A 2.9% solar escalator isn't automatically bad, but it's not small either. It means your solar payment roughly doubles over a 25-year contract. A $150 monthly payment becomes about $298 by year 25, and over the full 25-year term you'd pay about $19,772 more than you would at a fixed rate of $150.
Whether that's a good deal for you as a homeowner depends on two things: how much lower your starting rate is, and how fast your utility rate climbs. Here's how to tell. New to all this? Start with how a solar escalator works.
What a 2.9% solar escalator means for your solar lease
A 2.9% annual escalator means your lease payment goes up 2.9% every year for the life of the contract. In a solar lease, it raises your monthly payment. In a PPA, it raises the price you pay per kilowatt-hour. Either way, the escalator means you'll pay more each year for the same solar panels on the same roof. It's the same solar energy, just a different payment structure.
2.9% and 2.99% are among the most common escalator rates in residential solar. During the sales process, many solar companies lead with the year one number because the escalator keeps it low. That's why 2.9% can feel like the normal choice. Normal isn't the same as best for you, though.
How the escalator clause works in a solar contract
A solar escalator clause automatically raises your payment on a set date each year, usually the anniversary of when your system turned on. It's a clause that increases your monthly payment by a fixed percentage every year, no matter what happens to electricity prices.
Solar contract terms vary, but the escalation is usually listed in the pricing or payment schedule. It may be called an annual adjustment or annual increase instead of an escalator. A good solar agreement shows your payment in year 1, year 10 and year 20, not just the starting payment. If yours doesn't, ask the solar provider for the full escalating payment schedule before you sign.
How a 2.9% escalator compounds over 25 years
An escalator compounds, which is why a small annual increase adds up to so much. Each year's increase is 2.9% of last year's payment, not your original one. So the jump from year 1 to year 2 is about $4. By year 20, each annual increase is more than $7.
| Escalator | Year 1 | Year 5 | Year 10 | Year 15 | Year 20 | Year 25 |
|---|---|---|---|---|---|---|
| 2.9% | $150 | $168 | $194 | $224 | $258 | $298 |
| 0% (flat) | $150 | $150 | $150 | $150 | $150 | $150 |
Monthly payment starting at $150, rounded to the nearest dollar.
The first few years barely move. The back half of the contract is where the escalator compounds the most, and it's also when many homeowners are thinking about selling their home.
Your solar payment in year 10, year 20 and year 25
Here's how a $150 lease payment escalates at 2.9%:
- Year 10: about $194 a month
- Year 20: about $258 a month
- Year 25: about $298 a month
Over 25 years, the total comes to about $64,772, compared with $45,000 if the payment never changed. With a PPA, the math works the same way on the price per kilowatt-hour: a 20-cent rate climbs to about 40 cents by year 25.
See what your escalator really costs
Plug in your starting payment and escalator and see what you'll pay every year of your contract.
Run my numbersThe crossover year: when your escalator rate passes your utility rate
The real question isn't whether your solar payment goes up. It's whether it goes up faster than your utility rate. The crossover year is when your solar price per kilowatt-hour passes what you'd pay the utility. After that, the deal costs you money every month.
| If utility rates rise | 2.9% escalator |
|---|---|
| 0% a year | Year 7 |
| 1% a year | Year 10 |
| 2% a year | Year 20 |
| 3% a year | Never in 25 years |
Year your solar price per kWh passes your utility rate, assuming it starts 15% below your utility rate. At 4% or more a year, none of these rates ever catch up.
Massachusetts residential electricity rates have increased about 70% since 2015, a little over 5% a year. If utility rate increases kept that pace, a 2.9% escalator would never catch up. But utility rates don't climb in a straight line, and some years they drop. Your rate may stay ahead for a decade or more, or not. For the full picture, see how solar lease escalators compare with Massachusetts utility rates.
Also remember that most homes with solar still pay for grid power at night and in winter, so your utility bill doesn't disappear. Count both bills when you compare.
2.9% vs. typical escalator rates
Typical escalator rates on solar leases and PPAs run from 0% to about 3.5%:
- 0%: a fixed rate. The payment never changes, but it starts higher.
- 1.99%: a slightly higher start and a slower climb. Here's what a 1.99% solar escalator looks like over 25 years.
- 2.9% to 2.99%: lower payments up front and a steady climb. Your payment roughly doubles.
- 3.5%: the lowest start and the steepest climb. A 3.5% solar escalator pushes $150 to about $342 by year 25.
Compare escalator offers side by side, and look at the payment over 25 years, not just the first bill. Here's how to compare two solar quotes with different escalators.
Is a solar lease escalator worth it for a homeowner?
A 2.9% escalator can work if your starting payment is well below your utility bill, you're comfortable betting rates keep rising, and you plan to stay put for the full 25-year term.
It's a harder sell if the 0% option starts only a little higher, you might move in year 10 or 15, or the quote only shows the starting rate. Whether a solar payment increase is worth it mostly comes down to how long you'll stay.
What a 2.9% escalator means when selling your home
When you sell, the buyer usually takes over your solar lease or PPA, including the escalator. A new homeowner doesn't get your starting payment. They get today's escalated payment and every increase still to come. In year 10 of a $150 lease, that's about $194 a month and climbing.
Some buyers are fine with that. Some aren't, and that's when a buyout comes up. The buyout price is usually based on the payments left, so a 2.9% escalator raises that number too.
Leased solar vs. owning: is there a way around the escalator?
Yes. Leased solar and PPAs are the only setups with an escalator. If you own your system with cash or a solar loan, the loan payment is fixed and there's no escalation. That's the biggest difference in any solar lease vs. ownership comparison, and it's worth asking about before you choose your solar financing.
If you already signed, check your contract for the solar cancellation window, which is often only a few days. Here's what to look for in a solar contract, including where to find the cancellation terms.
Got a quote with an escalator?
Send it to Mark. He'll review it and find you an option with no escalator.
Mark, review my quoteFAQs About 2.9% Solar Escalators
Is 2.99% any different from 2.9%?
Barely. On a $150 starting payment, 2.99% lands at about $304 in year 25, a few dollars more a month than 2.9%. Treat them as the same escalator rate when you compare quotes.
Can I get a 0% escalator instead of 2.9%?
Often, yes. Many solar companies offer more than one option. The 0% version has a higher starting payment, so ask to see both side by side before you sign.
Can the escalator rate change after I sign?
No. The escalator rate is locked in at signing. What changes is the dollar amount, because the same percentage every year is applied to a bigger payment.
Is a 2.9% escalator allowed in Massachusetts?
Yes. Leases and PPAs enrolled in the state's SMART program can't go above 3% a year, and 2.9% sits just under that limit.
About Mark Featherstone
Mark has been in solar for over 12 years, working at some of the biggest solar companies in the country, before co-founding Your World Solutions. His goal is simple: help homeowners get into solar deals that actually work for them, and make sure they understand every part of it before they sign.
This article is for general informational purposes only and isn't financial, legal or tax advice. Numbers and examples are estimates for illustration. Actual payments, savings, utility rates and contract terms vary and aren't guaranteed, and rates and program rules can change over time. Review your own contract and talk with a qualified professional before making a decision.