Solar Contract Types Explained
What Type of Solar Agreement Did You Sign?
Solar contracts are not all the same. The type of agreement you signed determines what you owe, what your options are, and how complicated getting out might be. Here is a plain-language breakdown of the four most common types.
Different contracts come with different challenges
Knowing which type you have is the first step toward understanding your options.
Solar Lease
The solar company owns the equipment on your roof and you pay a monthly fee to use the electricity it produces. Leases run 20 to 25 years and usually include annual payment increases. When you sell your home, the lease has to transfer to the new buyer — which many buyers refuse. If you have a lease and something feels wrong, the most important thing to understand is your escalation clause and your buyout options.
Power Purchase Agreement
Similar to a lease in that the solar company owns the panels. The difference is how you pay instead of a flat monthly fee, you pay per unit of electricity the system generates at a rate locked into the contract. That rate typically increases every year. If the system is producing less than projected, your utility covers the gap and the savings never add up the way you were shown.
Complex or Hybrid Contracts
Some agreements combine leasing and financing elements, or involve multiple parties the installer, a separate financier, and an ongoing servicer. These are the most difficult to interpret and the most important to have reviewed by someone who knows what they are looking for.
Direct Purchase
You paid cash or used a loan to buy the system outright. You own the equipment. There are no monthly payments to a solar company. Cash purchasers are in the best position but that does not mean everything was represented honestly. If the system is significantly underperforming what you were sold on, that is worth looking at.