Quick definition
A PPA flips the usual solar ownership model. A third-party company installs, owns, and maintains the solar system on your roof, and rather than you buying and owning the equipment, you simply agree to buy the power it generates, priced per kWh, over a long-term contract, commonly 20 to 25 years.
PPAs come in different structures, most notably fixed-rate and adjustable-rate versions, which differ in how predictable the pricing is over the contract's life. Availability varies by location: the U.S. Department of Energy's Better Buildings Solution Center notes that third-party ownership arrangements like PPAs are permitted in only about 26 states plus Washington, D.C., since some states restrict or prohibit non-utility providers from selling electricity this way.
At a glance: PPAs let homeowners access solar power without any upfront equipment cost or ownership responsibility, trading some long-term savings potential for that simplicity.
Why it matters
A PPA's core appeal is removing the upfront cost and ownership burden of going solar. There's no large purchase price, no equipment maintenance responsibility, and no need to qualify for a solar loan, since the provider retains ownership and handles upkeep for the life of the contract. For homeowners who want solar's environmental and bill benefits without taking on ownership, a PPA offers a genuinely accessible path.
The tradeoff is that ownership carried real financial upside a PPA doesn't provide, though that upside has narrowed for new systems. Federal tax incentives like the Investment Tax Credit historically went to whoever owned the system, and the homeowner-claimed version of that credit, Section 25D, expired for systems installed in 2026 or later, while a separate business-claimed version, Section 48E, remains available to third-party system owners like PPA providers. Over the full 20 to 25 year contract term, ownership through cash purchase or a solar loan can still deliver meaningfully more total savings than a PPA in many cases, since the homeowner eventually stops paying for power entirely once a loan is paid off, while PPA payments continue for the full contract term, but the math is worth running for each specific situation now that the ownership-side tax credit is no longer part of it. For the numbers behind Power purchase agreement (PPA), the 25-year lifetime savings calculator in our Savings & Payback section walks through the calculation step by step.
This is exactly why PPAs make the most sense for a specific kind of homeowner: someone who genuinely can't or doesn't want to finance a purchase, values zero maintenance responsibility, and is comfortable trading some long-term savings potential for simplicity and predictability. For someone focused purely on maximizing lifetime savings, ownership generally comes out ahead. The Solar Energy Industries Association's guide to power purchase agreements explains how the model works and what to check before signing.
Where you'll see this
The PPA cost calculator projects total payments over a PPA's full contract term based on the specific rate and escalator terms offered.
Before signing, the third party owned vs owned system comparison tool lays out the real financial difference between a PPA and owning a system outright. A 2026 consumer guide from the nonprofit Solar United Neighbors found that PPAs and solar leases together now account for 45% of US residential solar installations, a share the group attributes partly to homeowners seeking a path around the loss of the direct-ownership tax credit.
This term comes up in most residential solar sales proposals, in third-party ownership contracts, and any comparison between paying for solar power versus owning the equipment that generates it. For a business or organization weighing a similar ownership question on a larger scale, the tax exempt entity solar financing comparison tool works through a related version of this tradeoff.
Frequently asked
A fixed-rate PPA locks in the full rate schedule, including any escalator, at signing, so every future year's price is known upfront. An adjustable-rate PPA can shift based on external factors during the contract, making a fixed-rate PPA the more predictable of the two.
No. Tax incentives like the Investment Tax Credit go to whoever owns the solar equipment, and under a PPA that's the third-party provider, not the homeowner buying the power. As of 2026, this distinction matters somewhat less than it once did for the homeowner-owned side of the comparison, since the homeowner-claimed version of the credit expired for systems installed in 2026 or later, though the business-claimed version PPA providers use remains active.
PPA contracts typically need to either transfer to the new homeowner or be resolved in some other way, like a buyout, before the sale closes. This is worth understanding and planning for before signing, since it can add a step to selling a home with an active PPA in place.
They're similar but structured differently. A PPA charges based on the actual electricity produced and consumed, priced per kWh. A solar lease typically charges a fixed monthly payment regardless of production. Both are third-party ownership models, just with different billing structures.