What Is a Solar Proposal?

A solar proposal is a formal document from a solar installer that outlines the system design, expected energy production, equipment specifications, costs, and financial projections for a residential or commercial solar installation. Understanding each section is critical before signing any contract.

System Size: kW DC vs kW AC

The first number you will see is the system size, typically expressed in kilowatts (kW). There are two measurements to understand:

  • kW DC (Direct Current): The nameplate capacity of the solar panels themselves. This is the total wattage of all panels under standard test conditions (STC).
  • kW AC (Alternating Current): The actual power output after the inverter converts DC electricity to the AC electricity your home uses. This is always lower than the DC rating.

The ratio of AC to DC output is called the DC-to-AC ratio or inverter loading ratio. A ratio above 1.0 means the panels can produce more power than the inverter can handle at peak moments — this is known as inverter clipping. Mild clipping (ratios of 1.15 to 1.25) is intentional and acceptable, as panels rarely operate at full nameplate capacity in real-world conditions. Excessive clipping wastes potential production.

Production Estimate: Annual kWh

The proposal should provide an estimated annual energy production in kilowatt-hours (kWh). This number depends on several factors:

  • Panel orientation: South-facing roofs in the Northern Hemisphere produce the most energy. East- and west-facing installations produce roughly 15–20% less.
  • Tilt angle: The optimal tilt angle typically equals your latitude. Flat roofs lose some production potential.
  • Shading: Even partial shading from trees, chimneys, or neighboring buildings can significantly reduce output. Ask if the installer used shade analysis software such as Solargis or SunEye.
  • Location and climate: Solar irradiance varies dramatically by geography.
  • Panel degradation: Solar panels lose output over time, typically around 0.5% per year. Over 25 years, expect roughly 12% less production than year one.

Understanding Peak Sun Hours

Peak sun hours are not the same as hours of daylight. A peak sun hour represents one hour of sunlight at an irradiance of 1,000 watts per square meter — the equivalent of full, direct midday sun. It is used to calculate how much energy a solar system will actually produce:

Annual kWh = System size (kW DC) × Peak sun hours/day × 365 × (1 − System losses)

Peak sun hours by region (approximate daily averages):

  • Arizona, New Mexico, Nevada, California desert: 5.5–6.5 hours
  • Florida, Texas, Georgia: 4.5–5.5 hours
  • Midwest (Illinois, Ohio, Indiana): 4.0–4.5 hours
  • Northeast (New York, Massachusetts, Pennsylvania): 3.8–4.5 hours
  • Pacific Northwest (Oregon, Washington): 3.5–4.0 hours

Solar Fraction: How Much of Your Electricity Will Solar Cover?

The solar fraction (or solar offset) tells you what percentage of your annual electricity consumption the solar system is designed to offset. A 100% solar fraction means the system is sized to produce as much electricity as you use annually, though you will still draw from and send power back to the grid throughout the day. Most proposals target 80–110% to balance system cost and production.

Financial Metrics to Evaluate

System Cost and Cost Per Watt

The gross system cost divided by the system size in watts gives you the installed cost per watt. In 2024–2025, the national average for residential solar ranged from $2.50 to $3.50 per watt installed. Commercial systems are typically lower. Use this metric to compare quotes from different installers — normalize all bids to $/watt.

Federal Investment Tax Credit (ITC)

The federal Investment Tax Credit (ITC) allows you to deduct 30% of the total system cost from your federal income taxes. This credit applies to systems installed through 2032 under the Inflation Reduction Act. It is a tax credit, not a rebate — you must have sufficient federal tax liability to use it. If you cannot use the full credit in year one, it can carry forward to future tax years.

Net Metering

Net metering policies allow you to send excess solar electricity to the grid and receive credits on your utility bill. Credit rates vary by state and utility. Some states offer full retail rate credits; others offer lower avoided-cost rates. The proposal should specify the net metering credit rate used in its financial projections.

Payback Period, IRR, and NPV

  • Payback period: The number of years until cumulative energy savings equal the net system cost (after ITC). Typical residential payback ranges from 6 to 12 years.
  • Internal Rate of Return (IRR): The effective annual return on your solar investment. A quality solar installation should yield an IRR of 8–15% or higher depending on electricity rates and incentives.
  • Net Present Value (NPV): The present value of all future energy savings minus the net upfront cost. A positive NPV means the investment creates economic value.

Equipment Specifications

Solar Panels

The proposal should specify the panel brand, watt-class (e.g., 400W, 420W), and efficiency rating. Residential panels typically range from 19% to 23% efficiency. Higher efficiency panels produce more power per square foot, which matters on smaller roofs. Pay attention to the temperature coefficient — this tells you how much output drops as the panel heats up. A coefficient of −0.3%/°C is better than −0.4%/°C, especially in hot climates. Even Arizona's abundant sunshine comes with a performance penalty on hot days.

Look for a 25-year production warranty guaranteeing at least 80–87% of original output, and a separate 10-year equipment (product) warranty covering manufacturing defects.

Inverter Types

  • String inverters: One central unit for the entire system. Lower cost, easier to maintain, but performance of all panels is limited by the worst-performing panel. Best for unshaded roofs with a single orientation.
  • Microinverters: One small inverter per panel. Best for complex roofs or partial shading because each panel operates independently. Higher cost but maximizes output in challenging conditions.
  • Power optimizers: DC optimizers attached to each panel that maximize individual panel output and communicate with a central string inverter. A middle ground between string and micro in terms of cost and shade tolerance.

Monitoring System

Any reputable proposal should include a monitoring system that lets you track production in real time via a smartphone app or web portal. Confirm whether monitoring equipment and subscription fees are included in the quoted price.

Financing Options

  • Cash purchase: You own the system outright, receive the full ITC, and capture all savings. Best long-term financial outcome.
  • Solar loan: You finance the purchase. You still own the system and receive the ITC. Compare interest rates and loan terms carefully.
  • Solar lease: You pay a fixed monthly fee to use the system. The installer owns it. You do not receive the ITC and may face complications when selling your home.
  • Power Purchase Agreement (PPA): You pay a per-kWh rate for the electricity produced. The installer owns the system. Like a lease, you forfeit the ITC. PPAs often include escalators that increase your rate 1–3% annually.

Red Flags in Solar Proposals

  • Overstated production estimates: Compare the installer's production estimate against the NREL PVWatts Calculator (pvwatts.nrel.gov), a free government tool. If the installer's number is more than 10% higher than PVWatts, ask for an explanation.
  • Ignoring degradation: A proposal that shows flat energy production year over year is not accounting for the typical 0.5%/year degradation rate.
  • Not modeling shading: If shading is present and the proposal does not address it, the production estimates are unreliable.
  • Vague equipment specs: Any proposal that does not specify panel brand, model, and watt-class should be treated with caution.
  • Pressure tactics: Legitimate solar companies do not require same-day decisions.

How to Compare Multiple Proposals

To compare bids fairly, normalize every proposal to the same metrics:

  1. Calculate cost per watt (gross cost ÷ system kW DC)
  2. Compare the estimated first-year production (kWh)
  3. Verify the production estimate against PVWatts using the same system size and your address
  4. Compare warranty terms for panels and inverters
  5. Check installer credentials, especially NABCEP certification (North American Board of Certified Energy Practitioners), the industry's leading quality credential

Questions to Ask Before Signing

  • Is your company NABCEP-certified or do you employ NABCEP-certified installers?
  • What permits and utility interconnection applications do you handle?
  • How long is the installation timeline from contract signing to permission to operate?
  • What happens if my production falls short of your estimate?
  • Are there any HOA or roof warranty considerations I should know about?
  • Does the price include all electrical panel upgrades or roof work needed?