Why understanding your solar contract is important
Purchasing solar panels is a big investment. Before committing to a solar agreement, you must understand your proposal. Understanding your solar contract is key to having a good solar installation experience. A clear comprehension of the solar contract is also the antidote to wanting to cancel a contract.
A solar contract is used whether you are purchasing solar panels with cash, financing with a solar loan, entering a solar lease, or agreeing to a Power Purchase Agreement (PPA). Solar contracts can be intimidating with the depth of details, and legal use of unfamiliar technical terms. Knowing how to read your contract is the first step to success when trying to make sense of your solar contract and whether you agree to everything in it.
What is a solar contract?
Solar contracts are used when purchasing and installing solar panels or solar roof shingles with any payment method, including solar leases or PPAs. Solar contracts vary in length and detail but should cover all the features, such as payment terms, included components and services, and warranty information of your agreement and any contingencies. Once signed, contracts are binding agreements between you and the installer and may be difficult to dissolve without legal intervention. However, most contracts include a “cooling-off” period, typically between three to five days, in case you want to call off the agreement immediately. Understanding what a solar contract is may help you avoid the need to cancel a solar contract in the future.
How to read a solar contract
Now that you understand what a solar contract is, you can follow these three easy steps to reading a solar contract before getting solar panels on your home.
- Set aside uninterrupted time. You will likely need at least an hour to thoroughly read your contract. If you’re making this purchase with a partner, read through the contract together.
- Use reading comprehension tools to help the process, such as highlighting key points or taking notes. Understanding the fundamentals of solar energy will make this part easier.
- Use sticky notes to mark anything you are unsure about. There are no stupid questions — if something is unclear, ask for clarification from your solar installer. Consider getting a second opinion from a lawyer if you can. A lawyer doesn’t need to rewrite the contract but can offer comments and suggestions on what could be negotiated, as well as explain the commitment in an easy-to-understand manner.
Solar proposal vs. a solar contract
A solar proposal or quote is not the same as a solar contract. A solar proposal is an estimate of the costs of a solar panel system. Getting at least three solar quotes before deciding on a solar installer is a good idea. Remember that these quotes are approximate. Even if a solar company has provided a proposal you like, you need to read the actual solar contract carefully to ensure the plan is the same as you were quoted.
What should a solar contract include?
A solar contract should include the following key elements:
- Cost, billing, and payment terms
- Components and services, including panel and inverter types
- Design, permitting, and installation process, and change orders (in case design modifications must be made during the installation process)
- Warranty information, performance guarantee, and exceptions and exclusions
- Contract termination and dispute resolution
Solar contract details
The solar contract will include the previous points, which are critical for a standard solar agreement. Your solar contract may vary based on the design, location, payment method, and installation of your system. Use this as a guide, not an exhaustive list.
| Part of contract | Details |
|---|
| Components | Covers all physical hardware, such as the quantity, wattage, and brand of solar panels and inverters for your system. If applicable, should also cover details on the battery, what brand (Tesla Powerwall, Generac, Delta, Sonnen, and LG RESU are a few of the best solar batteries), and storage size. |
| Services | Services explains and itemizes all soft costs, like permitting, interconnection, post-install monitoring, and maintenance. |
| Billing and payments | This section covers when payment is due, interest rates (fixed or variable) and APR, late fees, billing cadence, flexible payments, and what financial institution is in charge of the loan, if applicable. |
| Timeline | Outlines install start and end date, including an estimate of how long each step takes to complete (i.e., permitting, interconnection, physical install, and so on). This is likely the most variable detail to understand and be comfortable with. |
| Warranty info | Covers everything related to the installer’s solar panel warranty, including components and quality-of-work. Should also outline the efficiency guarantee and how long the solar panels will last. |
| Contract termination | This section summarizes the contract’s cooling-off period, how to dissolve the contract, and any termination fees. |
| Resolving disputes | Explains how any disagreements relating to the installation process are handled. This can include rules on arbitration, which is a method for privately dissolving complaints outside of the court systems. |
| Transferring ownership | This section includes terms on selling the property, specifically for financing, leasing, or PPAs. Typically, loans must be paid off or the buyer must agree to take over the loan. Solar contracts for solar leasing or PPAs will include clauses on how to handle transferring ownership of the property. These instances may require additional contracts at that time. |
Other things to consider in a solar installation agreement
The following items may not be part of the contract but should still be addressed to ensure you are getting the most for your money and the best return on your solar panel investment.
Here are factors that you need to understand that may not be in the solar contract:
- Breakdown of savings. How solar works and your traditional energy use vs. prospective solar energy production.
- Solar potential. This term is “the amount of solar that could be installed on that rooftop, based on its size, shading, tilt, location, and construction, according to the Office of Energy Efficiency and Renewable Energy (EERE). Your solar potential may be greater than what you can afford or may be less than what you need.
- Solar output. Measurement of total kW generated by the solar panel system. The system should come close to meeting your annual consumption in order to virtually eliminate the cost of your energy bill paid to your utility provider.
- Return on investment period. Calculate your payback period by multiplying your total solar system cost by 0.7 (this will give you the total cost after accounting for the 30% Residential Clean Energy Credit), then divide by your annual energy bill. i.e. (Total system cost x 0.7) ÷ (Avg monthly electricity bill x 12 months) = Payback period
- Net metering savings.How net metering works in your area, including how the solar installer will assist you with getting connected to the power grid.
- Efficiency guarantee. Does your installer guarantee an efficiency percentage? Even the most efficient solar panels will decrease in power over time, but are guaranteed up to a certain percentage over 20 to 25 years.
- How solar incentives work. Your solar installer should be able to clearly explain all federal and state solar incentives, which ones you will qualify for, and how to claim incentives. The most important one is the federal solar tax credit, or Residential Clean Energy Credit.
If your solar installer cannot clearly explain these details, you may want to reconsider signing a contract with them. Use the Consumer Solar Checklist from the Interstate Renewable Energy Council (IREC) to ensure common concerns are addressed before signing the agreement.