Pre-paid solar leases and PPAs: Are they worth it in 2026?

The end of the residential solar tax credit has forced homeowners to rethink how they pay for solar. Without federal incentives to help offset upfront costs, many homeowners are turning to solar leases and power purchase agreements (PPAs)—third-party ownership (TPO) arrangements that let you go solar with little to no money down. Because the financing company owns the system, these projects still qualify for the commercial solar tax credit, which can be passed on to you through lower payments.

Leases and PPAs can make a lot of sense, but there’s a catch: You don’t own the system. Enter pre-paid leases and PPAs. These hybrid financing arrangements let you pay upfront for a lease or PPA at a discounted rate (thanks to that same commercial tax credit the provider claims), then take ownership of the system down the road. It’s a workaround that’s quickly rising in popularity in a post-tax-credit world.

“Now that the [residential] tax credit is gone, I believe looking for options to maximize value to the consumer is our top priority, which makes pre-paid TPO a solid option to go solar,” Ian Rock, director of sales at Nova West Energy, told EnergySage. “[Prepaid TPO options] are a good amount of the residential project landscape, and we expect it to continue to grow.”

But prepaid leases and PPAs aren’t a silver bullet. The long-term value depends on contract terms, ownership timelines, and how clearly those details are spelled out upfront. We’ll explain how prepaid leases work, why a six-year ownership timeline exists, and the key questions to ask before signing a contract.

Solar leases and PPAs are nothing new. They’re both third-party ownership (TPO) options—financing arrangements that let homeowners benefit from lower electricity costs without owning the solar panel system outright. Instead, the system is owned and operated by a solar financing company.

Pre-paid TPO options are built on that model, but instead of making monthly payments, you pay your entire lease or PPA upfront. Why would you do that? Because, unlike traditional TPO options, pre-paid products offer a defined path to ownership, typically after just six years. They also allow homeowners to benefit from the federal solar tax credit post-One Big Beautiful Bill Act, albeit indirectly. 

Here's how it works: A third-party company owns the system during the initial lease term, allowing it to claim commercial solar tax credits and pass those savings on through a lower upfront price. During this period, the company is responsible for system monitoring and maintenance. After the initial term ends, most contracts allow homeowners to take ownership of the system.

Pre-paid TPO products can also be financed with a solar loan, making them accessible without tens of thousands of dollars in cash.

The end of the residential solar tax credit (Section 25D) fundamentally altered the solar financing landscape. Previously, homeowners who purchased solar panel systems could claim 30% of the system and installation costs as a credit toward their federal income tax bills. Today, that incentive is gone. However, the commercial solar tax credit (Section 48E) remains available through at least 2027—but only to companies, not homeowners.

This creates a gap: Homeowners want solar's long-term savings but can't access federal incentives directly. That’s where pre-paid TPO options come in. Because the solar company owns the system during the initial term, it can claim the commercial tax credit and pass along much of that value—often around 30%—to homeowners through lower upfront costs.

Installer financing menus are evolving, too

The elimination of the residential tax credit is changing how installers structure their offerings. Many companies that once focused exclusively on cash purchases or solar loans are now adding pre-paid leases and PPAs to their mix.

“We were never a traditional lease or PPA installer, but with the tax credit change, we found that there was a major void to fill—not just with future customers, but also with our existing pipeline,” Andrew Cohen, sales director at NRG Clean Power, told EnergySage. “We did our due diligence to find alternative options that gave customers the same net value, and we found that pre-paid PPAs and pre-paid leases were the best way to accomplish that goal.”

Access to federal tax credit savings isn’t the only appeal. Pre-paid TPO offerings often include performance guarantees and third-party system oversight—features that can add peace of mind for homeowners.

“There’s the added benefit of system monitoring that comes with having a third-party warranty,” Ryan Wallace, owner of Texas Solar Professional, told EnergySage. “[The PPA provider] has to make sure the system is producing the energy they guarantee it will—that’s value on top of the tax credit discount."

The six-year timeline is rooted in federal tax law. Under Section 50 of the U.S. tax code, commercial solar tax credits are subject to recapture rules. If the IRS determines that a system is sold too early, it can claw back some or all of the tax credits originally claimed. To avoid triggering recapture, leasing companies must retain ownership for at least five years.

As a result, most pre-paid TPO contracts offer ownership transfer after this holding period—typically around year six. Contracts usually state that the system will transfer at “fair market value.” In theory, since you've already paid upfront for the value of the system, that number should be $0. 

The fair market value question: Will a $0 transfer really happen at year six?

This is the central concern with pre-paid leases. While solar companies often market a $0 ownership transfer at year six, most contracts don’t explicitly guarantee that outcome. Instead, they typically state that the system will transfer at fair market value (FMV), as determined “in good faith” by the provider. That language leaves room for the company to assign a value to the system at the time of transfer.

In some cases, companies provide a separate Memorandum of Understanding (MOU) that outlines the $0 transfer promise—but MOUs aren’t always legally binding. If there’s a conflict, the contract itself takes precedence, meaning homeowners are ultimately relying on the company to honor its stated intent when the transfer date arrives.

The good news is that there is a legitimate reason “zero cost transfer” is absent in the legal language. Providers structure contracts this way to remain compliant with federal tax rules, which require companies to make those fair market assessments when the time comes. (Remember, no one wants to give the IRS grounds to recapture claimed tax credits). Many companies are also transparent about how they assess FMV, even if the contract language remains cautious.

In EnergySage’s research, we couldn’t find any testimony from homeowners who were promised a $0 transfer and didn’t receive one. We also didn’t uncover any clear red flags suggesting the $0 transfer claim is misleading. That said, pre-paid TPO agreements are still relatively new, and many contracts haven’t yet reached the ownership transfer stage. As a result, there is an element of trust involved for early adopters—even as the potential financial upside remains compelling compared to cash purchases in today’s market.

“Some of these companies have been around for years, but in our area, pre-paid leases really haven’t been an option until the last year and a half or so,” Ian Rock said. “We don’t know first-hand what the end of term looks like, but based on our research, we have no reason to doubt what we’re being told.”

To further ease concerns, some installers are taking additional steps to protect homeowners. Jeremy Nicholson, CEO of Sunergy, acknowledged that discrepancies can arise in FMV assessments and added language to his company’s contracts to shield customers from unexpected transfer costs.

“The only amount our customers ever owe is what’s outlined in the Sunergy proposal or contract,” Nicholson said. “If there’s ever an additional cost from [the TPO provider], Sunergy will make the payment.”

What if you don't want ownership at year six?

Taking ownership isn't mandatory. Most pre-paid TPO products will convert to standard long-term agreements if you decline the transfer. However, you'll typically start paying monthly administrative fees that weren't part of your original agreement, which may escalate over time. In that case, you may be better off initially signing a traditional monthly lease or PPA.

Pre-paid TPO options meet a specific need in 2026’s solar market. They offer eventual system ownership while capturing federal tax credit benefits that direct-purchase homeowners can no longer access. For homeowners who value the energy independence that solar ownership provides but want a discount on the full upfront cost, pre-paid leases provide a middle path.

That said, your experience depends on provider integrity. The gap between the marketed $0 transfer and the contract’s “fair market value” language introduces some risk—you’re trusting the company to honor promises when it’s time to take ownership.

Before signing a pre-paid lease or PPA, make sure to:

• Read the full contract, not just sales materials or MOUs.

• Clarify exactly how fair market value will be determined at year six.

• Confirm what happens to warranties after ownership transfer.

• Ask about monthly fees if you decline ownership at year six.

• Compare multiple quotes to evaluate relative value.

Ultimately, the best way to decide if a pre-paid lease is right for you is to compare it against other financing options—including traditional leases, solar loans, and cash purchases—using multiple quotes to evaluate which provides the best value for your home and your budget.