Understanding Solar Financing: Leases, Loans, and PPAs Explained

One of the biggest sources of confusion — and regret — in the solar industry is financing. Many homeowners don't fully understand what they signed until the bills start arriving. Here's a clear breakdown of the three main types of solar financing and what each means for your options.

Solar Leases

With a solar lease, a third-party company owns the panels on your roof. You pay a fixed monthly amount to "rent" them, typically for 20-25 years. The lease often includes an annual escalation of 1-3%, meaning your payments increase every year. Because you don't own the panels, they create complications when selling your home — the buyer must agree to assume the lease or you must buy it out.

Solar Loans

A solar loan means you're financing the purchase of the panels. You own the system, but you have a debt obligation. Solar loans can be secured (using your home as collateral) or unsecured. Some solar loans have dealer fees built into the principal, meaning you're financing more than the actual cost of the panels. The advantage is that you own the system and can benefit from tax credits.

Power Purchase Agreements (PPAs)

A PPA is similar to a lease, but instead of paying a flat monthly fee, you pay for the electricity the panels produce at a set rate per kilowatt-hour. This rate often includes an escalator. PPAs are common in states that allow them, but they can lead to higher-than-expected bills if the per-kWh rate exceeds your utility's rate — especially after years of escalation.

The Escalation Trap

The annual escalation clause is where many homeowners get burned. A 2.9% annual increase on a $150/month payment means you'll be paying $225/month by year 15 and over $300/month by year 25. Meanwhile, utility rates may not have increased at the same pace, eliminating any savings the solar was supposed to provide.

Cancellation Options by Financing Type

Leases and PPAs typically have buyout clauses, and cancellation often requires negotiation or legal action. Loans can sometimes be refinanced or paid off, though secured loans carry the risk of foreclosure if you stop paying. In all cases, if you were misled about the terms, you may have legal grounds for cancellation regardless of the financing type.