Solar

Power Purchase Agreement (PPA) A solar financing arrangement where you buy the electricity, not the panels — no upfront cost, no tax credit

Alex Rivera By Alex Rivera, Senior Solar Editor · Updated 2026-06-09
← All Glossary Terms Definition
A Power Purchase Agreement (PPA) is a 20–25 year financial contract in which a solar company installs panels on your roof at no upfront cost and sells you the electricity generated at a fixed per-kWh rate — typically 10–30% below your current utility rate. The solar company retains ownership of the system and therefore claims the 30% federal ITC under Section 48E (IRS) and any other incentives, often passing savings through as a lower rate. You pay for power produced, not for the equipment. Key risks: annual escalation clauses (2–3% rate increases per year) may erode savings over time; transfer to a new buyer when selling your home requires lender approval; and early termination fees can be substantial. Compare total 25-year cost of a PPA against a solar loan before deciding.
Also Known As
solar PPA energy services agreement (ESA) solar lease (similar but different) third-party ownership
Used in Context
  1. The solar company offered a PPA at $0.09/kWh versus the homeowner's current $0.14/kWh utility rate — saving $65/month initially, but a 2.5% annual escalator meant the rate would exceed the utility rate in year 14.
  2. When the family tried to sell their home, the buyer's mortgage lender required the PPA to be transferred or paid off at closing — a complication that nearly derailed the sale.
  3. Financial planners typically recommend a solar loan over a PPA for homeowners who owe at least $8,000 in federal taxes; however, under current law the Section 25D (IRS) residential tax credit expired for systems purchased and installed after December 31, 2025, meaning a 2026 purchase earns no federal credit. In that context, a PPA may retain a financing advantage since the installer can still claim the 30% credit under Section 48E (IRS) for qualifying third-party-owned systems, often passing savings through as a lower rate. This is general information, not tax advice.
Related Terms
Solar Solar Tax Credit (ITC) The federal residential solar tax credit under Section 25D (IRS) that made solar financially compelling for many US homeowners has expired for systems installed after December 31, 2025 — a 2026 purchase earns no federal credit under that provision. However, third-party-owned systems such as leases and PPAs may still benefit from the 30% commercial credit under Section 48E (IRS), with installers often passing those savings through to customers via lower rates. This is general information, not tax advice. Solar Net Metering The utility billing policy that credits solar owners for surplus electricity sent to the grid Solar NABCEP The gold-standard solar installer certification — verify before you sign

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