How Solar Lease Escalators Actually Work

Solar lease escalators are one of the most misunderstood parts of going solar.

They’re often described too simply (“your payment goes up”) or too dramatically (“it’ll skyrocket over time”). The reality sits somewhere in between—and understanding that reality is key to making a confident decision.

Here’s what a solar lease escalator actually is, why it exists, and how to tell whether one makes sense for your situation.

What a Solar Lease Escalator Is

A solar lease escalator is a predefined annual increase in the rate you pay for solar-generated electricity.

Instead of paying the exact same rate forever, the agreement may specify that the price per kilowatt-hour (kWh):

• Increases by a small, fixed percentage each year, or

• Stays flat for the life of the agreement
  
  

The escalator is not hidden. It’s written into the contract from day one.

Why Escalators Exist in the First Place

Escalators exist to account for long-term realities—not short-term surprises.

They help:

• Offset long-term system operation and service costs

• Account for inflation over multi-decade agreements

• Allow lower starting rates compared to utility power
  
  

In many cases, a lease with an escalator starts well below current utility rates, with the expectation that the gap remains favorable over time.

How Escalators Compare to Utility Rate Changes

This is where context matters.

Utility rates are not fixed. Utilities like Dominion Energy and Appalachian Power Company adjust rates based on fuel costs, infrastructure investments, and regulatory decisions.

Those changes:

• Aren’t capped

• Aren’t announced decades in advance

• Can vary year to year
  
  

A solar lease escalator, by contrast, is:

• Defined upfront

• Predictable

• Capped by contract
  
  

The comparison isn’t “increase vs. no increase.” It’s known increases vs. unknown ones.

Common Escalator Structures You’ll See

Most solar leases fall into one of three categories:

1. No Escalator

The solar rate stays the same for the full term.

This offers maximum predictability but may start at a slightly higher rate.

2. Low Fixed Escalator

A small annual increase (often around 1–3%).

This typically allows a lower starting rate while remaining predictable.

3. Utility-Indexed Comparisons

Some proposals emphasize how the escalator compares to historical utility trends.

The key is understanding assumptions—not just projections.

None of these are inherently “good” or “bad.” They’re tools with tradeoffs.

What Escalators Do Not Mean

A solar lease escalator does not mean:

• Your costs will suddenly spike

• You lose control over pricing

• Solar becomes more expensive than the utility overnight
  
  

Escalators are gradual and disclosed. Confusion usually comes from not seeing the full timeline laid out clearly.

How to Evaluate an Escalator the Right Way

Instead of asking “Does this lease have an escalator?”, ask:

• What is the starting price per kWh?

• How does that compare to my current utility rate?

• How high does the rate reach over time?

• Is there a cap or limit built in?

• How does efficiency affect how much energy I actually buy at that rate?
  
  

An escalator only tells part of the story. The rate path and system performance tell the rest.

Efficiency Still Matters—Even With an Escalator

A well-designed system reduces how much energy you need to buy from the grid.

That means:

• Fewer utility kWh purchased

• More energy purchased at the known solar rate

• Less exposure to utility pricing changes
  
  

Efficiency doesn’t eliminate escalators—but it makes them far less impactful.

The Takeaway

Solar lease escalators aren’t tricks or traps. They’re predefined pricing structures meant to balance long-term predictability with upfront affordability.

The real question isn’t whether an escalator exists—it’s whether:

• The starting rate makes sense

• The long-term path is clearly explained

• The system is efficient enough to deliver value over time
  
  

When those pieces align, escalators become a known variable—not a risk.

VirginiaSolar.org was created to give Virginia homeowners clear, unbiased information about solar—so decisions are made with confidence, not pressure.

Our Help Desk and resource library are here whenever you want to go deeper or ask questions.