Solar Financing: Cash vs Loan vs Lease vs PPA

The four options

• Cash purchase. You write a check for the full installed cost. You own the system, you claim the 30% federal 25D credit, you keep all production value, you handle warranty claims with the installer directly.
• Solar loan. You borrow at fixed rate (5-10% typical in 2026) for 10-25 years. You still own the system, claim the 25D credit, and keep production value. The loan reduces your upfront cash to zero but adds finance charges.
• Solar lease. A third-party (Sunrun, Sunnova, SunPower Capital) owns the system; you pay a fixed monthly lease for 20-25 years. They claim the 25D credit. You get the electricity, but typically with annual escalators (2-3%/yr).
• Power Purchase Agreement (PPA). Similar to lease but you pay per-kWh produced (e.g., $0.16/kWh) rather than a flat monthly fee. Third-party owns, claims 25D, handles maintenance.

25-year cost comparison (concrete example)

7 kW system, $22,000 gross installed, $0.16/kWh utility rate with 2.5%/yr escalation, Massachusetts, placed in service after 2025-12-31 (no 25D):

• Cash: $22,000 upfront. No federal credit (expired). 25-year electricity bill displaced: ~$35,000. Net 25-year savings: $13,000.
• Solar loan (7% for 15 years): $0 upfront. Total loan payments: ~$35,500. No federal credit. 25-year electricity displaced: $35,000. Net 25-year savings: ~-$500 (loan finance charges eat the displacement value).
• Solar lease ($75/mo with 2.5% escalator): $0 upfront. 25-year payments: ~$30,000. No 25D for homeowner. 25-year electricity displaced: $35,000. Net 25-year savings: $5,000.
• PPA ($0.13/kWh with 2.9% escalator): $0 upfront. 25-year payments based on production: ~$28,500. No 25D for homeowner. Electricity displaced: $35,000. Net 25-year savings: $6,500.

Cash wins by a wide margin if you have the capital. Loan wins meaningfully if you don’t. Lease and PPA make economic sense only when you can’t use the 25D credit (low tax liability, very high income with AMT, or no upfront capital and no loan access).

Who claims the federal 25D credit

• Cash and loan: homeowner. You file IRS Form 5695 the year the system is placed in service (received Permission to Operate). Credit was 30% of cost for systems placed in service 2022-2025; OBBBA terminated 25D for property placed in service after 2025-12-31.
• Lease and PPA: third-party owner. You typically see this reflected indirectly in slightly lower payments — they monetize the credit and share some of the value with you.

Practical implication: if your tax liability is too low to use the 25D credit (retired, low-income, etc.), the credit carries forward to future years for cash/loan ownership. If carry-forward doesn’t close the gap, lease/PPA may be more accessible.

What happens when you sell the house

• Cash / loan-paid-off: system stays with the house, increases value (Zillow research: +4-6% home value uplift from owned solar). Buyer inherits the warranty and production.
• Loan with balance: you can roll the loan into your mortgage payoff, or assign to buyer if they qualify and want it. Lenders often allow this; some don’t.
• Lease: buyer assumes the lease (most commonly), or you buy out the lease at closing (typically a discounted price after year 5). This complicates the sale — some buyers walk because of lease terms.
• PPA: similar to lease — buyer assumes the PPA contract or you buy out at closing. A subset of buyers and lenders react negatively to inherited PPAs.

Owned (cash or loan-paid) solar is a clear positive at sale. Lease and PPA introduce contract complexity that occasionally kills deals. Plan ahead if you might sell within 10 years.

Sales pressure red flags

Door-knocker sales operations heavily push leases and PPAs because their commission is higher and the contract obligation is easier to close (no large upfront ask). Watch for:

• "You won’t qualify for the tax credit" with no analysis of your actual tax situation. Often a steering tactic toward lease.
• "This system pays for itself." The system pays for the installer’s commission; whether it pays for you depends on the financing.
• Same-day signature pressure. Walk. Reputable installers give 30 days.
• "Free solar" or "$0 down." These phrases almost always mean lease or PPA, not free.
• Escalator rate that compounds higher than expected utility-rate inflation (3%+). A lease with 3.5% annual escalator and 1.5% real utility inflation guarantees you pay more for solar than you would have for utility power by year 12-15.

Recommendation

For homeowners with the capital and tax liability: cash. The 30% federal credit returns to you, no finance charges, simplest exit at home sale.

For homeowners without capital: a solar loan at <8% APR with the federal credit applied to principal in year 1. Stay with the loan as long as the rate is favorable; refinance if rates drop.

Lease or PPA only when you genuinely cannot use the tax credit (very low tax liability with no carry-forward path) and have no loan access. Read the escalator carefully and have a real estate professional review impact on future home sale.