Terms such as "escalator" and "Power Purchase Agreement" should be understood by all homeowners and business owners before they make the switch to solar. Here's why.
Simply put, an escalator in a solar lease or power purchase agreement, commonly referred to as a PPA, is an agreed upon rate in which the PPA price or Lease Payment increases over time. An escalator in a solar lease or PPA can be viewed as inflation or an implied interest rate that is built into the terms. In other words, it’s a compounding factor applied to your monthly lease payment or price per kilowatt hour (if you’re considering a power purchase agreement).
In either scenario, the equipment is owned by a third party and you simply take advantage of all the electricity that it generates—either by leasing the equipment or paying at an agreed-upon rate for the power it makes. In either case, you should first start by making sure it will make enough power to cover your anticipated electricity needs.
How an Escalator in a Solar Lease Works
If a company is proposing a lease with an escalator, rather than a flat payment for 20 or 25 years, the $200/month lease will "escalate" by 2.9% or 3.9% each year, or some figure. This will be sold to you as still keeping your payment lower than what you would be paying by staying with the utility. Many solar salespeople use historical rate increases of 6% on which to base their model, so that small increase each year seems like an easy choice.
However, if the utility rate doesn’t continue to increase at that rate (or never did), you may end up paying more for solar than what you would otherwise with the utility.
If an escalator is needed in order to show you initial savings, perhaps solar doesn’t make sense for you if your primary goal is savings. You’ll be told that you are locking in a rate that increases slower than the utility. However, a problem may present itself when you go to sell your home and rather than a system that has been paid for or has an attractive fixed monthly cost that doesn’t change, the new owner is purchasing a system that gets more expensive every year.