What You’ll Learn
- What solar leases and power purchase agreements are and how they differ
- Why third-party ownership became more important after the residential tax credit expired
- How the federal commercial tax credit flows through to homeowners via lease and PPA pricing
- Key contract terms to evaluate before signing
- Who solar leasing and PPAs are best suited for
- How leases and PPAs compare to cash and loan purchases in 2026
What Are Solar Leases and PPAs?
A solar lease is a monthly rental agreement for a solar panel system installed on your property, while a power purchase agreement, or PPA, is a contract to buy the electricity the system produces at a set price per kilowatt-hour. In both cases, a third-party company owns the equipment, handles installation and maintenance, and you pay a predictable amount that is typically lower than your current utility bill.
Solar leases and PPAs have become the most financially significant path for homeowners to go solar in 2026. When the federal residential tax credit under Section 25D expired on December 31, 2025, homeowners lost the ability to claim a 30 percent credit on cash or loan purchases. But the commercial Investment Tax Credit under Section 48E is still available, and the companies that own leased and PPA systems can claim it because the transaction qualifies as a commercial investment. That tax benefit gets built into the rate you pay, which is how lease and PPA customers still benefit from federal incentives even though they cannot claim the credit directly.
How Solar Leases Work
In a solar lease, a provider installs a solar panel system on your roof at no upfront cost. You pay a fixed monthly fee to use the system, regardless of how much electricity it produces. The leasing company owns the panels, handles all maintenance and repairs, and retains any applicable tax credits and renewable energy credits.
Lease payments are typically set below what you would pay the utility for the same amount of electricity, which means you save money from month one. Most leases run 20 to 25 years, and some include an annual escalator of 1 to 3 percent that increases the monthly payment each year. Others offer a fixed rate for the entire term.
At the end of the lease, you generally have the option to purchase the system at fair market value, renew the lease, or have the panels removed. If you sell your home during the lease term, the agreement can typically be transferred to the new homeowner.
How Power Purchase Agreements Work
A PPA is structured differently from a lease. Instead of paying a flat monthly fee, you pay a set rate per kilowatt-hour for the electricity the system generates. Your monthly cost varies slightly based on production, which means you pay less in cloudier months and more in sunnier months.
Like a lease, the PPA provider owns the system, installs it at no upfront cost, and handles maintenance. The per-kilowatt-hour rate is set below your utility’s retail rate, providing immediate savings. PPAs also run 20 to 25 years and may include an annual price escalator.
The main practical difference between a lease and a PPA is the billing structure. A lease gives you a predictable flat payment each month. A PPA ties your payment to actual production, which some homeowners prefer because it more directly reflects the value you receive.
Why Third-Party Ownership Matters More Than Ever
Before 2026, homeowners who purchased systems with cash or a loan could claim the 30 percent federal tax credit themselves, making ownership the clear financial winner for anyone who could afford it. That dynamic has changed.
Without the residential credit, a cash or loan purchase now means paying the full gross cost of the system with no federal tax offset. Payback periods have extended from 8 to 10 years to 12 to 15 years in most Pennsylvania markets. The lifetime return is still positive, but the upfront economics are harder to justify for many households.
Leases and PPAs, by contrast, still benefit from federal incentives because the third-party owner claims the Section 48E commercial credit. That credit reduces the owner’s cost basis, and the savings are reflected in the rate offered to the homeowner. The result is that lease and PPA rates in 2026 are often 20 to 40 percent below utility rates from day one, with no upfront payment required.
For homeowners who do not have significant cash reserves, who are uncomfortable taking on a solar loan without a federal credit to offset the cost, or who simply want predictable savings without ownership responsibilities, third-party ownership has become the most practical way to go solar.
Key Contract Terms to Evaluate
Not all lease and PPA agreements are structured equally. Before signing, evaluate the following terms carefully:
Rate and Escalator
The initial rate should be meaningfully below your current utility cost per kilowatt-hour. If the contract includes an annual escalator, calculate what the rate will be in year 10, 15, and 20 and compare it to projected utility rates. An escalator of 1 to 2 percent is common and generally keeps the rate competitive. An escalator of 3 percent or higher may erode your savings over time if utility rate increases slow down.
Contract Length
Most agreements are 20 to 25 years. Shorter terms are available from some providers and may be worth considering, though they typically come with a higher monthly rate because the provider has fewer years to recoup the investment.
Transfer and Early Termination
Understand what happens if you sell your home. Most agreements allow the lease or PPA to transfer to the buyer, but some buyers may be hesitant to assume the obligation. Check whether there is an early termination fee and what the buyout price would be at various points in the contract.
Performance Guarantee
Many providers include a production guarantee that ensures the system will generate a minimum amount of electricity per year. If it falls short, the provider compensates you for the shortfall. This protects you from underperformance and ensures the savings projections are backed by a contractual commitment.
Maintenance and Insurance
The provider should be responsible for all system maintenance, monitoring, and repairs for the duration of the agreement. Confirm that the provider carries insurance on the equipment and that you are not liable for damage caused by the system.
Who Benefits Most From a Lease or PPA
Third-party ownership works especially well for homeowners who want to reduce their electricity costs without an upfront investment, do not have the federal tax liability to benefit from an ITC even when it was available, plan to stay in their home for at least 7 to 10 years, or prefer a predictable monthly energy cost with maintenance included.
Homeowners who have significant cash available and plan to own the property for 15 or more years may still prefer a cash purchase for the highest lifetime return, even without the federal credit. The right choice depends on your financial situation, risk tolerance, and how long you plan to stay.
👉 Compare all options side by side in our full financing comparison
How Sunwise Can Help
Sunwise Energy offers both third-party ownership options and guidance on cash and loan purchases so you can choose the structure that fits your goals. We provide transparent rate comparisons, walk you through every contract term, and handle the entire installation process from design through utility interconnection.
Solar Lease and PPA FAQs
What is the difference between a solar lease and a PPA?
A solar lease charges a fixed monthly payment regardless of how much electricity the system produces. A PPA charges a set rate per kilowatt-hour based on actual production. Both involve a third-party owner who installs and maintains the system at no upfront cost to the homeowner.
Can I still get federal tax benefits through a solar lease or PPA in 2026?
Yes, indirectly. The third-party company that owns the system claims the Section 48E commercial Investment Tax Credit. That benefit is reflected in the rate offered to the homeowner, resulting in a lower lease payment or PPA rate than would otherwise be possible.
What happens to my solar lease if I sell my house?
Most solar lease and PPA agreements can be transferred to the new homeowner. The buyer assumes the remaining contract terms. Some agreements also include a buyout option that allows you to purchase the system and include it in the home sale.
Do I earn SRECs with a solar lease or PPA?
Typically, no. The system owner, which is the leasing or PPA company, retains the rights to Solar Renewable Energy Credits. If earning SRECs is important to you, a cash or loan purchase gives you full ownership of both the system and the credits it generates.
Is it better to buy or lease solar panels in 2026?
It depends on your financial situation and goals. Buying with cash offers the highest lifetime return but requires a large upfront investment and has a longer payback without the federal credit. Leasing or signing a PPA requires $0 upfront and provides immediate monthly savings, but total savings over 25 years are typically lower than ownership.
The information in this guide is for informational and educational purposes only and does not constitute legal, financial, or tax advice. We are not licensed tax advisors or financial professionals. The tax laws and regulations discussed are complex and subject to change and interpretation. Consult with a qualified tax professional to understand how these provisions apply to your organization’s specific circumstances.
