Solar Lease vs Buy vs PPA: The Real Math for 2026

In 2026 there are three ways to get solar panels on your roof: buy the system outright, lease it from a company, or sign a power purchase agreement (PPA) and buy the electricity it produces. Each one changes who owns the equipment, who maintains it, who gets the tax credits, and — most importantly — what you actually pay over 25 years. This article gives you the definitions from the U.S. Treasury's consumer solar guidance, explains what the 2025 law change did to the math, and then hands you a step-by-step framework so you can run the 25-year comparison on your own quotes. Every number below is a labeled EXAMPLE input for you to replace with your own figures — nothing here is presented as a typical price.

The three options, in plain English

The Treasury's consumer solar awareness page defines the three models this way:

Buy

You pay the full cost of the system, you handle its upkeep, and any tax credits were yours to claim. That last part comes with a 2026 caveat: the 25D Residential Clean Energy Credit — the 30% federal credit — is not available for any property placed in service after December 31, 2025, per the IRS. Buying now means paying the full sticker price with no federal credit to soften it.

Lease

A company installs the system on your roof and you sign a long-term contract to use it. The Treasury notes that "under some leases, your monthly payments go up over time," the company handles maintenance, you do not own the system at the end of the term, and the tax credits go to the owner — not you.

PPA (power purchase agreement)

A company installs the system and you buy the power it produces at a price the company sets. Like a lease, you do not automatically own the system at the end, and the tax credits go to the owner, not you.

The common thread for leases and PPAs: a company — not you — owns the equipment, so a company — not you — claims whatever credits exist. Under 2025 law changes, third-party-owned systems may still access commercial solar credits, but IRS guidance is still being finalized. That means any salesperson who tells you the lease or PPA price "includes your tax credit savings" is describing something unsettled. Get any claimed savings in writing — on the contract or in a signed addendum — before you sign.

The escalator: the line that decides lease and PPA deals

Most lease and PPA contracts include an escalator: an annual percentage increase in what you pay. This single number often decides whether a deal saves you money or costs you more than the utility would have. According to EnergySage's 2026 guidance, an escalator above ~3% per year is a red flag; the best offers are ≤1% per year or fixed payments with no escalator at all.

Why it matters so much: compounding over 25 years is brutal. In the worked example below, an EXAMPLE lease starting at $150/month with a 2.9% escalator reaches about $298/month by year 25 — nearly double. If the escalator is not printed in the contract, do not sign until it is.

The 25-year math: a framework for your own quotes

Here is a comparison framework you can reuse with real quotes. The formula is the same regardless of your numbers; only the inputs change. All inputs are EXAMPLE values — replace every one with figures from your actual quotes.

Step 1: Gather your inputs

Input	Example value (replace with yours)
EXAMPLE purchase price, all-in	$24,000
EXAMPLE incentives available to you (post-2025: 25D expired)	$0
EXAMPLE net purchase cost	$24,000
EXAMPLE annual production (from quote)	11,000 kWh
EXAMPLE lease: starting payment, term, escalator	$150/mo, 25 yr, 2.9%/yr escalator
EXAMPLE alternative: fixed lease	$160/mo, 25 yr, 0% escalator
EXAMPLE PPA: starting rate, escalator	$0.16/kWh, 2.9%/yr escalator
EXAMPLE current utility rate	$0.20/kWh
Utility rate growth (ASSUMPTION — pick your own)	3%/yr
Discount rate (ASSUMPTION — reflects the time value of money)	4%/yr
Panel output degradation (ASSUMPTION — pick your own)	0.5%/yr

Step 2: Lease math

Your payment in year t is: Payment(t) = starting monthly payment × 12 × (1 + escalator)^(t−1). With the EXAMPLE inputs, year 1 costs $1,800, year 10 costs about $2,328, and year 25 costs about $3,575. Total nominal cost over 25 years: about $64,800 (EXAMPLE). The fixed-payment EXAMPLE lease totals $48,000 nominal — the escalator adds roughly $16,800 even though the fixed lease starts $10/month higher.

To compare fairly across time, discount future payments to today's dollars: Present value = Σ Payment(t) ÷ (1 + discount rate)^t. At the EXAMPLE 4% discount rate, the escalated lease's present-value cost is about $38,200; the fixed lease is about $30,000.

Step 3: PPA math

Your year-t cost is: Cost(t) = PPA rate × (1 + escalator)^(t−1) × annual kWh. With the EXAMPLE inputs, the year-1 rate of $0.16/kWh rises to about $0.207/kWh in year 10 and $0.318/kWh in year 25. Total nominal cost over 25 years: about $63,300 (EXAMPLE), with a present value of about $37,300.

Compare that against what you'd have paid the utility for the same electricity: EXAMPLE $0.20/kWh growing 3%/yr on 11,000 kWh totals about $80,200 nominal over 25 years, or about $47,200 in present value. So in this EXAMPLE, the PPA saves roughly $9,900 in present-value terms versus buying that power from the grid — if all the assumptions hold.

Step 4: Buy math

Buying is simpler: you pay the EXAMPLE net cost of $24,000 now, and each year's benefit is the utility bill you avoided. The present value of 25 years of avoided bills (with the EXAMPLE 3% utility growth, 4% discount rate, and 0.5% annual panel degradation assumption) is about $44,600 — roughly $20,600 more than the EXAMPLE $24,000 net cost. That is the net present benefit of buying in this EXAMPLE, before maintenance costs.

Step 5: Compare the three

Option (all EXAMPLE inputs)	25-yr cost, present value	25-yr benefit vs. grid
Buy ($24,000 net)	$24,000 paid upfront	≈ $20,600 net present benefit
Lease ($150/mo, 2.9% escalator)	≈ $38,200	25 yrs of solar payments, no ownership
Lease ($160/mo, fixed)	≈ $30,000	25 yrs of solar payments, no ownership
PPA ($0.16/kWh, 2.9% escalator)	≈ $37,300	≈ $9,900 saved vs. EXAMPLE grid bills

Two things to notice. First, the fixed lease beats the escalated lease by about $8,200 in present value despite starting at a higher monthly payment — the escalator is where the money goes. Second, these EXAMPLE results flip easily: raise the EXAMPLE purchase price, lower the EXAMPLE utility rate growth, or raise the discount rate, and the ranking changes. That is exactly why you must run it with your quotes, not ours.

Also note what this framework omits: maintenance costs for owned systems, the value of your roof space, home-sale transfer complications on leases/PPAs, and end-of-term buyout options. Ask each salesperson how their contract handles those four items, in writing.

The 5-question decision checklist

1. Can I afford the full net cost if I buy? With 25D expired for post-2025 installs, the purchase price is the price — no federal credit softens it. Check state and local incentives on DSIRE before deciding the credit picture is zero.
2. What is the escalator, and is it in the contract? Reject anything above ~3%/yr; prefer ≤1%/yr or fixed. If the escalator, fees, or buyout terms are not in the written contract, walk away — this is one of the Treasury's core red flags.
3. Who gets the credits, and how is that priced in? On leases and PPAs the owner claims them. If the salesperson says you're benefiting, get the exact dollar mechanism in writing — 2025 rules changed and IRS guidance is still being finalized.
4. What happens at the end of the term and if I sell my home? Is there a buyout price, a renewal, or removal? Can the contract transfer to a buyer? A lease that complicates your home sale can cost far more than its monthly payment.
5. What production is guaranteed, and what is the remedy? The Treasury advises comparing the minimum power guaranteed and the remedy if it isn't met. A "savings estimate" with no guaranteed kWh and no remedy is a hope, not a promise.

Verified: 2026-10-11 — Treasury definitions of buy/lease/PPA (credits go to the owner on leases and PPAs; "under some leases, your monthly payments go up over time"); IRS rule that 25D is not available for property placed in service after 12/31/2025 per Public Law 119-21 (signed July 4, 2025); EnergySage 2026 escalator guidance (above ~3%/yr is a red flag; best offers ≤1%/yr or fixed). All linked sources opened and confirmed resolving on 2026-10-11.

This article was drafted with AI assistance and reviewed by the site editor.