Solar escalator clauses explained

Your solar lease or PPA payment went up this year. Again. If no one explained why, you're not alone. Annual escalators are one of the most common sources of confusion and frustration for solar homeowners.

An escalator clause is a provision that raises your payment or your price per kilowatt-hour by a set percentage every year. It's common, it's usually legal, and it's often the single most important number in a lease or PPA. Here's how it works and why it matters.

What an escalator looks like in your contract

Escalators are usually described in the payment section or a payment schedule attached to the agreement. Look for language like:

• "Annual increase," "escalation rate," or "escalator"
• "Your monthly payment will increase by 2.9% each year"
• A table showing payments or rates for each year of the term

Common escalator rates range from about 1% to 3.9% per year. Some agreements have no escalator at all. Leases apply the increase to your monthly payment; PPAs apply it to the price you pay per kilowatt-hour.

The math: why small percentages add up

Escalators compound, meaning each year's increase is applied to the previous year's higher amount. That's why they grow faster than most people expect.

Example (hypothetical): a lease that starts at $150 per month with a 2.9% annual escalator.

Over a 25-year term, the total paid would be about $64,800. Without an escalator, 25 years at $150 per month would total $45,000. The escalator adds nearly $20,000 in this example.

And notice the final years: by year 25, the payment has nearly doubled.

The problem: comparing year one to forever

Here's where many homeowners feel misled. A salesperson compares your first-year solar payment with your current utility bill and says, "You'll save $40 a month." But the solar payment rises every year by contract. Your utility rates may rise too, but not necessarily at the same pace, and not every year.

If utility rates rise more slowly than your escalator, your "savings" shrink every year and can eventually turn into a loss. If a proposal assumed utility rates would rise faster than they actually have, the savings may have been overstated from the start.

Also remember: you usually still pay some utility bill with solar, for connection fees, minimum charges, and power you use when the sun isn't shining. A fair comparison looks at your total cost (solar payment plus remaining utility bill) versus what you would have paid without solar.

Escalators and PPAs: a special risk

With a PPA, you pay a set price per kilowatt-hour of solar energy produced, and that price rises each year. In some areas, the escalated PPA rate can eventually exceed what the utility charges for the same electricity. At that point, you could be paying more for your solar power than you would for grid power, for the rest of the term.

Escalators and selling your home

Escalators can also make a home sale harder. A buyer reviewing your lease or PPA will see the payment schedule. If the payment is high and rising, the buyer may not want to take it over, which can push you toward an expensive buyout. Learn more in Selling a home with solar panels.

Was your escalator properly disclosed?

Escalators themselves are generally legal. The questions that matter are about disclosure and representation:

• Was the escalator clearly disclosed in the agreement and any required state disclosure forms?
• Did the salesperson explain it, downplay it, or say there wasn't one?
• Did the savings proposal account for it over the full term?
• Were you shown a year-by-year payment schedule?
• Were you rushed through a tablet signing without seeing that section?

If the escalator was concealed, misstated, or left out of the savings math, that may be relevant to resolving your agreement. Read more in signs your solar contract was misrepresented.

A fair way to compare: escalator versus utility rates

To judge whether your agreement still makes sense, compare two numbers over the same period: how fast your solar payment rises and how fast your utility's rates have actually risen.

Look at your utility bills from a few years ago and today, and calculate the change in the price per kilowatt-hour (not just the total bill, which changes with usage). If your utility's rates rose by an average of 2% per year while your escalator is 2.9%, the gap works against you every year. If your utility's rates rose faster than your escalator, your agreement may be holding up better than you thought.

Remember to include your remaining utility bill in the comparison. With solar, most homeowners still pay connection charges and buy some power from the grid at night. Total monthly cost is the number that matters.

Questions to ask the solar company

• What is my exact escalator rate, and when does each increase take effect?
• Can you send me a year-by-year payment schedule for the rest of the term?
• What is my current buyout price, and how is it calculated?
• Does my agreement allow the escalator to be changed or removed in any situation?
• How does a home sale or transfer affect my payment?

Ask in writing and keep the answers.

What you can do

1. Find the escalator rate.## What you can do

1. Find the escalator rate. Look in your agreement's payment section or schedule. If you can't find your contract, request a copy.

2. Build your own payment table. Multiply your current payment by (1 + escalator rate) for each remaining year. Many free online compound-growth calculators can do this.

3. Compare total cost. Add your solar payment and your remaining utility bill, and compare with what you were promised.

4. Look at your options. Depending on the facts, possible resolutions can include removal or reduction of the escalator, a reduced buyout, a rate adjustment, or, in some situations, cancellation. Results vary. Compare agreement types in Solar lease vs PPA vs loan.

Every agreement and every situation is different. Results vary, and no one can promise a specific outcome.

This article is general information, not legal advice. Laws and utility rules change, and your situation may differ. Solar Resolution Group is not a law firm.