SOLAR CONTRACTS EXPLAINED
A solar power purchase agreement may sound like a great deal — but the details matter. Here's what a PPA really means, how it compares to other options, and what to do if you're stuck in one.
Get a Free Contract Review →Published March 28, 2026 · Not legal advice · Our methodology
Solar power purchase agreements (PPAs) are one of the most common — and most misunderstood — types of residential solar contracts. If a solar company recently pitched you a PPA, or if you're already locked into one and wondering what you actually signed, this guide covers everything you need to know.
In This Guide
A solar power purchase agreement — commonly called a solar PPA — is a financial arrangement where a third-party solar company installs solar panels on your roof and sells you the electricity those panels produce at a predetermined rate per kilowatt-hour (kWh). The key distinction from buying solar panels is that you do not own the equipment. The solar company retains ownership of the panels, the inverter, and all associated hardware throughout the life of the contract.
In simpler terms, instead of paying your utility company for electricity, you're paying a solar company for the electricity generated on your roof. The PPA rate is typically set below the local utility rate at the time of signing, which is how the company presents the arrangement as a savings opportunity.
Solar PPAs generally have contract terms of 20 to 25 years, making them one of the longest consumer commitments most homeowners will ever sign. This is not inherently problematic, but it does mean that the decision deserves careful consideration — particularly given that energy markets, your personal situation, and your home may change significantly over two decades.
Solar PPAs are offered primarily by large national solar companies and third-party financing entities. Some of the most common PPA providers in the residential market have included companies like Sunrun, Sunnova, and various regional providers. The solar company typically handles installation, maintenance, and system monitoring since they own the equipment.
It's worth noting that not all states allow residential solar PPAs. As of our research, some states restrict or do not permit PPA arrangements for residential customers due to utility regulations. Check your state's specific laws before assuming a PPA is available in your area. See solar laws by state →
Understanding the mechanics of a solar PPA can help you evaluate whether the arrangement is right for your situation — or whether you may want to explore alternatives.
Key point: Under a PPA, you are not buying solar panels — you are buying electricity. You will typically have two energy bills: one to the solar company for the power your panels produce, and one to the utility for any additional electricity you need. The combined total should generally be less than what you'd pay the utility alone, but this depends on the PPA rate, escalator terms, and your actual energy usage.
Unlike a solar lease (which has a fixed monthly payment), PPA payments are variable because they're based on actual electricity production. Your bill will typically be higher in sunny summer months when the panels produce more electricity, and lower in darker winter months.
Most PPA contracts set an initial per-kWh rate — for example, $0.12 per kWh — and many include an annual escalator clause that increases that rate by a fixed percentage each year (commonly 1% to 3%). We'll discuss escalators in detail below, as they significantly impact the total cost of the agreement.
One of the most common sources of confusion in the solar industry is the difference between PPAs, leases, and purchases. Here's how they compare:
| Feature | Purchase/Loan | Lease | PPA |
|---|---|---|---|
| You own the panels | Yes | No | No |
| Federal tax credit | You claim | Company claims | Company claims |
| Payment structure | Fixed loan payment | Fixed monthly | Per kWh (variable) |
| Maintenance | Your responsibility | Company handles | Company handles |
| UCC lien filed | Sometimes | Typically | Typically |
| Complicates home sale | Rarely | Often | Often |
| Typical term | 10-25 years | 20-25 years | 20-25 years |
A common complaint from homeowners is that the solar salesperson described a PPA as if they were "buying" or "owning" the panels. If the salesperson told you that you'd own the system, but your contract says "power purchase agreement," this is a material misrepresentation that may give you grounds for contract rescission. Learn about solar scam warning signs →
Escalator clauses are one of the most important — and most frequently overlooked — elements of solar PPA contracts. An escalator clause automatically increases your per-kWh rate by a fixed percentage each year.
If your PPA starts at $0.12/kWh with a 2.9% annual escalator:
By year 25, you'd be paying more than double your starting rate. For a system producing 10,000 kWh per year, that's the difference between $1,200 annually (year 1) and approximately $2,500 annually (year 25).
Important consideration: The escalator works in your favor only if utility rates increase at an equal or higher rate. If utility rates rise more slowly than your escalator — which has happened in many markets — your PPA payments could eventually exceed what you'd pay the utility company. At that point, the PPA is costing you money rather than saving it.
To understand the true cost of a PPA, you need to calculate the total payments over the entire contract term, including escalation. Many solar salespeople focus on the first-year rate and monthly savings. In our assessment, it's essential to look at the full picture:
Wondering if your solar PPA is costing you more than it should? Get a free contract review.
Like any financial arrangement, solar PPAs have genuine advantages and significant drawbacks. Here's an honest assessment based on our research:
One aspect of solar PPAs that catches many homeowners by surprise is the UCC (Uniform Commercial Code) financing statement — commonly called a UCC lien — that the solar company files after installation.
A UCC-1 filing is a legal document that the solar company files with your state's Secretary of State to publicly establish their ownership interest in the solar equipment on your property. Since the panels are physically attached to your roof but owned by the company, this filing protects their investment.
While a UCC lien is technically not a lien on your home (it's a lien on the equipment), it appears during title searches and can cause confusion and delays when selling or refinancing your property. In some cases, title companies have required the UCC lien to be resolved before closing.
Complete guide: What is a UCC lien on solar panels? →
If you're considering selling your home or may sell within the PPA term, this is an important consideration. When you sell a home with an active solar PPA, you generally have three options:
Real estate impact: Based on our research, some real estate agents and buyers report that a solar PPA (or lease) can delay or complicate home sales. Buyers may negotiate a lower price to offset the obligation, or may walk away from the deal entirely. If you're planning to sell your home within the next 5-10 years, consider this carefully before entering a PPA. Full guide: Selling a home with solar →
If you're already in a solar PPA and want to exit, the path forward depends on your specific circumstances. Here are the most common options, based on our research:
If you signed your PPA within the last few days, you may still be within your state's cooling-off period (typically 3 business days for contracts signed at your home via door-to-door sales). During this window, you can cancel for any reason by sending written notice. Check your state's cooling-off period →
Most PPA contracts include a buyout provision that allows you to purchase the system and end the agreement. The buyout price is usually based on the fair market value of the equipment or the remaining contract value — whichever the contract specifies.
In some cases, you may be able to negotiate with the solar company for a reduced buyout or early termination, particularly if you can demonstrate that the system isn't performing as promised or if there were issues with the sales process.
If the solar company or salesperson made material misrepresentations during the sales process — such as telling you that you'd own the panels, or making false promises about savings — you may have legal grounds for contract rescission. This is a legal process that typically requires professional assistance. Find a solar panel lawyer →
If you're selling your home, transferring the PPA to the buyer is often the simplest option — though it requires the buyer's agreement and qualification.
Read our complete Solar PPA Exit Guide →
How to get out of a solar panel contract →
Important: We do not advise homeowners to stop making payments or breach contractual obligations. Defaulting on a PPA can have serious financial and legal consequences, including damage to your credit score. Instead, explore the legitimate exit options described above and consult a qualified attorney before taking action. Results vary by individual situation.
If you're evaluating a solar PPA — or reviewing one you've already signed — watch for these potential issues:
7 warning signs of a solar panel scam →
A solar power purchase agreement (PPA) is a contract where a solar company installs panels on your roof and you agree to buy the electricity they produce at a set rate per kilowatt-hour. You do not own the panels — the solar company does. The agreement typically lasts 20-25 years, and you pay only for the power generated rather than a fixed monthly lease payment.
With a solar lease, you pay a fixed monthly amount regardless of how much electricity the panels produce. With a PPA, you pay a per-kilowatt-hour rate for the actual electricity generated. In both cases, the solar company owns the equipment. PPAs may result in variable monthly payments since production fluctuates seasonally, while leases offer predictable fixed payments.
Exiting a solar PPA can be challenging but is possible in certain circumstances. Options may include exercising the cooling-off period (typically 3 business days for door-to-door sales), negotiating a buyout with the solar company, transferring the PPA to a new homeowner if you sell, or pursuing contract rescission if there were material misrepresentations during the sale. Consult a qualified attorney to understand your specific options. See our full exit guide →
Many solar PPAs include annual escalator clauses that increase your per-kWh rate by 1-3% each year. This means your payments will generally increase over time. Some PPAs offer fixed rates with no escalator. It's important to calculate the total cost over the full 20-25 year term, including any escalation, to determine whether the PPA will actually save you money compared to utility rates.
A solar PPA can complicate a home sale because the agreement typically needs to be transferred to the new buyer, who must qualify and agree to the terms. Some buyers may be reluctant to assume a 20-25 year obligation. Additionally, the solar company may file a UCC lien on the equipment, which can appear during a title search and cause confusion or delays during the sale process. Learn more about selling with solar →
Under most solar PPAs, the solar company is responsible for system maintenance, repairs, and monitoring since they own the equipment. This is generally considered one of the advantages of a PPA over purchasing. However, it's important to read your specific contract carefully, as terms can vary between providers regarding response times, covered repairs, and what happens if the system underperforms.
Get a free contract review to understand your PPA terms and explore your exit options.
Disclaimer: This article is for informational purposes only and is not legal advice. Results vary by individual situation. We do not advise homeowners to stop making payments or breach contractual obligations. SolarPanelExit.com and TRU Solar Cancellation share common ownership. Consult a qualified attorney before taking legal action. See our Ownership Disclosure, Advertiser Disclosure, and Methodology.