A solar PPA (power purchase agreement) is a contract where a company owns the solar system on your roof and you pay it a set rate for each kilowatt-hour the panels produce. You pay for electricity, not equipment, usually for 20 to 25 years, and the rate often rises each year through an escalator. The details that decide whether a solar PPA agreement saves money are the starting rate, the escalator, the production guarantee and the transfer and buyout terms. This guide explains each.
By the Solar Bid Analyzer research team · Updated November 2026
What is a solar PPA?
Under a PPA the solar company owns, installs and maintains the system, and you buy the power it generates. EnergySage describes this as third-party ownership. Payments change with production: a sunnier year means more kWh and a larger bill from the PPA provider, but also less purchased from your utility. EnergySage reports that the average PPA rate has run about 22% below the national average residential electricity rate. That is an average, not a promise for your address.
A PPA differs from a lease, where you pay a fixed monthly amount regardless of output. Our guide to solar loan vs lease vs PPA compares the three, and solar lease vs PPA goes deeper on those two.
How the rate and escalator work
EnergySage says many agreements raise rates 1% to 3% per year, and that low or zero escalators are preferable. A New York guide from the Clean Energy States Alliance and NYSERDA shows how this compounds: a 12-cent PPA reaches about 18.2 cents by year 15 at a 3% escalator but only about 13.8 cents at 1%. The same math applies to any starting rate.
The table below is a hypothetical $0.14 per kWh starting rate on a system producing 10,000 kWh in year one, with panels losing 0.5% of output per year. Totals are illustrative and will differ for your system.
| Escalator | Rate in year 10 | Rate in year 15 | Rate in year 25 | 25-year total paid |
|---|---|---|---|---|
| 0% | $0.140 | $0.140 | $0.140 | about $32,980 |
| 1% | $0.153 | $0.161 | $0.178 | about $37,160 |
| 2% | $0.167 | $0.185 | $0.225 | about $42,040 |
| 3% | $0.183 | $0.212 | $0.285 | about $47,730 |
A 3% escalator costs roughly $14,700 more than a flat rate over 25 years in this example. Compare each year's PPA rate with your utility's realistic rate path, not just the first year. Ask for a written year-by-year rate table.
Production guarantees
Many PPAs guarantee a minimum annual output and pay you if the system falls short. The New York guide notes that under a PPA you pay only for electricity actually produced, whereas under a lease you owe the fixed payment even when output is low. Check how the shortfall is valued (wholesale or retail rate) and how degradation is built into the guarantee. NREL's leasing guide assumes about 0.5% output loss a year, which is a common planning figure.
Transfer, buyout and exit terms
This is where PPAs cause the most trouble, especially when homeowners sell.
- Transfer. You can usually transfer the agreement to the buyer, who must pass the provider's credit check. EnergySage says buyers who qualify for a mortgage typically qualify, but a PPA can still deter some buyers.
- Buyout. Some agreements let you buy the system during the term at fair market value or a contract-specified price, whichever is higher (EnergySage). Solar.com reports buyouts are usually not available in the first 5 to 6 years because of tax-equity rules, although a prepayment at net present value may be offered.
- End of term. You can typically buy the system, renew (often at reduced rates) or have it removed at no cost.
- Early termination. Termination fees and procedures vary. Ask for the exact formula in writing.
Our guide to solar lease buyout covers how buyout prices get set.
The tax credit under a PPA
The federal 25D credit for homeowner-owned systems ended for expenditures after 2025. Under a PPA the provider owns the system and may claim the commercial Section 48E credit if it meets the deadlines; you do not claim it. EnergySage says providers should pass the value to you through lower rates, so ask how they do that. Without a clear answer, assume you are paying for the provider's margin.
Clauses to check before you sign
- Starting rate, escalator and year-by-year schedule.
- Production guarantee and compensation method.
- Who handles repairs, inverter replacement and monitoring, and the response time.
- Roof work: who pays to detach and reinstall if you replace the roof.
- Transfer process and buyout timing and formula.
- Whether the provider can sell the contract to another company, and whether you will be notified.
- Any lien or fixture filing placed on your property.
Use our solar proposal red flags checklist, and read predatory solar financing for terms that shift risk to you. The New York guide also recommends having an attorney experienced in solar review any agreement before you sign.
A PPA can save money, but only if the escalator and exit terms hold up. Ready to see how your own quote stacks up? Upload your solar quote for a free grade.
Frequently asked questions
What is a solar PPA?
A solar power purchase agreement is a contract where a company owns and maintains solar panels on your property and you pay a per-kWh rate for the electricity they produce, usually for 20 to 25 years. You do not buy the system, and payments change with production.
How does a solar PPA differ from a lease?
With a PPA you pay per kWh produced, so a low-output month costs less. With a lease you pay a fixed monthly amount regardless of output. Both are third-party ownership, and the provider keeps ownership, maintenance duties and the federal business tax credit.
What is a typical solar PPA escalator?
EnergySage reports many agreements raise rates 1% to 3% per year, and recommends low or zero escalators. Because escalators compound, 3% roughly doubles the rate over 25 years. Ask for a written year-by-year rate table before signing.
Can I buy out a solar PPA?
Some agreements allow buyout at fair market value or a contract price, whichever is higher, but buyouts are often unavailable in the first 5 to 6 years because of tax-equity rules. A prepayment at net present value may be offered instead. Get the formula in writing.
What happens to a solar PPA if I sell my house?
You can usually transfer it to the buyer if they pass the provider's credit check, or buy out the system before closing. Buyers can be wary of third-party systems, so review the transfer terms early and talk to your agent and the provider.
Sources
- EnergySage — Solar leases vs. solar PPAs: what's the difference?
- Clean Energy States Alliance and NYSERDA — New York State Homeowner's Guide to Solar Leases, Loans, and PPAs (2016)
- NREL — Homeowners Guide to Leasing a Solar Electric System (2014)
- Solar.com — Selling a home with leased solar panels
- EnergySage — Federal solar tax credit in 2026