Power purchase agreements: What you need to know

You've probably seen the pitch: "Go solar for $0 down!" It sounds appealing—solar panels on your roof, lower electric bills, and you don't need to come up with the $30,000 that solar costs on average upfront. That's the basic promise of a power purchase agreement (PPA).

The concept is simple: A solar company installs and owns the system on your property. You pay them for the electricity it produces, usually at a rate lower than your utility charges. No ownership, no maintenance, immediate savings. It's solar access without the solar investment.

But PPAs aren't the best fit for every homeowner, and understanding how they actually work is the key to knowing whether one is right for you.

A solar PPA is a third-party ownership (TPO) arrangement. A solar company or PPA provider covers all the costs to purchase and install the equipment on your roof. They own the system. You use the electricity it generates and pay them a set rate per kilowatt-hour (kWh), which is typically lower than what your utility charges. The difference between what you'd pay the utility and what you pay the PPA provider is your savings.

Because the system belongs to the solar company, they're also responsible for maintenance and monitoring. If something goes wrong, it's their problem to fix—not yours.

Unlike solar leases, which charge a fixed monthly fee regardless of how much the system produces, PPA payments vary month to month based on actual production. That means higher payments in summer (when your panels are cranking) and lower payments in winter—but your savings track in the same direction.

One of the most important things to understand about PPAs is how solar incentives factor into the equation. Unlike when you own your system, you can't directly claim most tax credits or rebates with a standard PPA—but that doesn't mean those incentives disappear.

Standard PPAs

With a standard PPA, the solar company that owns your system claims any available incentives. While the federal solar tax credit expired for purchased systems installed after 2025, third-party owned systems like PPAs and leases continue to qualify for it if they begin construction before July 2026 or are placed in service before 2028.

This changes the way many solar shoppers consider financing options. For much of the past decade, ownership was the obvious winner because owners could claim the 30% federal credit directly. That advantage no longer applies.

Under a PPA, the solar company that owns your system can still claim the federal tax credit. A reputable provider should factor that credit into your pricing, resulting in a lower per-kWh rate than they'd otherwise offer. In effect, you're benefiting from the credit indirectly through a lower electricity rate. That said, you have no direct control over how much of that value gets passed through to you. When evaluating PPA offers, it's worth asking explicitly: "How does the federal tax credit affect my rate?" and "Can you show me pricing with and without the credit factored in?" A transparent provider should be able to answer both.

Most state and local incentives—including state tax credits, SRECs, and performance-based incentives—also go to the system owner under a PPA. These, too, may be reflected in your rate, but it depends on the provider and the incentive.

Pre-paid PPAs: A path to ownership

Some homeowners choose pre-paid PPAs, where you pay the full cost of electricity upfront rather than monthly. This structure differs from standard PPAs because it can eventually lead to system ownership after a set period—typically around six years.

The advantage here relates to tax credits. Because the solar company initially owns the system under a PPA structure, it claims the federal tax credit and passes some of those savings back to you through a lower upfront price. Once ownership transfers to you, any ongoing state or local incentives may become available depending on your location.

Pre-paid PPAs work well for homeowners who have cash available, want to benefit indirectly from the federal tax credit, and care about eventually owning the system. Just review the contract carefully and make sure you understand the exact timeline for ownership transfer and any conditions attached to it.

As with all financing solutions, going solar with a PPA has advantages and disadvantages. Here's an honest look at the trade-offs.

Advantages of PPAs

Disadvantages of PPAs

PPAs have always had a place in the solar market, but the expiration of the federal tax credit for purchased systems makes them more compelling than they've been in years. The question isn't which solar financing option is better, but rather which option best fits your financial priorities.

If you want immediate savings, prefer to have someone else handle system maintenance, or need to keep your cash available for other priorities, a PPA can be an excellent choice. You'll start saving on your electric bill right away (typically 10-20%), and those savings continue for the 20+ year term of your agreement.

Ownership—whether through cash purchase or a solar loan—makes more sense if maximizing lifetime savings is the priority, you want your system to increase your home's value, you prefer to control equipment decisions, or you plan to stay in your home long-term.

Neither path is objectively better. Both lead to lower energy costs and a smaller carbon footprint. The difference is in how you get there and what you trade off along the way. If you're unsure, comparing multiple quotes is the best way to see the real numbers for your home.