Solar Panel Contracts: What to Know Before You Sign
Solar panel contracts come in several forms, each with different financial implications. Whether you are buying, leasing, or entering a power purchase agreement (PPA), the contract details matter more than the sales pitch.
Types of Solar Contracts
- Purchase agreement: You buy the system outright or finance it. You own the panels, receive all tax credits, and benefit from energy savings. Review financing terms carefully.
- Solar lease: You pay a fixed monthly fee to use panels owned by the solar company. No upfront cost, but you do not receive tax credits and the lease may have annual escalation clauses.
- Power purchase agreement (PPA): You pay for the electricity the panels produce at a set rate. Similar to a lease but priced per kilowatt-hour instead of a flat fee.
Key Terms to Review
- Escalation clause: Many leases and PPAs increase your payment by 1-3% annually. Over a 20-25 year term, a 2.9% annual escalator can nearly double your payment.
- System performance guarantee: Look for a production guarantee stating the minimum kilowatt-hours the system will produce annually. Understand the remedy if it underperforms.
- Warranty terms: Solar panels typically carry 25-year performance warranties, but inverters may only have 10-12 year warranties. Clarify who pays for replacement and labor.
- Transfer and buyout options: If you sell your home, the new buyer may need to assume the lease or PPA. Review the transfer process and any buyout provisions.
- Removal and roof damage: Clarify who is responsible for panel removal at contract end and repairs to any roof damage caused by installation.
Red Flags
- Escalation rates above 3% annually
- No performance guarantee or production estimate
- Contract terms exceeding 20-25 years with no buyout option
- Sales projections based on unrealistic energy rate increases
- Pressure to sign immediately without time to review
When to Consult a Lawyer
Solar contracts are long-term commitments (15-25 years) with significant financial implications. Consider having an attorney review the contract, especially for PPAs and leases with complex escalation and transfer provisions.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.