Residential solar comes in three financial structures: outright purchase (cash or loan), a solar lease (you pay a fixed monthly fee to use the system), and a Power Purchase Agreement or PPA (you pay per kWh of energy the system produces). Leases and PPAs are usually marketed together as "third-party-owned" or TPO solar, and they share most of the same trade-offs against ownership.
The basic asymmetry
When you buy and own a residential system, the federal tax credit (now expired in 2026), state incentives, and depreciation belong to you. When a third party owns the system, those incentives belong to the third party. The third party shares some of the value back to you in the form of a lower monthly payment, but the present value of incentives that flows to you is always smaller than the value that would flow to you if you owned.
This is the structural reason ownership produces a better lifetime financial outcome in almost every honest comparison. It does not mean ownership is the right choice for every household — it means the lease pitch usually exaggerates the "no upfront cost" framing without disclosing the lifetime cost.
What a lease actually costs over 20-25 years
A typical residential solar lease in 2026 runs 20-25 years with a fixed or escalating monthly payment, often starting in the $80-150/month range for a system that would have cost $20,000-30,000 to buy. The lease payment often escalates 1.9-2.9% per year. Add up the payments and the lifetime cost is usually $25,000-45,000.
Compare to a cash purchase in 2026: $22,000 today, no monthly payment, full ownership of every kWh produced and every credit earned. Over 25 years, the cash-purchase household pays $22,000 and the lease household pays $30,000+ — but the lease household also avoided having $22,000 tied up upfront. Whether the time value of that $22,000 closes the gap depends on the household's alternative use of capital.
The case where a lease is rational
Two clean cases:
- Your federal tax liability would not have been high enough to absorb the credit (pre-2026 issue, no longer relevant) and your state credit is similarly unusable.
- You do not have the upfront capital and a solar loan is unattractive — the lease APR-equivalent beats the loan APR, and the displaced electric bill exceeds the lease payment from month one.
The second case is real but narrower than installers suggest. A 25-year, 2% escalating lease in a state with stable retail rates often crosses above the grid rate it was supposed to be cheaper than within 10-15 years. The first decade is positive cash flow; the back end can be negative.
The home sale problem
This is the under-disclosed risk. A solar lease creates a contract that runs with the property, which means a buyer of your home is either taking over your lease (and the lease company must approve the transfer) or you are paying the lease off at sale.
Two consequences:
- Some buyers walk away from offers because they do not want a 15-year lease commitment with the home, or their lender refuses to close on a property with a UCC-1 filing on the panels.
- Lease buyouts are usually calculated at the present value of remaining payments plus a fixed-asset value for the system. They can run $15,000-25,000 in years 5-10 of a lease, which is money the seller pays at closing to clear the lien.
This shows up on Reddit and consumer-protection sites with regularity, often years after install, when the homeowner did not understand the lien at signing. Read every line of any lease or PPA contract before signing, specifically the assignment, transfer, and buyout clauses.
The PPA variation
A PPA is structurally similar to a lease, except you pay per kWh of production instead of a flat monthly fee. The payment moves with system performance, which is a small advantage to the homeowner if the panels underproduce and a small disadvantage in a strong-sun year. Most PPA contracts include a per-kWh escalator (2-3%/year) the same way leases do.
PPAs share the same home-sale-transfer issue as leases. They share the same incentive-flow asymmetry. They are not meaningfully different from leases for purposes of this comparison.
Bottom line
If you can afford to buy, buy. If you cannot afford to buy and a solar loan is available at reasonable terms, a solar loan usually beats a lease over the lifetime. Lease only when the cash-flow situation makes it the only viable option, and only after you have read the assignment, transfer, and buyout clauses and confirmed that you understand the lifetime cost — not just the monthly payment.