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Solar Financing Agreements – The Fine Print

By Derek Girling,
HelioPower Solar Energy Consultant

The newest, most exciting trend in residential solar today is on the financing side. Leases and Power Purchase Agreements (PPA’s) make solar available to almost every homeowner. Radio airwaves are thick with companies pitching “No Money Down” or even “Cash Back” offers.

A well structured solar financing agreement should be a Win/Win/Win proposition – A win for the homeowner who gets the benefits of low cost green solar energy without the relatively large upfront investment, a win for the solar installer who grows their business with new customers, and a win for the solar financing partner whose investors generate a steady revenue stream for years to come.

But just like every other offer that may come your way, the devil is in the details!

Solar is a long-term investment and you should be careful to make sure that you’re negotiating the best agreement possible with a reputable, experienced installer. When evaluating a financing proposal from a company, there are several things you should consider when reviewing their agreement.

First, if you are serious about going solar, ask the solar company’s representative for a copy of their agreement. If they are reluctant to provide this to you prior to signing up, be wary. Some companies will not even send out a representative unless you’ve committed to them! Reputable companies are transparent with their agreements and terms and conditions. They’ll strive to make sure you’re comfortable with them before asking you to sign a contract.

Next, see if you can determine how much they are they charging for the system and how much the buyout is at the end of the agreement. Many companies make this information very difficult to discover! One well-known nationally advertised company charges as much as 30% more per Watt than most installers for similar systems. After 10-20 years of making your monthly payments, are they asking you to pay almost half the original cost to buyout the system? Are you responsible for paying to remove the system should you choose not to buy it? Add up the total of the payments and the buyout at the end and see if this seems reasonable.

Are the payments fixed or do they escalate? If it’s a PPA, then the payments should be fixed at a reasonable kilowatt hour (kWh) price for the life of the contract. If it’s a lease, the payments should escalate at a no more than a nominal rate (2.5 – 3%/year) to cover inflation. Anything more than that sounds like a low teaser payment to get you contracted followed by an increasing rate of return for the finance company.

Virtually all homeowners are installing their very first system and are not familiar with the technology. One of the benefits of a financing agreement can be freeing the homeowner from the responsibility of maintaining and insuring a system. Well-structured agreements place the responsibility for the system with the system owner (the financing company) and also guarantee the amount of energy the system should deliver. If the financing company owns the system, but you’re still responsible for the maintenance, walk away!

Speaking of maintenance, what provisions does the finance company make for funding the maintenance? The best agreements stipulate that an appropriate amount of money is held separately ensuring your system is maintained for the duration of the agreement. This also protects you in the event that the finance company is sold, goes bankrupt, or sells your contract to someone else. The best contracts make it impossible for a company to separate the revenue stream (your payments) from the responsibility of maintenance.

Lastly, what options are available to you to get out of the contract?  If you move before the term is up, can you easily and at no cost transfer the agreement to the new homeowner?  Can you buy the system for a reasonable price at anytime? Can you pre-pay your remaining payments at a discount reflecting the reduced time value of money?  Can you continue on a year-to-year basis without purchasing the system when the initial agreement expires?

Remember, a good, flexible and equitable agreement allows a homeowner to get the benefits of low cost green power now at a fair price from a reputable installer with several options to transfer, buyout, or purchase the system. Read the fine print, ask lots of questions and, most importantly, if the representative is pressuring you to sign something you don’t understand, find another company!

Contact Derek Girling at [email protected]