Purchasing Solar Panels? Pay Close Attention to the Fine Print In Power Purchase Agreements

More than 1 million American homeowners decided to go solar between 2019 and 2022, hoping to lower their energy costs while also gaining tax credits that would offset the upfront costs of installing solar energy systems. But for many, the benefits their solar power system promised never materialized.

The problem that fueled the disappointment was not in the technology, but in the solar contracts those homeowners signed. In their rush to lock in the savings they would experience from “free solar,” many homeowners signed contracts that got them off the grid and into trouble.

“Thousands of homeowners were promised savings, lower bills, and easy financing from solar companies only to end up with rising costs, hidden fees, and contracts that feel impossible to escape,” says Josie Garcia, Chief Operating Officer and Vice President of Client Services of Solar Equity Solutions. “And unfortunately, it’s a problem that hasn’t gone away despite the fact that many companies offering solar panel installations and power purchase agreements (PPAs) have come under investigation for unscrupulous practices.”

Solar Equity Solutions assists homeowners who were promised savings, transparency, and a cleaner future, only to end up with contracts that drain their finances. The company’s mission is to protect consumers from deceptive PPA contracts and other solar agreements and give them the legal support they deserve. Garcia oversees operations at Solar Equity Solutions, where she ensures a high standard of client experience across every stage of the engagement process.

“Most solar lease complaints our clients bring to us start with a sales rep who overpromised or flat-out lied about the return on investment a solar system would provide,” Garcia says. “But in a lot of cases, homeowners could have avoided the problems they ultimately experienced if they had carefully studied their contracts and known what red flags to look for.”

As Garcia and other experts point out, the key to avoiding surprises with renewable energy systems is to carefully review long-term contracts before signing them. For those considering powering their home with a solar installation, the following are a few key contract issues to note.

Is there an escalator clause in your power purchase agreement?

Solar PPAs allow homeowners to gain the benefits of solar energy without purchasing a system. The agreements typically involve a third-party company installing solar panels on a home, with the homeowners then paying to access the energy.

Many homeowners have been quick to sign PPAs because they believe they can get electricity at a lower fixed rate without the upfront capital costs of installing the system. But if the PPA includes an escalator clause, the “fixed rate” a homeowner signs up for will end up increasing each year.

“A solar escalator clause automatically increases the monthly payment a homeowner pays by a fixed percentage, typically 1% to 3% per year, for the entire length of the contract,” Garcia explains. “It’s a financial provision that’s locked in at signing and can’t be paused or reversed without legally challenging or cancelling the contract.”

Homeowners who sign PPAs are usually shocked to see their monthly solar bills climb year after year, often ultimately requiring payments that are higher than those charged by utility companies. For example, monthly payments that start at $130 and come with a 2.9% annual escalator increase to over $260 per month by the end of a 25-year contract.

“Escalator clauses are the tool solar companies use to offer the type of lower energy payments that make PPAs look more attractive to consumers,” Garcia says. “The problem is, those who sign the contract don’t often know the clause is there or understand its implications.”

What is the lien language included in your solar panel contract?

Homeowners who lease solar panels rather than buy systems outright should be careful to review the lien language included in their contract. In many cases, the contract will state that the solar company will file a solar UCC-1 lien against the home to secure its equipment. Such liens remain in effect until the solar loan is paid off, the contract is cancelled, or the lender provides a UCC-3 termination statement.

“Solar contracts should specify whether a UCC-1 filing will be part of the financing option the arrangement puts in place,” Garcia says. “To get the details, look for sections labeled ‘Security Interest,’ ‘UCC Filing,’ or ‘Equipment Lien.’”

Those who finance a solar system are often unaware that it involves a lien until they attempt to sell their house. At that point, the unpaid balance on their solar project can cause serious complications.

“In most cases, a solar UCC-1 lien will prevent you from selling your home,” Garcia warns. “Title companies require that all liens be cleared or resolved before a closing can take place. In those cases, the upgrade homeowners thought would increase the value of their home becomes a liability.”

Don’t go solar without carefully reviewing PPAs and other solar contracts

The savings that can be gained by using solar energy seem straightforward in sales pitches from solar installers. But the requirements stated in leases and PPAs often tell a different story. Carefully reviewing contracts for items like escalator clauses and lien filings is critical to avoiding the hidden costs that can turn solar energy systems into a financial burden.