Third-party ownership (TPO) is a way for homeowners to go solar, without<\/em> spending a lot of money upfront. With TPO, homeowners can still indirectly benefit from federal and state incentives.<\/p>\n\n\n\n This blog outlines everything you need to know about third party ownership: what it is, how the different TPO models work, and how they may benefit you.<\/p>\n\n\n\n With third-party ownership, there are two main options: solar leasing<\/strong>, and power purchase agreements<\/strong>. In both cases, instead of owning the panels yourself, a separate company owns and maintains the solar panel system<\/strong> on your property. The difference between the two is how you pay: with a solar lease, you pay a fixed monthly fee, while with a PPA, you pay per kilowatt-hour for the electricity the system produces.<\/p>\n\n\n\n It\u2019s important not to confuse a solar lease agreement or a PPA with a solar loan<\/strong>. <\/p>\n\n\n\n With any TPO agreement, a third party maintains ownership of the system. With a solar loan, you own the system outright and have to repay the principle, plus interest <\/strong>during the term of the loan.<\/p>\n\n\n\n Just as with a solar loan, there are little to no start up costs and you can benefit from immediate and predictable savings. So, why would a homeowner be interested in a TPO agreement versus a solar loan? The main benefits of a solar lease or a PPA over a solar loan are: <\/p>\n\n\n\n As of 2026, TPO agreements are typically more competitive than they were before. Why?<\/p>\n\n\n\n The 30% federal residential solar tax credit (Residential Clean Energy Credit) expired at the end of 2025<\/a> and is no longer applicable to solar panel systems installed on or after January 1, 2026. <\/p>\n\n\n\n However, a commercial company can still claim<\/em> the federal solar tax credit, and a good TPO contract will pass these savings onto the consumer. Systems placed in service by December 31, 2027<\/strong> via a residential solar lease or Power Purchase Agreement can still qualify for the 30% tax credit.<\/p>\n\n\n\n This is why TPO contracts are now typically more competitive than they were before.<\/p>\n\n\n\n Related to the above, when entering a third party ownership agreement under a PPA or a solar lease agreement, you won’t be eligible for any solar incentives from either the federal or state government. Instead, the tax breaks will go to the company that owns the solar panel system<\/strong>. Most companies do pass these savings onto the consumer, but this can vary. You will want to check this in your contract terms.<\/p>\n\n\n\n Under both types of agreements, a third party owns the solar panels and is responsible for installing<\/strong> and maintaining<\/strong> them. The only real difference is in how your monthly payments for the solar panel system are calculated<\/strong>. <\/p>\n\n\n\n With a solar leasing agreement, you pay a fixed monthly fee. <\/strong>With a Power Purchase Agreement (PPA), what you pay each month depends on the amount of electricity your system produces<\/strong>. You pay more (relative to your production) when your system produces more electricity, and vice versa. <\/p>\n\n\n\n In both cases, you get all the benefits of solar power, without the upfront costs.<\/p>\n\n\n\n Most solar lease agreements and PPAs have a zero-dollar down payment structure, so you pay nothing upfront. But – not always. Some providers offer customized agreements where you can pay an additional amount upfront, in return for lower monthly payments.<\/p>\n\n\n\n A solar lease agreement is often seen as the most straightforward TPO model. A solar lease is a rental agreement between you and a company. Instead of buying solar panels outright, you simply rent a system from a solar company, investor, or utility affiliate.<\/p>\n\n\n\n You pay a set<\/strong> monthly amount to use the system. It doesn\u2019t matter how much electricity the solar panel system produces or how much electricity your household uses, your monthly bill will stay the same<\/strong>.You also have the option to pay upfront for the entire term of a solar lease – this is called a \u2018prepaid lease.\u2019 In this scenario, you are essentially pre-purchasing your electricity in bulk. A prepaid solar lease lets you lock in a fixed cost, but does involve a large upfront payment.<\/p>\n\n\n\n With a solar lease, how much you pay each month depends on the type of system you\u2019re leasing, and the length of the contract term. As a rough estimate, you can expect to pay between $50 to $250 per month.Solar leases can contain an escalator clause, so your rates may go up slightly each year – more on this further down.<\/p>\n\n\n\n With a PPA, how much you pay is based on the amount of electricity your system produces<\/strong> – not<\/em> how much electricity you personally use. <\/p>\n\n\n\n Instead of a flat monthly fee, you pay a fixed price per kilowatt-hour<\/strong> (kWh), which will usually be lower than local utility prices.<\/p>\n\n\n\n Tip:<\/strong> We recommend looking for a PPA rate that is 10% – 30% lower than what your utility company would charge. The savings you are able to secure will depend on your unique circumstances, including: the utility rate in your region, and the solar capacity of your roof.<\/p>\n\n\n\n Because your electricity usage will fluctuate depending on the season, your monthly PPA charges will change throughout the year – unless you have a levelized PPA<\/strong>, which distributes your expected yearly payment equally over the 12 months.And, just like solar leasing agreements, PPA contracts can also contain an escalator clause, so your rates may go up slightly each year under the PPA.<\/p>\n\n\n\n Let\u2019s say you choose a PPA that is charging 12\u00a2 ($0.12)<\/strong> per kWh. Let\u2019s also assume that your local utility charges 16\u00a2 ($0.16)<\/strong> per kWh. If your monthly electricity production was 1,000 kWh, then you\u2019d pay $120 <\/strong>to the third-party, rather than $160 to your utility.<\/p>\n\n\n\n Both solar leases and Power Purchase Agreements can have an escalator clause. An escalator clause is a set percentage by which your rates will increase yearly. Escalator clauses are typically set between 0% and 3%, but can be as high as 5%. <\/p>\n\n\n\n Lower Initial Costs<\/strong>: By including an escalator, the starting price per kWh is lower, making the PPA more accessible at the onset, compared to a PPA without<\/em> an escalator. (In other words, you start saving more on your electricity bill right away).<\/p>\n\n\n\n Predictability<\/strong>: The annual escalator provides a set schedule for price increases, which can be easier for homeowners to plan for than unexpected utility hikes. <\/p>\n\n\n\n Protects the third-party\u2019s margins<\/strong>: The escalator clause also helps the third-party maintain profitability – while still offering the homeowner a low starting rate.<\/p>\n\n\n\n No – you just need to be careful about what your escalator rate is<\/em>. <\/p>\n\n\n\n To put an escalator into perspective: utilities have been increasing their electricity rates rapidly. Historically, this increase has been around 3-5% per year. With factors like data centers and aging electricity infrastructure, this trend is only expected to continue.<\/p>\n\n\n\n If your escalator clause is limited to 2-3%, then your yearly increases will likely be below that of your utility <\/strong>– meaning, your bill will consistently be lower than if you were to be purchasing directly from your utility.<\/p>\n\n\n\n When working with an installer to establish your solar lease or PPA terms, they should be transparent about the escalator clause. <\/p>\n\n\n\n * Tip:<\/strong> Switch Together advises against escalators above 2%. Any TPO offer available through our program will not have an escalator higher than 2%. <\/p>\n\n\n\n To help you understand how an escalator clause works, see our graph below:<\/p>\n\n\n\n Fig.1: Switch Together chart: Utility vs. PPA and solar lease contract rates with and without an escalator.\u00a0 Utility rate:<\/strong> Typically the highest rate – and more importantly, it\u2019s often expected to rise over time as energy costs change.<\/p>\n\n\n\n PPA \/ Lease rate (no escalator):<\/strong> Often starts lower than the utility rate, but the main advantage is price stability<\/strong> – the rate is fixed<\/strong> for the full contract term.<\/p>\n\n\n\n PPA \/ Lease rate (with escalator):<\/strong> Often starts much lower than the utility rate. If the escalator is modest (often around 2\u20133% or less<\/strong>), the comparison against the utility rate can improve over the years.<\/p>\n\n\n\n This depends on whether or not you have net metering and\/or a battery. <\/p>\n\n\n\n Net metering is a billing mechanism<\/strong> that will credit households for the excess electricity their solar panel system produces. If your utility does not <\/strong>credit for excess electricity – either in part or in full – your utility bill will not decrease post-installation as much as it would with <\/em>net metering. <\/p>\n\n\n\n If net metering is not<\/em> available to you, then you may want to consider solar battery storage. Battery storage will capture and store your excess electricity which your home can then use at night. This will reduce your need to buy more expensive electricity from your utility, and increase your savings.Tip: <\/strong>When considering a TPO, be sure to check whether or not your utility\u2019s net metering policy is correctly <\/strong>reflected in your TPO provider\u2019s projected electricity bill savings.<\/strong><\/p>\n\n\n\nWhat is third-party ownership (TPO), and why is it interesting?<\/strong><\/h2>\n\n\n\n
What are the benefits of choosing a TPO agreement versus a solar loan?<\/strong><\/h2>\n\n\n\n
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Why has Third-Party Ownership become more interesting?<\/strong><\/h2>\n\n\n\n
Can households claim any solar incentives?<\/strong><\/h2>\n\n\n\n
What is the difference between a solar leasing agreement and a power purchase agreement?<\/strong><\/h2>\n\n\n\n
Are there really no upfront costs?<\/strong><\/h2>\n\n\n\n
Diving deeper: Breaking into the costs, clauses and specifics of TPOs<\/strong><\/h2>\n\n\n\n
What is a solar lease, and how much do they cost?<\/h2>\n\n\n\n
How much is it to lease solar panels\u200b?<\/strong><\/h2>\n\n\n\n
What are Power Purchase Agreements (PPAs), and how much do they cost?<\/strong><\/h2>\n\n\n\n
PPA Example:<\/strong><\/h2>\n\n\n\n
Escalator clauses<\/strong><\/h2>\n\n\n\n
Why is there an escalator clause?<\/strong><\/h2>\n\n\n\n
Is an escalator clause a bad thing?<\/strong><\/h2>\n\n\n\n
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<\/strong><\/p>\n\n\n\nKey Takeaways: <\/strong><\/h2>\n\n\n\n
Will you benefit from any excess energy produced?<\/strong><\/h2>\n\n\n\n
How long is a solar lease or PPA contract?<\/strong><\/h2>\n\n\n\n