you tell the difference between the two?
Solar PPAs vs solar leases
With solar leases and PPAs, the solar company owns the system, the energy lowers your electricity bill, and in return, you pay the solar company. You essentially swap your utility bill for a lower “solar bill”.
The difference between the two is how you’re billed. With a lease, your contract outlines a monthly payment that stays the same each month regardless of how much energy the solar panels produce.
With a PPA, the amount you pay each month is based on how many kilowatt-hours (kWh) of solar energy your system produces. So, if your solar panels don’t produce as much energy as expected in a certain month, your bill will be lower. The rate you’re charged will be lower than the rate of electricity charged by your utility.
Learn more: Solar lease vs. solar PPA
Pros and cons of third-party-owned solar systems
Not having to pay any money upfront with solar leases and PPAs sounds like a perfect scenario on the surface, but it comes with a few downsides.
Pros
- Savings on your monthly electric bill: As we said, customers with third-party-owned systems are still able to use net metering to lower their monthly electric bills. So, even though you’re paying for the system monthly, it will be less than what you were paying before.
- Not responsible for system maintenance/monitoring: Since the installer has ownership over your system, they are responsible for any repairs or upkeep of the system. Keep in mind, though, solar panels require very little maintenance.
- No upfront cost: Third-party-owned systems do not require you to put any money down for the system.
- Long-term contracts available: You can expect to enter a long-term contract with a solar company. PPAs usually have contracts between 20 and 25 years, while leases offer terms typically between 10 and 25 years.
- Freedom to choose if you want to keep the panels or not at the end of your contract: Once your contract with the company is up, you can make the choice of either having the company take the panels off your home or keep them.
Cons
- Lower long-term savings: Because you pay for the system monthly, you save less money over the course of the system’s lifespan than you would if you just purchased the system upfront in cash.
- Can make it harder to sell your home: When you sell your home, PPAs and lease agreements get passed on to the next owner. People looking to buy a home may not want to take on this responsibility – potentially making it difficult to sell your home.
- Your monthly payments can increase each year: Lease and PPA agreements almost always include an escalator clause, meaning your payments will increase every year. Most escalator clauses have an annual increase between 1.5% and 3%. If this percentage is higher than how your utility rates rise, you could actually end up paying more over the lifetime of the agreement than if you hadn’t gone solar at all.
- The homeowner is not eligible for federal tax credits or other incentives: The homeowner does not get any upfront incentives or tax credits for having a solar system – the third party who owns the system gets them instead.
- You do not have ownership of your system: Getting solar through a lease or PPA entails that you do not have ownership over your system – which is less freedom.
Why are third-party-owned solar systems a popular choice in New Jersey?
If you think solar panels are expensive now – you should have seen their price tag ten years ago! A system that would cost $18,000 today would cost $40,000 to install in 2010. Solar loan payments on a system that expensive would have been way too high, and you’d never see a return on the investment.
The high costs made third-party-owned systems the only reasonable way to go solar. Then, solar got cheaper, taking out a loan to buy solar panels became more accessible, and third-party-owned systems started to fall by the wayside.
But not in New Jersey. Solar leases and solar loans still reign supreme in the Garden State. Why? Because companies can make a lot of money off of them.
As we said earlier, the solar installer gets to take advantage of the federal solar tax credit and other rebates. New Jersey has a great incentive program called SuSI that allows a typical residential solar panel system to earn over $11,000 over the program term. With leases and PPAs, the solar company gets that instead of the homeowners. Same with the federal tax credit, plus they get the monthly payments from the homeowner. It’s a win-win situation for installers.
How much can you save with free solar panels in New Jersey?
It’s no secret that New Jersey is an expensive place to live. The average cost of electricity in New Jersey is about $0.17 per kWh - higher than the national average of $0.16.
Going solar can help you cut down on your expenses and even completely eliminate your electricity bill if you install the right number of solar panels.
But if you choose a “free solar panel” option like a lease or a PPA, your solar savings won’t be as high as they could be if you paid with cash. When you buy solar panels with cash, there are no monthly solar payments, and you aren’t in debt. With a lease or a PPA, you continue to make monthly payments over the length of your contract (usually 25 years).
When you look at the chart below, you’ll see just how much more New Jersey residents can save by paying off their solar system in cash vs. third-party ownership.
Purchasing a solar system in cash in New Jersey provides almost twice the amount of long term savings as a third-party-owned system.
Should you consider a solar loan?
Another popular solar financing option is a solar loan. Solar loans give you the best of both worlds: you don’t have to worry about covering the huge initial cost of solar, plus you retain ownership of the system, meaning you get all the tax credits and incentives.
Respondents from our 2022 Solar Industry Survey revealed that the best deal they got from lenders in early 2023 was a 20% dealer fee and a 5% APR for a 25-year term. This doesn’t give you as high of savings as paying cash, but it typically provides better savings than a lease or a PPA.
Third-party-owned systems have remained the most popular way to go solar in New Jersey, but solar leases and PPAs may be making a comeback elsewhere. Financing costs have spiraled out of control across the board in the U.S., solar loans included. The current market conditions are leading to much higher interest rates and dealer fees, making solar leases and PPAs more attractive options than they have been in the past few years.
New Jersey residents: are third-party-owned systems a good idea?
In order to have the best long-term savings, the least hassle, and the overall best deal, you should pay for your solar system upfront in cash.
However, sometimes this option just isn’t in the cards. For New Jersey residents, we don’t think third-party ownership is a bad idea – it just comes with a few other disadvantages.
The state has such great solar incentive programs that homeowners can really benefit from owning their own solar panels here. And because electricity rates are high in New Jersey, you can get a really great return on your solar investment.
But that’s not to say you shouldn’t consider a solar lease or PPA at all. If you don’t qualify for a loan, don’t have the cash, or don’t pay federal income taxes, a lease or a PPA will probably be your best bet. Even if you can get a loan, the options offered by installers near you might actually provide similar savings to a lease or PPA.
Our advice? Get multiple quotes from different installers. Ask for cash prices, loan options, and lease terms and compare to figure out what’s right for you! To get started, use our solar calculator for an idea of what kind of solar savings you can expect for your home and connect with trusted local solar experts in your area.
FAQ: Free solar panels in New Jersey
1. Can I get free solar panels from the government in New Jersey?
The short answer is - no.
There are no local or state government programs currently in New Jersey that grant free solar panels to residents. When you see the term ‘free’ solar panels, it’s typically a local installer advertising a solar lease or PPA – not the government.
Be careful - some solar companies will have names that sound like they’re associated with the government. New Jersey has no official-state solar installation contractors.
2. How do free solar panels save you money in New Jersey?
The solar panels will power your home during the day, meaning you aren’t buying power from your utility company. If the system produces more electricity during the day than the home uses, it is sent to the utility company, and you get a credit on your electricity bill to cover the electricity you use at night. This is called net metering.
However, you still have to pay your solar installer. When you get solar panels through a solar lease or PPA, you are essentially swapping out your utility bill for a monthly payment to the solar company you are contracted with. The monthly payment to your installer is less than a regular utility bill, saving you some money each month.
3. What solar incentives are available in New Jersey?
New Jersey residents can take advantage of the following solar incentives:
- Federal solar tax credit
- Full-retail net metering
- New Jersey SuSI program
- Property and sales tax exemption
The Garden State offers some of the best incentives for going solar in the country. With leasing and PPAs, you don’t have ownership of your solar system – your installer does. That means incentives like the federal solar tax credit and the SuSI benefits goes to the installers.
However, you still get to use net metering and the property tax exemption.
4. Are solar panels worth it in New Jersey?
Yes. Solar panels are worth it in New Jersey.
The Garden State offers some of the best incentives to go solar in the whole country, which makes going solar more affordable for residents. And with high electricity prices, solar can help offset utility costs tremendously.
On top of that, New Jersey gets a good amount of sun most months, making sure your panels are getting put to work.
Essie Magierski
Content Writer
Jamie is a Content Writer and researcher at SolarReviews. A recent graduate of La Salle University in Philadelphia, Jamie earned her B.S. in communications with a concentration in journalism, mass media, and public relations.