Solar PPA and lease contract gotchas to look out for
About 30% of home solar systems are obtained using a lease or PPA. Even though they're popular, the contract details often aren't well understood. Before you sign one, here are some things to look out for.
Solar leases and power purchase agreements (PPAs) are similar ways of getting “free” solar panels with no money down. They’re marketed heavily by big installers like Sunrun, Sunnova and Momentum.
Leases and PPAs offer a compelling pitch to consumers: with no upfront cost, you can get solar power for your home. You pay a certain amount of money every month, but how you are billed is where leases and PPAs differ. With a solar lease, your monthly payment to the solar company is fixed. With a PPA, you pay according to how much solar electricity the panels generate.
Because they’re so popular, I’ve written a lot about [solar PPAs and leases])(/blog/solar-lease-ppa-good-or-bad/) before. I think they’re almost always a bad deal for consumers, partly because the companies that sell them - like Vivint and Sunrun - have problematic customer service records.
Read the intro article first if you’re new to this topic, but this post will cover some specific things you need to look out for in the contract before you sign on the dotted line.
Look out for escalator clauses that raise your price over time
One of the biggest gotchas in these agreements is an escalator clause. Not every contract has one, but if it does, the amount you pay to the solar company will increase by a fixed percentage every year.
Vivint and Sunrun are known to include 2.9% escalator clause in their contract. This seemingly small percentage, compounded over time, can result in a big price increase by the end of a 25 year contract.
For example, let’s say that you have a PPA with a starting rate of $0.13 per kWh. With a 2.9% annual escalator, your rate will have nearly doubled by year 25 to $0.258 per kWh.
That’s a huge increase, and it’s one of the reasons why solar PPAs and leases are controversial and have drawn the attention of consumer protection advocates.
“Estimated payments” could mean that you pay for solar even when your system is offline
When you have one of these solar contracts, one of your obligations as the homeowner who is “renting” the panels is to maintain an internet connection so that the solar inverter can report to the solar company how much electricity is generated each month.
If the solar production is interrupted for any reason or you have an extended amount of internet downtime, the contract may specify that the company will estimate the amount of solar electricity the system would have generated and bill you for those kilowatt hours. The company may do this even if the system is offline completely.
The contract may specify that you have a limited amount of downtime, after which the solar company will estimate your production and bill you.
For example, let’s say that you need a roof repair and remove the solar panels so that your roofer can do the work. Your solar PPA contract might say that you are allowed to have the system offline for 30 days while your roof work is done.
But if you hit a snag and your roof repair takes a little longer than expected and it takes 45 days for you to get the system reinstalled, you will pay the solar company for 15 days of estimated energy production even though the system was literally unplugged.
Another detail in the contract is that you will most likely be required to use the solar company to uninstall and reinstall the system. The contract may say that any delay for any reason in reinstalling the system will result in your having to pay estimated electricity charges even if it’s the same fucking company’s fault.
While the solar company will tell you that they will “true up” the bill in following months, in reality is often is incumbent on the customer to reach out to customer service to make sure this happens. This can mean dealing with long wait times on the phone or a frustrating back-and-forth as has been documented in complaints with the BBB.
Here’s one example complaint about Vivint Solar on the BBB:
The system was having issues for a couple months in a row, I called about it the first month when I recognized my bill was extremely high. They told me that was due to a system issue and the were charging me a “Estimated” value that the system can produce. It was twice the amount that my bill has ever been in the middle of the summer. They set up a technician to come out the following month and the technician never showed. I got a bill for that next month at this same “Estimated” value. So I Called again and they proceeded to tell me they would get it handled. It is now 3 months since this started and they have not address the issue. They continue to have my number called daily from the automated service because the bill is not paid but when I call the support they can not give me an accurate bill amount. Nor will they transfer me to a supervisor or anyone that can actually help get this solved. They tell me the information I was told previously was incorrect and they will get back to me in a few business days.
Technically, you won’t have a lien, but a UCC filing often as the same effect
When you take out a mortgage to buy a home, you’re not the only owner of your new home: the bank has a claim to it too, at least until your mortgage is fully paid off. The record of this claim is called a lien.
Solar panels that are under a lease or PPA aren’t owned by the homeowner, but by the solar company. The record of this ownership is called a Uniform Commercial Code-1 (UCC-1) filing. This isn’t a lien on your home, but a record of the solar company’s claim to their equipment.
Both property liens and UCC-1 filing can be found when a bank or other entity does a title search on a property. This means that if you are applying for a secured loan, the UCC-1 filing may show up.
While the solar company will downplay the UCC-1, in fact it can cause problems when applying for a loan, as described in this article by Rocket Mortgage.
Solar production may not be guaranteed
For consumers, one of the most important aspects of getting a home solar quote is whether the estimate of the amount of electricity the system will generate is accurate. The financial payback period is closely related to the performance of the system. If it underperforms and generates less electricity than promised, the amount of money you recoup every year from the solar electricity will be reduced.
A good quality local solar installer will provide a production guarantee to protect you from a bad production estimate. However, with a lease or PPA there may not be this type of warranty. In fact, Vivint Solar contracts have been known to not include a production guarantee.
While this is less of an issue if you have a PPA because you only pay for the electricity generated, with a lease you pay a fixed amount every month, no matter how much or how little the system produces. This can be a big issue if the production estimate the company provided was too optimistic.
Roof leak warranty might be only a year
One of the biggest concerns with a home solar installation is whether it will cause your roof to leak. With a conventional shingle roof, the racking for the solar panels is attached to the building with bolts. This means holes in your roof, but a competent installer will ensure that are waterproofed correctly.
A good installer will also back this up with a warranty. Some of the installers in the Solar Nerd network offer a 25 year leak-free warranty with their work - basically, they promise that your roof will never leak with your solar installation.
However, some companies that offer leases and PPAs offer something much shorter. For example, Vivint Solar is known to give only a one year leak warranty. That simply isn’t enough. A leak may not show up right away, or you might not notice it until significant damage has been done - and that can take more than a year.
You probably will sign away your rights to sue
Lease and PPA contracts from the big national solar installers will usually have an arbitration clause, which means that you are signing away your right to sue the company in a court if you are unhappy with the service.
As described by Public Citizen, arbitration clauses are almost always biased in heavily favor of the company and limit the ability of consumers to get proper remedy.
Given the significant risks of financing your solar installation this way, losing your rights to sue can be a major issue. Take a look at the numerous problems described by one Bloomberg reporter who cited underproduction, higher than expected bills, and difficulty with the UCC-1 filing - all things mentioned in this article.
Bottom line: If a PPA or lease is the only way you can afford to go solar, it’s better to not go solar at all
Given the risks in these contracts and the fact that the companies that sell them such as Momentum Solar, Vivint Solar, and Sunrun all have problematic consumer track records, it’s better to avoid going solar if you can’t afford to purchase your system.
But what if you really want to save money on your utility bills or go green? What can you do as a homeowner?
It may be boring, but insulate your house and focus on energy efficiency. Sealing air leaks is something a homeowner can do in an afternoon or two, and it can have a big payoff relative to the small cost and effort. Blowing cellulose insulation into an attic is also often very cost effective, and a smart thermostat is a DIY installation than can be very cheap after utility rebates.