As the 30% residential solar tax credit approaches its expiration at the end of 2025, the solar industry is undergoing a significant shift. Many companies are pivoting from customer-owned systems to a Power Purchase Agreement (PPA) model. While PPAs can be an great way for homeowners to go solar with little to no upfront cost, it’s important to know that not all agreements are created equal. Learning to identify the solar PPA red flags is the first step toward making a safe and profitable investment in clean energy.
The market is filled with both customer-centric and predatory PPAs. To protect your investment and ensure you realize the long-term benefits of solar, you must know how to spot the difference. Here’s what to look for when comparing solar PPA proposals.
What is a Solar PPA?
A Power Purchase Agreement (PPA) is a financing arrangement where a third-party developer owns, operates, and maintains a solar system on your roof. In return, you agree to purchase the solar power generated by the system at a fixed, predetermined rate per kilowatt-hour (kWh).
This rate is typically lower than what you pay your local utility. For example, in Southern Maryland, customers of the utility company SMECO pay around $0.17 per kWh for electricity. A PPA provider might install a solar system on your home and sell you the power it generates for $0.15 per kWh. Considering electricity rates have risen an average of 4.35% annually in Maryland over the past 20 years, locking in a lower rate can lead to significant savings. However, to avoid a costly 25-year mistake, homeowners must first learn to recognize the most common solar PPA red flags hidden within a provider’s agreement.
🚩 Red Flag #1: High Annual Escalators 🚩
One of the most critical, and often glossed over, details in a PPA is the annual rate escalator. This clause dictates how much your rate for solar power will increase each year. A typical, fair PPA includes an annual escalator between 0.99% and 2.99% to account for inflation. However, we have seen predatory PPAs with escalators as high as 3.99%. While the initial savings may look attractive, a high escalator can erode them over time.
Consider this: A starting monthly PPA payment of $275 looks great compared to a $350 utility bill. But with a 3.99% annual escalator, that same payment will balloon to over $623 per month by the 25th year of the agreement. This could be substantially more than the cost of grid electricity, defeating the purpose of going solar.
- What to do: Always identify the annual escalator. Be wary of any figure above 2.99% and be especially cautious if a sales representative doesn’t proactively discuss it.
- Energy Select Standard: We prioritize predictable, long-term savings. That’s why we only offer PPAs with escalators at or below 1.99%, with the majority of our agreements featuring a 0% escalator for stable, transparent pricing.
🚩 Red Flag #2: Subcontracted Installations 🚩
The quality of a solar installation is just as important as the quality of the panels themselves. Your system is only as good as the team that puts it on your roof. Some PPA companies are primarily sales and finance organizations that subcontract the actual installation work to the lowest bidder. This can lead to a lack of accountability, poor workmanship, and difficulty resolving issues down the line.
- What to do: Ask the company presenting the PPA if they handle their installations in-house with their own employees. A vertically integrated company that manages the entire process from sale to installation is more likely to be accountable for the quality of its work.
- Energy Select Standard: Our in-house team handles the entire process, from the initial consultation to the final installation. This vertical integration allows us to maintain strict quality control and ensure every system is designed for optimal performance and savings.
🚩 Red Flag #3: A Lack of Guarantees 🚩
A PPA is a long-term commitment, and you should be protected if the system doesn’t perform as promised. Some agreements are structured so that you still owe your monthly payment even if the system is underproducing or offline. Worse, you could be on the hook for maintenance and repair costs.
- What to do: Ensure your PPA includes two non-negotiable protections: a performance guarantee and a comprehensive labor warranty. The performance guarantee ensures the system will produce a specified amount of electricity annually, or the company will compensate you for the shortfall. A strong warranty should cover all labor costs associated with maintenance and repairs.
- Energy Select Standard: We only utilize PPAs that offer 100% protection, which includes a performance guarantee to ensure production goals are met, as well as comprehensive warranties covering all labor and material costs.
🚩 Red Flag #4: Incomplete or Unrealistic Initial Designs 🚩
Often, the initial proposal from a PPA company features an optimistic design meant to show maximum savings. These designs frequently fail to account for local requirements from the Authority Having Jurisdiction (AHJ), such as setback rules for fire code compliance. When the final, installable design is completed, it may be smaller or less efficient, resulting in significantly lower savings than you were originally promised.
- What to do: Ask the sales representative if the proposed design has been vetted against local AHJ requirements.
- Energy Select Standard: Being local has its benefits! We are familiar with all local and state requirements, and our in-house solar designers incorporate these regulations into your design. This ensures the system we propose is the system that gets installed.
🚩 Red Flag #5: Unclear End-of-Term and Transfer Options 🚩
A PPA is typically a 20- to 25-year agreement. A lot can happen in that time. You might decide to sell your house, or you may want to buy the system outright. It’s essential to know your options from the outset. A restrictive PPA can complicate a home sale or leave you with limited choices when the agreement expires.
- What to do: Carefully review the sections of the PPA that detail your options for transferring the agreement during a home sale, purchasing the system before the term ends, and what happens at the conclusion of the contract (e.g., system removal, agreement renewal, or buyout).
- Energy Select Standard: We exclusively partner with PPA companies that provide clear, flexible, and homeowner-friendly options for end-of-term buyouts and agreement transfers when selling your home.
Conclusion
The solar landscape is evolving, and a Power Purchase Agreement can be an excellent path toward energy independence and lower electricity bills. However, as we’ve outlined, the devil is truly in the details. A small clause—like a high rate escalator or the absence of a performance guarantee—can turn an investment into a 25-year liability.
We believe going solar should be both simple and safe. By partnering with a trusted local expert, you can go solar with peace of mind, knowing your agreement is free of these red flags. If you’re exploring your options, we invite you to reach out for a transparent, no-obligation PPA proposal built on our principles of quality and customer protection.
Already have a proposal from another company? We encourage you to contact us. We are happy to serve as a local resource to help you understand the fine print and ensure you’re making the best decision for your home. Let us help you navigate your solar journey with confidence.