What to Expect from a Solar Contract
You’ve decided to go solar. Now it’s time to start thinking about how you’re going to pay the solar bill. Like buying a car, you can purchase the system outright or lease it. You could also sign a Power Purchase Agreement or a PPA, meaning you buy energy from your rooftop solar panels but you don’t own the system. An investment company does. Head over to our Solar Financing Guide to find a detailed breakdown on how you can pay for your solar project.
Your choice of ownership options affects how much money you will save on your solar panel system. It also affects the responsibilities you take on after signing a contract. We talked about the basic pros and cons of ownership options in our solar education series. Now let’s break them down further so you can see what to expect, what to watch out for, and whether direct ownership, a lease, or a PPA is the right option for you.
What is Direct Ownership?
What to expect
Like buying a new car, you select from a range of features offered by a solar installer, who’s then responsible for fulfilling your order. You can pay for a solar energy system outright or take out a solar loan.
The number of solar loan options has steadily grown in the last few years. You can now choose between short and long-term solar financing options with little to no money down. In some states, you can tack the system cost onto your property tax bill using an option known as property-assessed clean energy (PACE) financing. It’s a good idea to consider all of your solar options.
What to watch out for
Your system is supposed to last 25 years or longer, so it is important to choose quality components and a solar installer that you can trust. Do your homework and compare at least three bids in order to get the best deal.
As the owner, you will be responsible for maintenance. While there usually isn’t much maintenance required, it is a good idea to put aside 1% of the system price each year to cover expenses. Make sure you know how to monitor system performance. Otherwise, a drop in energy production can easily go unnoticed for months, leaving a serious dent in your solar savings plan.
Who should do it
If you want to maximize your savings, direct ownership is the way to go. Multiple financing options can help if you don’t want to put all the money on the table. Make sure that you take full advantage of the 30 percent federal tax credit (ITC). Only if you can’t take the advantage of the credit would leasing be a better option.
What is a Solar Lease?
What to expect
Solar lease offers are a big reason why the number of residential solar systems in the US has ballooned to one million in 2016. They are convenient and require little-to-no upfront payments.
If you decide to lease a solar system, the solar company installs solar panels, an inverter and everything else that is needed to produce clean energy. You pay to lease the system, and in return, you can lower your monthly electricity bill with the energy it generates. After a certain amount of time, typically 25 years, the company takes the system back or gives you a buy-out option.
What to watch out for
Many lease companies offer contracts with escalators, meaning your rental fee for the solar system will go up by a certain percent each year, typically 2 percent to 3 percent. While that is less than your utility rate increased in the past years, there is no guarantee that this trend will continue. If things go bad, your lease payments can increase faster than your utility rates, and your savings would shrink. The lower the escalator in your contract, the higher are your future savings.
The leasing company is responsible for maintaining the solar system. But to make sure that it will do what is needed to keep performance up, you should ask for a performance guarantee in writing. The lease provider will demand access to your property in order to maintain the system. Make sure those legal demands don’t go further than you feel comfortable with.
It can get tricky if you want to sell your house before your solar lease is up. Either your buyer needs to take over the lease or you will have to buy out the contract. But who is responsible to patch the holes in your roof if the company takes its solar system down? You’d want to fully understand the process before you sign.
And don’t believe for a minute that all lease offers are the same. Get at least three bids and compare thoroughly.
Who should do it
If you just look at the numbers, owning a solar system will save you much more money than leasing one. And while not having to worry about maintaining panels and inverter is convenient, it is a minor issue for systems built from quality components. But there remains one major reason to sign a lease contract: If your tax burden isn’t high enough to take advantage of the 30 percent federal tax credit, leasing might be the way to go. In that case, the lease provider claims the credit and hands some of those savings down to you.
What is a Power Purchase Agreement (PPA)
What to expect
Just like a lease, a Power Purchase Agreement (PPA) constitutes third-party ownership. The solar panels on your roof are owned by the PPA provider, not you. But instead of paying for the system, you pay a monthly fee for the energy it produces. Since those contracts usually cover a 25-year period, you essentially agree to purchase your energy in advance for a pre-negotiated price.
What to watch out for
The pros and cons of a PPA are very similar to a lease agreement. One thing you should especially look out for in a PPA is that the amount of energy the system produces actually meets your needs. The contract will typically require you to buy all the energy the system generates, whether you can use it or not. So if the solar system is too big, you’ll pay for something you don’t need. If it is too small, you don’t save as much as you could have. Make sure you know your annual energy consumption, measured in kilowatt-hours (kWh), and check that the system’s estimated output is a match. Also, keep in mind that your energy needs might change over 25 years. Consumption will go down once the kids are off to college or it might rise if you get an electric car.
Who should do it
Once again, it mainly comes down to whether or not you can take advantage of the federal tax credit yourself. There is no distinct advantage of a PPA over a lease or the other way around.
How Solar.com Can Handle All Of This For You
At Solar.com we are always in the corner of the homeowner. From initial information collection to vetting solar installers to analyzing the bids that come in, to provide the installer our contract to ensure you are projected, all the way to months after installation we are always here for you. If you ever have any questions please do not hesitate to call (888) 454-9979.
