What Is a Solar PPA? PPA vs Lease vs Buying, With a Cost Comparison
Short answer
A solar PPA (power purchase agreement) is a contract where a company owns and installs panels on your roof and you buy the power they make at a set price per kWh, often 10% to 30% below the utility rate. With a lease you pay a fixed monthly fee instead. Both usually run 20 to 25 years with a 0% to 3.9% yearly escalator. Buying costs more upfront but usually saves the most over 20 years.
There are four ways to pay for rooftop solar: cash, a loan, a lease or a power purchase agreement. The panels look the same on the roof. What changes is who owns them, who claims the incentives, who fixes them and how much you pay over two decades.
This guide explains what a solar PPA is, how a solar lease vs PPA differ, and how both compare with buying, with a worked 20-year cost example and the contract red flags to check before you sign.
What is a solar PPA?
A solar power purchase agreement is a contract between you and a solar company, often called the third-party owner. The company designs, installs, owns, insures and maintains the system on your roof. You agree to buy all the electricity it produces at a fixed price per kWh, and you pay for what the panels actually generate.
How does PPA solar work month to month?
The solar meter records how many kWh the system produced, and the PPA company bills you that number times your contract rate. Your utility bills you separately for any grid power you used, minus credits for power you exported.
Example: 900 kWh × $0.14 = $126.00
A PPA bill is higher in sunny months and lower in winter. Rates are usually set 10% to 30% below the local utility price, so savings depend on what your utility charges.
Solar lease vs PPA vs loan vs cash: what is the difference?
A solar lease is the closest cousin of a PPA. The company still owns the system, but you pay a fixed monthly fee to use it, based on its expected production. If the panels underperform, a lease payment does not drop on its own; you rely on the production guarantee in the contract instead.
A solar loan and a cash purchase both make you the owner. You pay for the system, you keep all the electricity, and you are responsible for repairs once the installer warranties run out.
| Option | Who owns it | What you pay | Upfront cost | Who maintains it | Who claims tax credits |
|---|---|---|---|---|---|
| PPA | Solar company | Price per kWh produced | Usually $0 | Solar company | Solar company |
| Lease | Solar company | Fixed monthly fee | Usually $0 | Solar company | Solar company |
| Loan | You | Monthly loan payment | $0 to a down payment | You, after warranties | You, where any apply |
| Cash | You | Full price once | Full system price | You, after warranties | You, where any apply |
Who claims the tax credit in a lease or PPA?
Ownership decides who gets the incentives. The 30% federal residential clean energy credit (Section 25D) ended for homeowner-owned systems installed after December 31, 2025, so a homeowner who buys with cash or a loan in 2026 cannot claim it.
Third-party owners are treated as businesses. Under the federal tax law passed in July 2025, companies that own leased and PPA systems can still use the commercial clean electricity credit for a limited period, subject to construction start and in-service deadlines and new restrictions on how leased systems qualify. Guidance on those rules is still being issued, so they remain in flux.
This is one reason leases and PPAs gained market share in 2026: the company can still use a credit the homeowner cannot, and part of that value may show up as a lower rate. Compare quotes rather than assuming it. Business owners should confirm their position with a tax adviser.
State rebates and renewable energy certificates (SRECs) also usually go to the owner, so check who keeps them. Some states also limit third-party ownership: Florida, for example, allows solar leases but not residential PPAs.
How do escalator clauses and contract length affect the cost?
An escalator is a fixed yearly increase in your PPA rate or lease payment. Escalators in residential contracts usually range from 0% to about 3.9% a year, and many contracts use 0.99%, 1.99% or 2.99%. The number looks small, but it compounds for 20 to 25 years.
Example: $0.14 × 1.029^19 = $0.241 per kWh in year 20
| Escalator | Year 1 rate | Year 10 rate | Year 20 rate | Year 25 rate |
|---|---|---|---|---|
| 0% | $0.140 | $0.140 | $0.140 | $0.140 |
| 1.9% | $0.140 | $0.166 | $0.200 | $0.220 |
| 2.9% | $0.140 | $0.181 | $0.241 | $0.278 |
| 3.9% | $0.140 | $0.198 | $0.290 | $0.351 |
If your utility rate climbs 2% a year and your PPA escalates at 3.9%, the two prices converge and your savings can vanish late in the contract. A 0% escalator usually starts higher but removes that risk.
Most residential leases and PPAs last 20 to 25 years. Longer terms often come with lower starting prices, but they also lock you in for longer and make selling the house more complicated.
Solar PPA vs lease vs buying: a 20-year cost comparison
The figures below are an example, not a quote, for one hypothetical 8 kW home. Your rates, prices and production will differ.
Assumptions
- System: 8 kW, producing 8 × 1,350 = 10,800 kWh in year 1, within the site’s 1,100 to 1,600 kWh per kW range.
- Degradation: output falls 0.5% a year.
- Utility rate: $0.18 per kWh in year 1, rising 3% a year. The EIA reported an average US residential price of 18.31 cents per kWh in July 2026.
- PPA: $0.14 per kWh in year 1 with a 2.9% escalator.
- Lease: $120 a month in year 1 with a 1.9% escalator.
- Cash: $3.00 per watt, so $24,000, with no federal credit, plus $2,500 for one inverter replacement during the 20 years.
- Loan: the same $24,000 financed for 20 years at 7.99% APR, plus the same $2,500 inverter replacement.
- Every kWh the system makes is valued at the full retail utility rate, which assumes 1:1 net metering. Weaker export credits reduce savings for all four options.
Year N utility cost = year N production × $0.18 × 1.03^(N − 1)
Example, year 10: 10,324 kWh × $0.2349 = $2,425
Year-by-year snapshot
| Year | Production | Utility cost | PPA cost | Lease cost |
|---|---|---|---|---|
| 1 | 10,800 kWh | $1,944 (at $0.180) | $1,512 (at $0.140) | $1,440 |
| 5 | 10,586 kWh | $2,145 (at $0.203) | $1,662 (at $0.157) | $1,553 |
| 10 | 10,324 kWh | $2,425 (at $0.235) | $1,869 (at $0.181) | $1,706 |
| 15 | 10,068 kWh | $2,741 (at $0.272) | $2,103 (at $0.209) | $1,874 |
| 20 | 9,819 kWh | $3,099 (at $0.316) | $2,366 (at $0.241) | $2,059 |
20-year totals
Over 20 years the system produces about 206,041 kWh. Here is what that electricity costs under each option:
| Option | How the total is built | 20-year cost | Savings vs utility |
|---|---|---|---|
| Utility only | Sum of yearly production × escalating utility rate | $49,584 | None |
| PPA | Sum of yearly production × escalating PPA rate | $38,181 | $11,403 |
| Lease | $1,440 a year rising 1.9% a year | $34,642 | $14,942 |
| Loan | 240 payments of $200.60 ($48,143) + $2,500 inverter | $50,643 | −$1,059 |
| Cash | $24,000 + $2,500 inverter | $26,500 | $23,084 |
In this example, buying with cash saves the most, the lease and PPA save less but need no money upfront, and the loan roughly breaks even over 20 years because the interest eats the savings. The loan picture changes after year 20: the owner keeps the panels with no payment, and years 21 to 25 alone would be worth about $16,690 of electricity at the assumed utility rates. A lease or PPA customer gets nothing after the term unless they renew or buy.
Test your own figures with the solar finance calculator, check the purchase price with the solar panel cost calculator, and see how long a purchase takes to repay itself with the solar payback calculator.
What happens when you sell a house with a solar lease or PPA?
The contract does not end when you move. You usually have three choices:
- Transfer it to the buyer. The buyer applies to take over the contract and must pass the company’s credit check. This is the most common route, but some buyers walk away from a long contract with a steep escalator.
- Buy out the system. You pay the buyout price in the contract and the panels become part of the house.
- Prepay the remaining term. Some contracts let you pay the rest of the payments at closing.
UCC filings
Many lease and PPA companies record a UCC-1 fixture filing with the county. It tells lenders and title companies that the panels belong to someone else. It is not a lien on your house, but it can show up in a title search and may need to be temporarily removed or subordinated before a refinance or sale. Ask the company how long that takes.
Credit checks
Leases and PPAs require a credit check, and each provider sets its own minimum score. A buyer taking over your contract has to qualify too.
What are your options at the end of the contract?
When a 20 or 25 year term ends, contracts typically offer some mix of these choices:
- Renew for a shorter term, often at a new rate.
- Buy the system at fair market value, which should be modest for 20-year-old panels.
- Have it removed, usually at the company’s cost.
Watch for automatic renewal clauses. If the contract renews unless you send notice, put the notice deadline in your calendar now.
Maintenance and production guarantees
In a lease or PPA, the company handles monitoring, repairs and inverter replacement for the whole term, a real benefit since an inverter usually needs replacing once in 20 to 25 years.
Leases often include a production guarantee: if the system makes less than a stated number of kWh, the company refunds part of the difference. Check how the guarantee is measured (yearly or over several years), what it pays per missing kWh and whether shading from new trees or buildings voids it. With a PPA you only pay for kWh produced, so underperformance costs you less directly, but you still lose savings.
Your utility bill matters as much as the contract. To see how export credits change the value of each kWh, read our guide to what net metering is and try the net metering calculator.
Red flags in a PPA solar contract or lease
- An escalator near 3% or higher with no clear reason. Compare it with your utility’s actual rate history.
- Savings based on an inflated utility forecast, such as 5% or 6% rises every year.
- No production guarantee on a lease, or a guarantee with vague measurement rules.
- Vague buyout pricing. The contract should show a buyout schedule or formula by year.
- Missing terms for transfer fees, UCC handling or removing panels for a roof replacement.
- Pressure to sign the same day, or a salesperson promising a federal tax credit you cannot claim as a homeowner.
- Automatic renewal at the end of the term without a clear opt-out.
Get at least three quotes, including one cash or loan price for the same system, so you can see what the lease or PPA really costs compared with owning. For the owning side of that comparison, our guide to how much solar panels cost in 2026 breaks down typical cash prices per watt by system size.
Frequently asked questions
What is a power purchase agreement for solar?
It is a contract where a solar company owns and maintains panels on your roof and you buy the electricity they produce at a set price per kWh. Rates are usually 10% to 30% below the utility price and may rise each year by an escalator. Most residential PPAs last 20 to 25 years and need little or no money upfront.
Is a solar lease or PPA better?
Neither is always better. A lease gives a predictable monthly payment, while a PPA charges only for kWh produced, so bills vary by season. Compare the 20-year total, the escalator and the guarantees. In our 8 kW example the lease saved $14,942 and the PPA $11,403, but different rates can reverse that.
Is it better to lease or buy solar panels?
Buying usually saves the most over the system’s life because you keep all the electricity and own the panels after any loan is paid off. In our example, cash saved $23,084 over 20 years versus $14,942 for the lease. Leasing makes sense if you cannot pay upfront, do not want maintenance duties or plan to move soon with a transferable contract.
Can I get the federal tax credit with a solar lease or PPA?
No. In a lease or PPA the company owns the system, so any tax credit goes to the company, not you. The homeowner residential credit ended for systems installed after December 31, 2025. Third-party owners can still use commercial credits under rules changed in 2025, and some may pass part of that value on through a lower rate.
Does a solar lease make it harder to sell my house?
It can. The buyer must qualify and agree to take over the contract, or you must buy out or prepay the system before closing. A UCC filing may also need attention during the title search. A contract with a low escalator and clear transfer terms is much easier to hand over than one with a 3.9% escalator.
