TL;DR
A solar Power Purchase Agreement (PPA) is a contract where a provider installs and owns a solar system on your property, and you pay for the electricity it produces at an agreed price (usually per kWh).
Key Takeaways
- A solar Power Purchase Agreement (PPA) is a contract where a provider installs and owns a solar system on your property, and you pay for the electricity it produces at an agreed price (usually per kWh)
A solar Power Purchase Agreement (PPA) is a contract where a provider installs and owns a solar system [blocked] on your property, and you pay for the electricity it produces at an agreed price (usually per kWh).
What a Solar PPA is (in plain terms)
With a PPA, you typically get:
- Low or $0 upfront cost
- A lower electricity price than your utility (in many cases)
- No system ownership responsibilities (maintenance, monitoring, insurance are usually handled by the provider)
A PPA is different from “buying solar” because you are buying electricity from equipment you do not own.
Why PPAs matter in 2026: federal tax credits changed
As of 2026, the federal tax credit that homeowners used to claim for purchasing residential solar (Section 25D) is treated as expired for expenditures tied to installations completed after December 31, 2025 (the IRS applies a “completed installation” rule). See the IRS explanation in this IRS FAQ and the Congressional summary in CRS IN12611.
What still exists (and why PPAs can still be priced attractively):
- Many PPAs are structured so the provider may claim the business-side clean electricity investment credit (Section 48E) if the project meets eligibility and timing rules, and then prices part of that value into your electricity rate. A practical overview is provided by EnergySage, and phaseout/timing discussion is summarized by Novoco.
Important: In a PPA, you usually do not claim the tax credit—the owner does. Your benefit is mainly a lower price and less responsibility, not the credit itself.
How a Solar PPA works (step-by-step)
- Roof condition, shading, system size, expected annual production
- Price per kWh (fixed or escalating), term length, performance guarantees, buyout options
- Provider manages permitting and installation
- You pay the PPA provider based on actual production (kWh)
- You may still have a smaller utility bill (e.g., minimum connection charges)
- Provider typically handles monitoring, maintenance, and warranty claims
For a neutral definition of PPAs and how they’re used in energy financing, see the U.S. DOE Better Buildings overview: Power Purchase Agreement (Better Buildings Solution Center).
What you actually pay: PPA rate basics
Your PPA cost is usually:
- PPA payment = (PPA price per kWh) × (kWh produced that month)
Two common pricing structures:
- Fixed rate: same $/kWh for the full term
- Escalating rate: increases each year (often 1–3%)
A simple way to judge whether a PPA is “good”:
- the starting PPA rate
- the rate after 5–10 years (if there’s an escalator)
Pros of a Solar PPA
- Low or no upfront cost
- Provider handles maintenance and monitoring
- Predictable pricing framework compared to utility volatility
- don’t want a loan
- don’t want maintenance responsibility
Cons of a Solar PPA
- You don’t own the system
- You typically don’t claim the tax credit
- Long contract term (often 20–25 years)
- buyer must assume the contract, or someone buys it out
- Escalators can reduce long-term savings
- Equipment choice may be limited
Key contract terms to check (do not skip these)
Before signing, confirm these in writing:
- Fixed vs escalating (and the exact % escalator)
- What happens if the system underproduces?
- Response times, who pays for what, roof leak responsibility
- When can you buy the system, and how is the buyout price calculated?
- What happens if you sell your home?
- Extend, remove, replace, or purchase
Is a Solar PPA right for you? Quick decision guide
A PPA is usually a better fit if:
- You want low upfront cost
- You prefer hands-off ownership
- You expect to stay in the home long enough to benefit (often 7–10+ years)
Buying/owning is usually a better fit if:
- You want maximum long-term savings
- You want full control over equipment and monitoring
- You’re comfortable handling maintenance logistics (or hiring someone)
Where PPAs are available (this depends on state rules)
PPAs are not equally available in every state because state “utility” definitions and commission rules vary.
Two solid references to check state availability:
Common questions
Do I get the federal tax credit with a PPA?
Usually no. The provider (system owner) claims any eligible business credits, and you benefit through pricing if they pass savings through.
Is a PPA “free solar”?
No. Most PPAs reduce or remove upfront cost, but you pay for the electricity produced.
What happens if I move?
Typically:
- the buyer assumes the agreement, or
- the system is bought out, depending on contract terms.
How long are PPAs?
Commonly 20–25 years, but the exact term depends on the provider and state norms.
