Consumers have been schooled to be wary of companies that offer them valuable products for free along with substantial rebates. And rightly so. There’s no such thing as a free lunch. And so a proposition under which a large for-profit firm offers to pay a homeowner more than $7,000 for the right to put an expensive electricity generating system on her roof might arouse skepticism.

But that’s precisely what Arizona Public Service, (APS), the Phoenix-based utility that serves 1.2 million customers in one of America’s sunniest states, is doing. In July, the company filed a plan with state regulators under which it would place solar panels on the roofs of 3,000 homes in its service territory—for free. What’s more, homeowners would receive a $30 monthly rebate on their electricity for 20 years—amounting to $7,200.

Arizona is in the middle of the desert, and gets lots of sunshine. Which means it is a hot bed of solar development. It is home to some of the biggest so-called utility scale plants, including the giant Gila Bend plant, where panels focus beams on a tower of molten steam that can generate power well after sunset.

Rooftop solar—individual homeowners putting generating systems on their roofs—is also booming in Arizona. Until recently, installing a new system would require homeowners to pay up to $30,000 up front, and it could be several years before they earn the investment back in the form of lower utility payments. In recent years, the price of systems has fallen, and innovations in the marketing and financing of solar panels have transformed the market. A popular new model, pioneered by companies like Solar City is a solar lease, in which owners put very little down and then commit purchase the output of the panels for several years.

The popularity of solar leasing is inspiring moves like this by utilities. After all, each rooftop system installed by a homeowner or a leasing company removes some of the demand for the utility’s service. Arizona has more solar rooftops per capita than any other state. There are already 30,000 in APS’s service area, which has cut into sales. But the company is eager to capture more of that business for itself, while taking steps to comply with a mandate that it get 15 percent of its power from renewable sources by 2015.

So it hit on a unique strategy. Rather than focus on building large centralized plants, why not distribute solar power across a bunch of rooftops? In 2010, in what it says was the first such effort by a U.S. utility, APS placed panels on 125 homes in Flagstaff—for no charge. In exchange, homeowners were offered a fixed price for electricity for several years. The plan seemed to go over well. “We had a lot of interest from customers asking to expand what we’ve done in Flagstaff,” said Marc Rumido, manager of renewable energy at APS. “We know what we’re doing with owning and maintaining solar access.”

Now, APS is kicking it up several notches—in July it filed a plan with regulators proposing to cover 3,000 roofs in its service area with panels that would have a combined generating capacity of 20 megawatts, the size of a large plant. And instead of offering customers a fixed price, it is effectively offering them cash.

Here’s how the proposal, which has yet to be approved by regulators, works. “An interested customer would apply and would have to satisfy the basic criteria,” said Rumido. A house would have to be properly situated to catch the sun’s rays and have the appropriate shingles and structural support. APS would then buy the solar panels and equipment, and hire installers to set them up.

Homeowners would pay nothing up front and continue to pay for the electricity at the same rate they’re paying today—except they’d get a$30 credit each month for 20 years, amounting to $7,200 total. The power produced will be used by the house, while excess power will flow into the grid and be used by nearby homes. At night, the homes will continue to draw power from the grid. “It pretty much looks like taking a central solar plant and allocating it across 3,000 roofs,” said Rumido.

Lots of green investments are done for public relations or marketing reasons. But this isn’t a loss leader. APS, which would reap the federal tax benefits associated with building rooftop solar systems, expects to get the same regulated return on these power facilities as it does on the other power plants it operates.

A coalition of solar leasing companies has expressed opposition to the plan, arguing that it will be difficult for them to compete with the utility. But Rumido says that there is room for plenty of different methods of expanding solar in its service area—there are already 30,000 rooftop solar systems in APS’s service area, virtually all of them erected by third parties.

Rumido says there are other potential benefits—to the company and to consumers. As developments and businesses sprawl throughout the Arizona desert, imbalances can build up in certain sectors and tax the infrastructure. “We can use rooftop solar to alleviate areas where supply is restrained,” he said.

In addition, the program is a way to get solar electricity to people who may not have the credit or resources to qualify for or afford a solar lease. “We think this can open up rooftop solar to an entirely new class of customer,” Rumido adds.