By: Scott Elkind, Chief of Litigation Strategy
Solar sales representatives are notorious for not fully explaining contractual terms to customers. For customers who cannot afford to buy their solar panels outright, there are two other options: leasing and power production agreements (PPA).
Solar Lease
A solar lease is a long term rental agreement for a solar system installed on your roof. Under most of these leases, the solar company continues to own the solar system with the homeowner responsible for a monthly payment for its use. Many of these contracts have “escalator clauses” which increase the cost of the lease over the years by a defined annual percentage.
Power Purchase Agreement (PPA)
A PPA involves a different arrangement than a solar lease. With PPAs, a customer does not pay to rent the solar equipment. Instead, the customer agrees to purchase the electricity generated by the solar equipment. As with leases, the solar company continues to own the solar equipment and annual cost increase are typically included in these agreements.
Both these payment arrangements are designed to lure in customers by eliminating high up front costs and rope then into contracts which commonly last 20 – 25 years. Some of these contracts offer lower initial fees as another consumer draw with promises of included maintenance of the system. Since the customer is not buying the solar panels, there are not tax credits available to them. These contractual arrangement typically include large penalties for early cancellation.
The solar companies benefit from these agreements as they provide long-term recurring revenue streams as they charge substantial sums for the leasing or purchased power.