Homeowners Should Look For These Red Flags When Reviewing A Solar Contract

Rising energy costs are inspiring homeowners across the US to seek savings by going solar. Adding solar panels to one’s home allows homeowners to tap into a free energy source, which means prices will never increase. It’s an investment that can quickly provide a healthy return.

However, homeowners who want to experience savings from solar energy need to carefully review the contracts offered by solar companies. Whether a homeowner signs a solar lease or arranges solar financing, the contracts may include elements that put them at a disadvantage.

“Reviewing your contract with an eye for red flags will ensure you get the savings you are expecting,” says Josie Garcia, Chief Operating Officer and Vice President of Client Services of Solar Equity Solutions. “Unfortunately, it’s often the case that homeowners are promised savings, lower electric bills, and easy financing only to end up with rising costs, hidden fees, and contracts that feel impossible to escape.”

Garcia oversees operations at Solar Equity Solutions, where she ensures a high standard of client experience across every stage of the engagement process. With a leadership style rooted in accountability, collaboration, and client advocacy, she plays a central role in aligning the company’s operational execution with its mission to protect homeowners navigating complex solar contracts.

“Legally canceling contracts entered into with a solar installer is possible, but often complicated and time-consuming,” Garcia says. “It’s much better to pay close attention to the terms before you sign any home solar panel contract. Understanding potential issues upfront will help you to get an agreement that will truly save you money.”

Escalator clauses can trigger annual increases in solar contract costs

Solar contracts often involve leasing a solar panel system or entering into a power purchase agreement (PPA), and a PPA is very difficult to cancel. In both cases, a homeowner makes regular payments to the company that owns the solar equipment in order to tap into the power it provides. Homeowners benefit from this type of solar contract by receiving a monthly payment lower than the amount they would pay if they continued to purchase energy from their local utility. However, the savings a homeowner is experiencing can quickly disappear if the contract includes an escalator clause.

“Some contracts include annual increases, which are usually designated at 3 to 5%, that raise the amount you pay for solar over time,” Garcia explains. “Contracts that include these increases, which are known as escalator clauses, can ultimately mean you pay more for solar energy than you would if you were getting service from your utility company.”

Solar providers often attempt to justify the clause by arguing that public utility costs increase periodically, so consumers should expect their monthly fee for solar to do the same. Paying close attention to the escalator percentage will help consumers avoid a situation in which installing solar panels costs them money instead of saving them money.

“You can generally expect your utility bill to increase by 2 to 3% annually, but escalator clauses often involve a 3 to 5% increase,” Garcia explains. “While the 1 to 2% difference can seem small, it can lead to a huge loss of savings when played out over a 25-year contract.”

Consumers should also be aware that solar companies will often offer a very low starting rate to make savings more significant and attractive when compared with current energy costs. However, escalator clauses can quickly make the savings evaporate.

Early termination fees in solar energy lease contracts are a red flag

Signing a solar contract often means committing to a 20- to 25-year lease, meaning the companies providing the equipment typically don’t see a return on their investment until many years into the contract. Consequently, contracts often include a contract cancellation or termination fee that can be substantial.

“Contract termination fees are essentially an ‘exit penalty’ companies charge to make sure they profit regardless of how long the contract lasts,” Garcia says. “For the homeowner, however, the early termination fee can completely wipe out any savings they gained from switching to a solar system.”

To avoid early cancellation fees, consumers should commit to solar contracts only if they are confident they will keep their home for the duration of the contract, or at least long enough that the exit fee won’t negate their overall savings. Consumers who can’t confidently say they will be staying in their home long term can avoid these fees by purchasing a solar system rather than leasing one or committing to a PPA.

“Carefully reviewing your contracts for these red flags and understanding how to address them can help you prevent costly surprises that erase your anticipated savings,” Garcia warns. “If you see something you don’t like and don’t know how to address it, seek legal advice before signing anything. Getting the contract right will make sure you enjoy the long-term savings that solar energy can deliver.”