Breaking down the financing options for solar panel systems
Installing a solar panel system can be an investment. While paying in cash or via a traditional loan has many benefits, many homeowners are now opting to get the benefits of solar in other ways. According to the 2025 Aurora Solar Snapshot, more than half of installers state that customers are turning to third-party ownership (TPO) models, such as leases and power purchase agreements (PPAs) — the two most common options.
While they are very different forms of financing, both leases and PPAs often allow homeowners to put $0 down on their new system. Solar leases involve a flat rate monthly payment, while PPAs allow the homeowner to buy the power the solar panels produce at a discounted rate. There are additional differences regarding who owns the system’s incentives, such as the Residential Clean Energy Credit.
Discover the best solar financing option for you in our comprehensive guide, which discusses the key differences and pros and cons of solar PPAs and leases.
In this article:
- Introduction to solar PPAs and leases
- Key differences between PPAs and leases
- Comparing solar PPAs vs leases: pros and cons
- How to decide which solar financing option is right for you
- Frequently asked questions
Introduction to solar PPAs and leases
First things first: It’s essential to know that both PPAs and leases are TPO options. The most obvious difference between these options and traditional financing is that although the solar panel system is located on your property, it is owned by the third-party financier. They are standard financing options for homeowners who want to enjoy the financial and environmental benefits of solar power without the upfront costs. According to the U.S. Environmental Protection Agency, 28 states, as well as the District of Columbia and Puerto Rico, allow third-party financing for solar energy.
Overview of a solar lease
A solar lease is an agreement in which a homeowner pays a fee to either a solar company or a third-party investor to use the solar panels installed on their property. Homeowners can enjoy the environmental benefits of solar energy, including reduced electricity bills, without the upfront investment in a solar panel system. The third party is also responsible for all maintenance and necessary repairs.
These lease agreements often last around 20 years or more, but the homeowner is entitled to all of the power the system creates during that time, according to the U.S. Department of the Treasury. At the end of the lease period, the homeowner can often renew the agreement, remove the system, or purchase the panels from the third party.
Overview of a solar PPA
Similar to a lease, a solar PPA also involves the installation of a solar system on a homeowner’s property, with minimal upfront costs. The third-party financier owns, fits, maintains, and installs the system. They then sell the power back to the homeowner at a discounted rate; for example, $0.15 per kWh vs. the $0.30 per kWh utility retail rate. Homeowners benefit from the savings on electricity costs with no upfront investment. Any electricity homeowners need beyond what the panels generate is purchased from the grid at the regular utility retail rate.
The Solar Energy Industries Association (SEIA) notes that these agreements last from 10 to 25 years. Homeowners can purchase the energy system from a third party, renew the contract, or remove the panels at the end of the contract.
Key differences between PPAs and leases
PPAs and leases appear very similar to one another. Although their differences may seem small, they can have significant ramifications throughout the agreement’s lifetime, primarily in terms of monthly costs.
Monthly costs
Since solar lease fees are charged to the homeowner in fixed amounts, the monthly cost of the lease itself remains the same month to month, typically ranging anywhere from $50 to $250. (It’s important to remember that you’ll also need to pay the utility for the electricity you need beyond what the panels produce.) Actual lease pricing depends on system size, location, and escalator terms. Sometimes, escalator increases can also be built in, which raises the fixed monthly rate every year.
The monthly cost for a PPA depends on the amount of energy produced that month. Those costs can vary from month to month. Even so, homeowners can expect to save on their monthly electricity costs with a PPA due to the discounted electricity rate on the power that the panels produce.
If the panels produce enough electricity to cover all of your needs, PPA homeowners don’t have to buy any power from the utility company, so everything is at a discount. If it’s not all covered, then the rest is purchased at utility rates. So, the pricing can vary, but you’re always getting a component of your electricity at a discounted rate.
With a lease, you pay the same amount each month regardless. Then you pay the utility for any electricity you use above what the panels produce. Your lease plan may also have an escalator, which, on average, raises the monthly lease amount by 2%-5% each year. Some leases can include fixed price plans instead, which don’t include price increases.
In addition to their differences, neither third-party agreement allows the homeowner to benefit from any tax credits or accelerated depreciation. Instead, the savings for both are found in the overall energy costs over the lifetime of the agreements.
Price comparison
The best way to understand the potential price differences between a lease and a PPA is with a simple price comparison. Below, we have a very basic example of a 4 kW system in New York. In June, the customer uses 700 kWh of electricity (thanks, air conditioning) and the panels produce 600 kWh. In January, the customer uses 500 kWh of electricity (consider getting a heat pump, customer) and the panels produce 300 kWh of electricity. THe utility charges $0.21 per kWh for electricity.
Let’s see how lease, PPA, and no solar fare in this scenario:
Lease: With a lease payment of $100 per month, the customer only pays the utility for 100 kWh ($21) of electricity in June, making their total electricity cost $121. In January, the customer pays the utility for 200 kWh ($42) of electricity, for a total payment of $142.
PPA: The discounted PPA electric rate is $0.14/kWh (vs. $0.21 from the utility). The customer gets that discount on 600 kWh in June, making for a total electricity cost of $105. In January, they get the discounted rate on 300 kWh, but use less electricity total, for a bill of $84.
No solar: With no solar, the customer pays the $0.21 rate on all the electricity, for a whopping $147 bill in June, and a $105 bill in January.
Comparing solar PPAs vs. leasing: pros and cons
A key point to note for both solar PPAs and leases is that homeowners do not benefit from net metering. Net metering is where solar panel owners sell unused solar energy to the power company. Therefore, the people benefiting from net metering under these agreements are the third-party companies.
It is also important to note how long solar panels last. Because if you have the option to buy the panels at the end of your agreement, it’s good to know how long they may last after those initial 10-20 years.
Solar lease pros and cons
| Pros | Cons |
| Lower electricity costs | No tax incentives |
| Fixed monthly payments – good for budgeting | No system purchase rebates |
| No upfront cost | No benefit from net metering |
| Benefits the environment | Potentially higher long-term costs because of escalation |
| No maintenance responsibilities | Long-term contract • Hard to break • Can make selling the home more difficult if under contract |
| Good option for staying in one place long-term (20+ year contracts) |
Solar PPA pros and cons
| Pros | Cons |
| Lower electricity bills | Escalator increases can reduce savings over time |
| No upfront costs | Monthly cost is more varied |
| More flexible contract terms between 10-25 years | No tax incentives |
| No maintenance costs | No net metering benefits |
| Environmentally-friendly | No rebate benefits |
| Only pay for what the panels produce | Contracts can be complicated to break |
How to decide which solar financing option is right for you
Homeowners who prefer to know their month-to-month budget may like the fixed payments of a solar lease. But just remember, you’ll still need to pay for any electricity you use over the panels’ production.
Homeowners who don’t mind more variability from month to month and would rather pay only for what their panels produce are probably best suited for a solar PPA. Neither option will save you money on your taxes, though. If that is a concern, your best choice is to pay for a solar panel system using cash or a solar loan, rather than a lease.
Keep in mind that both third-party solar financing options can complicate the sale of a home. Although you can transfer a PPA or a solar lease, it makes the process longer. The buyer has to agree to and qualify for the transfer, the third party has to agree to it, and you may have to pay a transfer/buyout fee.
Third-party ownership has been growing in recent years and is now offered in many states. An expert solar installer can help you find the best option for your home and budget. Aurora Solar makes it easy to find the best provider who can help guide you through financing options by letting you compare quotes from multiple vetted installers, all in one place.
Frequently asked questions
What’s the main difference between a solar PPA and a solar lease?
The main difference between the two is the monthly cost. With a solar lease, you pay a fixed amount to a third party regardless of how much the system produces. Then you pay the utility rate for any electricity you use beyond what the panels produce.
With a solar PPA, you pay a reduced rate per kilowatt-hour for the energy your panels generate. Then you pay the utility rate for any power you use above what the panels produce. If the panels produce less, your PPA charge goes down, but you’ll need to buy more electricity from your utility at the retail rate, which can make your total bill higher. If the panels produce more, you buy more of your power at the lower PPA rate and less from the utility, so your overall bill is likely lower.
Can I transfer a PPA/lease if I sell my home?
Yes, but it is an involved process. You can transfer the agreement to a buyer, provided the buyer agrees, qualifies, and the solar panel company consents to the transfer. However, you may have to pay a transfer fee to the third party you have the PPA or lease through, and this may make your home less desirable to buyers.
How do payments work for a solar PPA compared to a solar lease?
With a solar PPA, you agree to buy the electricity your system produces at a discounted rate — for example, $0.15 per kWh compared to the $0.30 per kWh retail rate from your utility. The more your panels produce, the more low-cost electricity you can purchase. If your usage exceeds what the panels generate, you’ll buy the additional electricity you need from your utility at their standard retail rate.
With a solar lease, instead of paying per kilowatt-hour, you make a fixed monthly payment for use of the system, regardless of how much it produces. If your household needs more electricity than the system covers, you’ll still purchase the extra from your utility on top of your lease payment.
