A solar lease and a solar power purchase agreement (PPA) look almost identical from the curb: a company puts panels on your roof, you pay little or nothing up front, and someone else owns and maintains the system. The difference is in how you pay for it, and it is worth understanding before you sign a 20-year contract. This guide breaks down the one real distinction between a lease and a PPA, the fine print that trips homeowners up (the escalator), who actually keeps the tax incentives, and how both stack up against simply owning your system in 2026. Every figure is sourced and dated.
- Both are third-party ownership with little or no up-front cost. With a lease or a PPA, a company owns the panels on your roof, handles maintenance, and lets you use the power for a monthly payment, so neither one makes you the owner of the system (DOE Homeowner’s Guide to Going Solar, as of 2026).
- The one real difference is what you pay for. A lease charges a flat monthly fee to use the equipment; a PPA charges a set rate per kilowatt-hour (kWh) for the power the panels actually produce (EnergySage: Solar leases vs PPAs, as of 2026).
- Both commonly carry an escalator. Lease and PPA contracts are long-term (leases often 15 to 20 years, PPAs about 10 to 25 years) and often include an annual escalator that raises your payment each year, typically about 2 to 5 percent, though some are fixed at 0 percent (SEIA Solar Power Purchase Agreements; NREL, as of 2026).
- The third-party owner keeps the tax credit, not you. Because the company owns the panels, it claims the incentives, including the commercial Section 48E credit on a leased or PPA system, which is never the homeowner’s to claim; the homeowner’s own 30 percent Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025 (IRS Clean Electricity Investment Credit; IRS Residential Clean Energy Credit, as of 2026).
- The homeowner federal credit ended, which changes the comparison. The 30 percent federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025 (IRS; SEIA, as of 2026), so buying no longer carries a federal-credit edge over leasing, though it still carries the ownership edge.
- Pick by how you want to pay, not by which is “better”. A PPA suits you if you want to pay only for the power produced; a lease suits you if you want a predictable, fixed monthly amount. Both trade ownership and incentives away for no up-front cost.
What is the difference between a solar lease and a PPA?
A solar lease and a solar PPA are both third-party ownership arrangements with little or no up-front cost; the only real difference is the payment structure. With a lease you pay a fixed monthly amount to use the system, no matter how much power it makes. With a PPA you pay a set price per kilowatt-hour for the electricity the panels actually produce, so your bill moves with the system’s output (EnergySage: Solar leases vs PPAs, as of 2026). In both cases a company owns the panels, keeps the tax incentives, maintains the system, and usually builds in an annual escalator. That shared structure is why leases and PPAs are often grouped together and compared against owning your system with cash or a loan.
Solar lease vs PPA at a glance
Line the two up side by side and the practical trade-off is simple: a lease gives you a predictable payment, a PPA ties your payment to production. The table below is our own synthesis of how the two arrangements actually work, drawn from the sourced facts in the sections that follow.
| Factor | Solar lease | Solar PPA |
|---|---|---|
| What you pay for | A flat monthly fee to use the system | A set rate per kWh for the power produced |
| Does the bill change with output? | No. You pay the same whether the panels overproduce or underproduce | Yes. A cloudy or snowy month means fewer kWh, so a lower payment |
| Who benefits when the system overproduces | You (you paid a fixed amount for more power) | Shared. You pay for every kWh, so a high-output month costs more |
| Typical term | Often about 15 to 20 years (sometimes longer) | Often about 10 to 25 years |
| Annual escalator | Common, typically about 2 to 5 percent; some fixed at 0 percent | Common, applied to the per-kWh rate; same typical range |
| Who owns the panels | The third-party company | The third-party company |
| Who claims the tax credit and incentives | The owner (commercial Section 48E), not you | The owner (commercial Section 48E), not you |
| Homeowner federal tax credit | None on either. The 30 percent Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, so a 2026 buyer cannot claim it either (IRS) | |
| Best for | A predictable, fixed monthly payment you can budget around | Paying only for the power you actually get, month to month |
Sources: payment structure per EnergySage; ownership, term, and incentive mechanics per DOE Homeowner’s Guide to Going Solar and SEIA; the commercial Section 48E credit stays with the system owner per IRS; the homeowner’s own Section 25D credit ended for expenditures made after December 31, 2025 (IRS), as of 2026.
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The escalator clause: the fine print to flag on both
The single most important line in a lease or PPA is the escalator, the clause that raises your payment a set percentage every year. Many residential lease and PPA contracts include one, typically between 2 and 5 percent a year, though some contracts are fixed at a 0 percent escalator (SEIA Solar Power Purchase Agreements; NREL Homeowner’s Guide to Leasing a Solar Electric System, as of 2026). On a lease the escalator raises the flat monthly fee; on a PPA it raises the per-kWh rate. The pitch is that the escalator tracks expected utility-rate increases, but it also means a payment that starts comfortably below your electric bill can climb over a term that often runs 15 to 25 years, and in some years it can rise faster than your actual utility rate.
To see why the escalator matters, watch a sample payment grow over 20 years. The table below is our own illustration at a 2.9 percent escalator, built to show the direction and rough scale, not a quote. It assumes a modest system that produces about 10,000 kWh a year, a lease starting at $120 a month, and a PPA starting at 15 cents per kWh (below the U.S. average residential rate of 18.83 cents per kWh, EIA, March 2026). Your own numbers will differ with your system, your state, and your contract.
| Contract year | Lease payment (starts $120/mo, 2.9% escalator) | PPA rate and payment (starts 15 cents/kWh, 2.9% escalator) |
|---|---|---|
| Year 1 | about $120/mo | 15.0 cents/kWh, about $125/mo |
| Year 5 | about $135/mo | 16.8 cents/kWh, about $140/mo |
| Year 10 | about $155/mo | 19.4 cents/kWh, about $161/mo |
| Year 15 | about $179/mo | 22.3 cents/kWh, about $186/mo |
| Year 20 | about $206/mo | 25.7 cents/kWh, about $214/mo |
| Rough 20-year total | about $38,000 | about $40,000 (if production holds steady) |
Illustrative estimate computed by MySolarFY from a 2.9 percent annual escalator (within the typical range per SEIA) against a 10,000 kWh/year system; the PPA start rate sits below the U.S. average residential rate of 18.83 cents per kWh (EIA, March 2026). Not a quote; every figure moves with your system, state, and contract.
Your own electricity rate is what decides whether the discount is real. In a high-rate state where the utility charges closer to 30 cents per kWh, a 15-cent PPA start looks like a large saving; in a low-rate state near 12 cents, that same PPA rate can start at or above your utility rate, so the “below your bill” pitch does not hold. Check your current per-kWh rate on your utility bill before you judge any lease or PPA offer against it.
Note: Before you sign, ask for the escalator percentage in writing and model the payment in year 10 and year 20, not just year one. A 0 percent escalator gives you a fixed, predictable payment for the life of the contract; a 3 to 5 percent escalator compounds and can push a lease or PPA payment above what a fixed cost would have been. This one number changes the deal more than almost anything else in the contract (SEIA, as of 2026).
Who owns the panels, and who claims the incentives?
On both a lease and a PPA, a third party owns the panels, so that company keeps the tax credit and incentives, not you. This is the trade at the heart of third-party ownership: you skip the up-front cost, and in exchange you give up ownership and the incentives that come with it (DOE Homeowner’s Guide to Going Solar, as of 2026). In 2026 the only federal credit left on a home solar system is the commercial Section 48E Clean Electricity Investment Credit, because the homeowner’s own 30 percent Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, and the company that owns a leased or PPA system is the one that can claim the 48E credit, never the homeowner (IRS Clean Electricity Investment Credit; IRS Residential Clean Energy Credit, as of 2026).
Here is the part that reshaped this whole comparison in 2026. For years, the strongest reason to buy your system instead of leasing it was that you, the owner, could claim the 30 percent federal Residential Clean Energy Credit. That credit, Section 25D, ended for expenditures made after December 31, 2025 under the 2025 budget law (IRS Residential Clean Energy Credit; SEIA summary of the law, as of 2026). So a homeowner who buys solar in 2026 cannot claim that 30 percent federal credit, which removes the clean “own it to get the 30 percent” edge that buying used to hold over a lease or PPA. You will still see installers and search results say the 30 percent credit applies; for a 2026 homeowner purchase, that is out of date. MySolarFY does not provide tax advice, so confirm your own situation with a tax professional. For the full breakdown, see our guide on what the end of the federal solar tax credit means in 2026.
What happens at the end of a solar lease or PPA?
When a lease or PPA reaches the end of its term, you usually have three choices: renew, buy the system, or have it removed. These options exist for both leases and PPAs, though the exact terms differ by contract (EnergySage; DOE, as of 2026):
- Renew the agreement. Many contracts let you extend the lease or PPA for additional years, sometimes at a renegotiated or lower rate.
- Buy the system. Some agreements include a buyout at a defined price, often near fair market value, that makes you the owner going forward. Note that the tax credits tied to the original installation stay with the original owner, so buying the system out later does not hand you a credit.
- Have it removed. If you do not renew or buy, the provider typically removes the equipment, per the contract terms.
The buyout price is the number to pin down early. Ask for the buyout schedule and the earliest buyout date in writing, because a mid-term buyout is one way out of an escalator you no longer want to pay. The end-of-term section is easy to skip when the contract runs the better part of two decades, but it decides what you are left with after 15 to 25 years of payments.
Can you sell your house with a leased or PPA system?
Yes, but a leased or PPA system adds steps to a home sale that an owned system does not. Because the panels are not yours, selling the home usually means the buyer has to assume the agreement and meet the provider’s credit requirements, or you have to buy the contract out before closing (NREL Homeowner’s Guide to Leasing a Solar Electric System; EnergySage, as of 2026). If neither the transfer nor a buyout works, the provider may remove the system, though that is less common because it ends the energy savings for the home.
That approval-and-payoff step is real friction. A buyer who does not want to take on a 20-year contract, or who cannot pass the provider’s credit check, can slow or complicate a closing. A system you own with cash or a loan avoids this entirely, because an owned system simply conveys with the house. Before you sign a lease or PPA, ask for the transfer terms and the buyout price in writing so a future sale is not blocked. This friction applies about equally to leases and PPAs, since both are third-party contracts attached to the home.
How do a lease and PPA compare to owning solar in 2026?
A lease or PPA trades ownership and the incentives away for no up-front cost; owning (with cash or a loan) costs more today but usually the least over the life of the system. The honest answer to “lease, PPA, or own?” is that it depends on your budget and your priorities. Owning means you keep any state and utility incentives and, once the system pays for itself, the power is effectively free of a monthly payment. A lease or PPA means no out-of-pocket cost and no maintenance role, but a monthly payment for 15 to 25 years, an escalator, and no ownership at the end (DOE Homeowner’s Guide to Going Solar, as of 2026).
What changed in 2026 is the tiebreaker. Because the 30 percent federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025 (IRS, as of 2026), a homeowner who buys in 2026 no longer gets a federal credit to offset the purchase, while a third-party owner can still use the commercial Section 48E credit on a lease or PPA. That does not make leasing the better deal, because the owner prices the contract to keep most of that benefit, but it does remove the clean federal-credit advantage buying used to have. A lease or PPA is a genuine option for a homeowner who wants solar with no up-front cost and a hands-off, maintained system. It is a long-term financial agreement, not free solar, and the trade-off is that you never build ownership and you hand the incentives to the company that does. This lease-versus-PPA question is one piece of our full solar financing guide; for the three-way comparison that adds cash and loans, see our guide to solar loan vs lease vs cash in 2026 or, if a loan is your likely path, how solar loans work, and to weigh the return, read whether solar panels are worth it, how much solar panels cost, and how solar drives your long-term energy savings.
Questions to ask before you sign a lease or PPA
The best protection against a bad lease or PPA is a short list of direct questions, asked before you sign. These cut straight to the terms that cost homeowners the most, and any reputable company will answer them in writing.
- Confirm whether it is a lease or a PPA, and exactly what you pay for. A lease is a flat monthly fee; a PPA is a per-kWh rate on the power produced. Know which one you are signing.
- Get the escalator percentage in writing. A 0 percent (fixed) escalator protects you; a 3 to 5 percent escalator compounds over 20 years (SEIA, as of 2026). Ask for the payment in year 10 and year 20.
- Pin down the full term and your end-of-term options. Confirm the length and whether you can renew, buy out, or have the system removed, in writing.
- Ask for the buyout schedule and the earliest buyout date. Get the buyout price and how it changes over time.
- Nail down how the agreement transfers if you sell. Confirm the buyer-assumption and credit-check process, or the payoff, so a future sale is not blocked (NREL, as of 2026).
- Confirm who owns the system and who claims the incentives. On a lease or PPA, that is the third-party owner, not you, including the commercial Section 48E credit; the homeowner’s own Section 25D credit ended for expenditures made after December 31, 2025 (IRS, as of 2026).
- Check who is responsible for maintenance, monitoring, and repairs. On third-party-owned systems this is usually the provider; get it confirmed in writing.
A note on choosing the company itself. A lease or PPA is only as good as the company behind it, so rather than trusting a “best installer” list, get quotes from more than one licensed company and compare them on objective criteria: the payment structure, the escalator, the term, the buyout, warranties, and equipment. To see how we source and check the figures on this page, read how MySolarFY works and meet our editorial team and data methodology.
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Frequently asked questions
Is a PPA better than a lease? Neither is universally better; they suit different homeowners. A PPA charges a per-kWh rate for the power the panels produce, so your payment drops in a low-output month and rises in a sunny one, which suits you if you want to pay only for what you actually get. A lease charges a flat monthly fee no matter the output, which suits you if you want a predictable payment to budget around (EnergySage, as of 2026). Both are third-party owned, both usually carry an escalator, and in both the company keeps the incentives. Compare the escalator and the total cost over the full term, not just the first-year payment.
What is the downside of a solar lease? With a lease you do not own the system, so a third party keeps the tax credit and incentives, and you pay a fixed monthly amount that often rises each year under an escalator, typically about 2 to 5 percent (SEIA, as of 2026). Over a term that often runs 15 to 25 years that escalator can push your payment above what a fixed cost would have been, and you pay the same amount even in a month when the panels underproduce. A lease also adds friction when you sell, because the buyer must assume the agreement or you must buy it out. The upside is no up-front cost and no maintenance role.
What is the downside of a solar PPA? A PPA’s main downside is that your payment is tied to production, so a high-output month costs you more, and the per-kWh rate usually climbs each year under an escalator (EnergySage; SEIA, as of 2026). Like a lease, a PPA means you do not own the system, the third-party owner keeps the tax credit and incentives, and selling the home requires the buyer to assume the agreement or the seller to buy it out. If the escalator outpaces your utility’s rate increases, a PPA rate that started below your utility bill can end up above it in later years. Ask for the escalator and model the later-year rate.
What is the difference between owned, leased, and PPA solar? Owned solar (bought with cash or a loan) makes you the owner: you keep the state and utility incentives and, once it pays back, the power carries no monthly payment. Leased and PPA solar are both third-party owned, so the company keeps the incentives while you pay to use the power, a flat monthly fee on a lease or a per-kWh rate on a PPA (DOE; EnergySage, as of 2026). Owning costs the most up front and the least over time; a lease or PPA costs nothing up front but more over the life of the system, with no ownership at the end. Since the federal Section 25D credit ended after December 31, 2025, buying no longer carries a federal-credit edge (IRS, as of 2026).
Is it harder to sell a house with a solar lease or PPA? It can add steps. Because the leasing or PPA company owns the panels, a sale usually requires the buyer to assume the agreement and pass the provider’s credit check, or the seller to buy the contract out before closing (NREL; EnergySage, as of 2026). That approval and payoff process can slow a closing if the buyer does not want to take on a 20-year contract. A system you own with cash or a loan avoids this, because it simply conveys with the house or the loan is paid off at closing. Before signing, ask for the transfer and buyout terms in writing so a future sale is not blocked.
Who gets the tax credit on a leased or PPA solar system? The third-party company that owns the system gets it, not the homeowner. In 2026 the only federal credit on a home solar system is the commercial Section 48E Clean Electricity Investment Credit, which the system owner claims (IRS Clean Electricity Investment Credit, as of 2026). The homeowner’s own 30 percent federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025 (IRS; SEIA, as of 2026), so a 2026 buyer cannot claim it either. State and utility incentives and net metering were not affected by that change. MySolarFY does not provide tax advice; consult a tax professional.
What is a solar escalator, and is it in both leases and PPAs? An escalator is a clause that raises your payment by a set percentage every year, typically between 2 and 5 percent, though some contracts are fixed at 0 percent (SEIA, as of 2026). It appears in both leases and PPAs: on a lease it raises the flat monthly fee, and on a PPA it raises the per-kWh rate. It is meant to track expected utility-rate increases, but it also means a payment that starts below your electric bill can climb over a term that often runs 15 to 25 years. When comparing offers, ask for the escalator percentage and model the payment in year 10 and year 20, not just year one.
Reviewed by the MySolarFY editorial team, as of July 2026. Figures were verified against the linked IRS, SEIA, DOE, NREL, EIA, and EnergySage sources; financing terms, escalators, and incentives change and vary by lender, installer, state, and utility, so confirm current details for your own quote before you decide. MySolarFY does not provide tax, legal, or financial advice; consult a licensed professional about your own situation. See how MySolarFY works and meet our editorial team and data methodology.
MySolarFY is a free service that matches homeowners with licensed solar installers. We are not an installer, financing company, lender, tax advisor, or government program. “No up-front cost” refers to qualifying lease or PPA financing, where eligible homeowners may have no out-of-pocket cost at installation. Lease and PPA terms commonly run long (leases often 15 to 20 years, PPAs about 10 to 25 years), often include an annual price escalator, and total payments may exceed the cost of a cash purchase; on a lease or PPA the tax and incentive benefits go to the company that owns the system, and the homeowner does not get the federal residential credit (Section 25D) that ended for expenditures after December 31, 2025. Solar panels are not free and monthly payments apply. Eligibility, savings, incentives, and rates vary and are not guaranteed. See our full disclaimer.
