It is not free. Costs are incurred in the areas of R&D, maintenance, labour, etc. These are all costs that has to be offset by the producer and it should be more expensive than current methods. It's more of a cleaner energy than a free energy.

Proof of work will still function fine, you're possibly only (as stated probably not) reducing the costs from consuming the electricity. There are still scarce resources being consumed and incurred, production of ASICs, land, labour. It doesn't diminish any security of PoW based coins, perhaps slightly in the worst case.

State sponsored attacks, assuming 51% attacks has never been limited by the electrical costs or anything in that area. It is possible for countries to attack Bitcoin this way but it really doesn't make any sense right now and I don't expect countries to attempt it in the future either. ASICs required and the opportunity costs of having an attack is far greater than any benefits that they may have.