What a 2.9% escalator really costs you
Modelled with the same engine behind our free calculator. No installer is named here, because the arithmetic does not depend on who wrote the contract — it depends on one number in it.
Most residential solar leases and power purchase agreements raise what you pay every year. The industry mode is 2.9%, and it is usually presented as a small detail near the end of the paperwork. It is not a small detail. Over a twenty-five year term it is often the single most expensive term in the agreement.
The number
Take an ordinary contract: 8 kW, a PPA starting at 15.3¢/kWh against an 18¢ utility rate — the classic “15% below what you pay now” pitch. Everything else held identical, only the escalator changing:
| Escalator | Year 1 | Year 25 | 25-yr total paid | You keep |
|---|---|---|---|---|
| 0% (flat) | $1,890 | $2,377 | $52,259 | $21,522 |
| 1.99% | $1,890 | $3,197 | $62,099 | $11,681 |
| 2.9% | $1,890 | $3,714 | $67,711 | $6,069 |
Same panels, same roof, same first-year payment. Choosing 2.9% over flat costs $15,453 of the savings the system was bought to produce — about 72% of them. The year-one payment is identical in all three rows, which is exactly why the escalator is easy to miss at signing: it is invisible on day one and compounding quietly for a quarter of a century.
The part nobody mentions
A rising payment is defensible if the grid price rises faster. That is the whole argument for an escalator, and it rests on an assumption about your utility’s future rates — a number the company writing your contract does not control and cannot promise.
Here is when a 2.9% contract overtakes the grid it was sold as an alternative to:
| If your utility rises at | Contract overtakes the grid in | Contract, yr 25 | Grid, yr 25 |
|---|---|---|---|
| 1.5%/yr | Year 13 | 30.4¢ | 25.7¢ |
| 2.0%/yr | Year 20 | 30.4¢ | 29.0¢ |
| 2.5%/yr | Not within the term | 30.4¢ | 32.6¢ |
| 3.0%/yr | Not within the term | 30.4¢ | 36.6¢ |
US residential electricity has risen roughly 2–3% a year over the long run, so the top two rows are not far-fetched — they are ordinary outcomes. In them you spend the back half of a twenty-five year agreement paying more than you would have paid the utility, for power generated on your own roof, under a contract you cannot easily leave.
This is the asymmetry worth understanding. If rates rise fast, an escalating contract still saves you something. If they rise slowly, it can cost you money outright. The company faces neither outcome: its revenue rises at 2.9% either way.
What to do about it
- Find the escalator before you find the monthly payment. It is usually one line, often written as “annual adjustment” or “rate increase”. Contracts commonly offer 0%, 0.99%, 1.99% or 2.9%; the higher ones are frequently the default.
- Ask what a flat version costs. A 0% escalator usually means a higher starting rate. That trade is often worth taking, and the table above is why — but you have to see both quotes to judge it.
- Ask what utility inflation the proposal assumes. If the savings figure assumes 4% or 5%, ask why, and look at your own bills from five years ago before accepting it.
- Check the buyout and the transfer terms. Twenty-five years is longer than most people stay in a house, and an escalating contract is harder to hand to a buyer the later it gets.
Check your own contract
Paste the quote you were given — an email, the text of a PDF, whatever you have — into our free calculator. It pulls out the escalator, the term, the rate and the price, then models the whole agreement against an independent estimate for your actual roof, including what the company makes on the deal.
Run your quote — free, no phone number ↗
No account is needed to see the result, we do not ask for a phone number, and nothing is passed to an installer. How every figure above is calculated is set out in the full methodology, including the lease and PPA fund model and its limitations. Figures are informational estimates, not an installation quote.